NFTs and Copyright

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One of the biggest stories of 2021 in the ever evolving world of distributed ledgers and crypto currencies has been the rise of Non-Fungible Tokens (NFTs). This technological breakthrough has taken the art and tech world by storm. Jack Dorsey, the CEO of famous social media platform twitter sold an NFT of his first tweet for $2.5 million. In another story, an NFT of collage works by digital artist Beeple was sold to a crypto entrepreneur for a whopping $70 million. Other digital works like memes, music albums and NBA clips are being sold on NFTs marketplaces where NFTs can be bought and sold. In this article we understand the relationship between NFTs and copyright.

What is NFT?

A Non-Fungible Token or NFT is a programmable digital unit of value which is recorded on a digital ledger. It is one of the fastest growing uses of blockchain technology. The most popular token standard is found in the Ethereum ecosystem which deploys tokens using the ERC20 standard which sets the rules for these tokens. There are many others ecosystems that run different token standards but Ethereum remains the most popular.

Any kind of digital works and physical objects that can be represented in a digital format such as a photo, video or art can be made into a NFT. There are different types of NFTs, the most commonly used is a piece of code that is written into the blockchain. These codes make up small bits of information. The second type is where the entirety of the work is uploaded on the blockchain, this is less commonly used as uploading information on the blockchain is an expensive affair.

How does Copyright come into the picture?

From the above description of NFTs, it may be hard to imagine any copyright related issues as these tokens are metadata files that have been encoded using a piece of work that may or may not be subject to copyright protection. Although in principle, a NFT of a trademark or any work in public domain can be created. If something be it a digital art or physical goods can be turned into a NFT as long as it can be digitized. The only requirement is the original work to create a unique combination of token ID and contact address.

However, there is some scope of copyright involvement as many of the works that are being turned into NFTs are pieces of work that also have a copyright protection. Moreover, it is still unclear regarding what exactly you get when you buy an NFT.

Are buyers of NFTs spending enormous amounts of money on some metadata files to keep on the blockchain? Because that is what most NFTs are: metadata files on the blockchain.

Let us now understand how copyright can play a role for some NFTS. For instance, a seller could offer to turn the token into an actual transfer of copyright ownership of the original work. At this stage, it is however, hard to say whether a transfer of rights through NFTs would comply with the legal formalities required to transfer ownership under the copyright law. In India, copyright can be transferred either by licensing or assignment by making an application to the Registrar of Copyrights in the prescribed form and fees. Thus, it seems difficult for NFT to fulfil these requirements.

There is theory that NFTs can be used in some type of Digital rights management system where they can be seen as a form of registration and blockchain could act as an immutable record ownership claims, determining the authenticity of ownership. However, there are practical problems associated with such a system as anyone with enough technical knowledge can generate new tokens and these tokens can include any information entered by the author. Several artists have also complained about their works being minted as NFTs without their permission leading to several instances of copyright infringement claims. Many of these claims have been resolved as the auction site usually removes these tokens but at some point there might be litigation and the rights of copyright owner would be discussed in relation to NFTs.

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