Innovation vs. Ownership: An NFT Story
Non-fungible tokens, NFTs, have revolutionized the way companies, producers, artists, and intellectual property owners monetize their intellectual assets. In this blog you'll learn about NFTs and what this means for music producer and the music industry.
Non-fungible tokens (NFTs) have revolutionized the way companies, producers, artists, and intellectual property owners monetize their intellectual assets. In the world of business, we have seen the economic marketplace go from bartering to coins, to currency backed by gold, to FIAT currency, and now to Cryptocurrency. Some have called Cryptocurrency the greatest invention since the internet, as it remains decentralized and mostly in consumers' hands. So many types of cryptocurrencies have become significantly valuable, with Bitcoin leading the way with over a $1 Trillion Dollar Market Cap.
As the world has been hit with fluctuating markets, a global pandemic, consumer spending changes, and an increase in globalization and connectivity, many people argue that Cryptocurrency and Blockchain are solutions to an ever-expanding list of uncertainties.
However, many people argue that the lack of oversight and the speed at which Cryptocurrency and Blockchain are being adopted makes it hard to analyze the legal aspects of each transaction. With the advent of Non-fungible tokens (NFTs), some would argue that this will only complicate the complexities of ownership of intellectual property and the enforcement of these ownership rights.
According to Cosynd, NFTs, otherwise known as "nifties," are unique tokens used to represent ownership of digital works of art and other collectibles that are transformed into unique, verifiable assets that are easy to trade on the Blockchain.
NFTs have become very popular and according to Christie's sale of the NFT, @beeple's THE FIRST 5000 DAYS, realized $69.3 Million Dollars in March of 2021. However, Christie's ECommerce Conditions stated the following:
(a) You acknowledge that ownership of an NFT carries no rights, express or implied, other than property rights for the lot (specifically, digital artwork tokenized by the NFT). You understand and accept that NFTs are issued by third parties and not by Christie's itself. (b) You acknowledge and agree that there are risks associated with purchasing and holding NFTs. By purchasing, holding, and using NFT, you expressly acknowledge and assume all risks including, but not limited to, risk of losing access to NFT due to loss of private key(s), custodial error or purchaser error, risk of mining attacks, risk of hacking and security weaknesses, risk of unfavorable regulatory intervention in one or more jurisdictions, risks related to token taxation, risk of personal information disclosure, risk of uninsured losses, unanticipated risks, and volatility risks.
As the promise of innovation, growth, and acquisitions of NFTs seem promising, many investors and sellers may have overlooked a very key thing, ownership.
When purchasing traditional art, like Andy Warhol's 1964 Brillo Box, purchase agreements would specify ownership and all the legalities pertaining to the particular piece. This would then further justify the value of the piece.
When purchasing intellectual property, whether it be compositions, sound recordings, or royalty rights, purchase agreements would dictate which rights transferred and which rights remained with the Copyright owner.
However, ownership of the underlying intellectual property within NFTs is something that is potentially being overlooked. When you buy an NFT, do you own that intellectual property? When you sell an NFT, how do you monetize your ownership and capture the value in the purchase price, even though many people still have unfettered access to the NFT? How do you transfer these rights to a potential buyer in the future, or do the rights even transfer?
All of these questions require an understanding of the NFT market. Potential investors and sellers must understand the value of NFTs in the future as opposed to their present value. To ensure that there is future value, investors must make sure the item they purchase is unique, not a duplicate, and is actually owned by them at the time of sale. Sellers must also determine if they will be entitled to a Royalty, as the NFT is sold in perpetuity. Investors and Sellers alike must determine if standard language such as "All sales in the Universe", covers the rights to Royalties where the intellectual property for sale only lives on Blockchain.
All of these questions are key factors in truly determining the value of what you're buying or selling.
Legally speaking, Cryptocurrency, Blockchain, and NFTs will revolutionize how everything is done in the years to come. That is why it is key, in any acquisition, to make sure you are receiving advice from those that specialize in this particular area.
As I always say, your intellectual property, whether created or acquired, is no different than a piece of real estate, and therefore it's always important to have a strong foundation. Contracts are the foundation on which any new venture must be built to remain solid.
As a seller of an NFT, you must have the proper registrations in place, such as copyrights, trademarks, and patents, so that you are protected before and after the sale.
Only time will tell what's in store, but as long as the proper agreements are in place when selling or purchasing NFTs, we could be witnessing a revolution that is more powerful than the internet. And the fortunes of intellectual property owners that are protected could one day exceed $1 Trillion Dollars.