Written by Andy Rosen, based in California and founder of FileProtected
Non-Fungible Tokens (NFTs) have been around for some time, but it's only been six months since they exploded into the mainstream. Here are a few of my thoughts on the challenges ahead, having been in the entertainment and creative industry in London, UK, and LA, California, now for over 40 years. I founded Fileprotected.com, a blockchain-enabled IP registration and authentication service and OriginContent.com, an NFT studio, as way to address some the challenges I saw from a creative and user perspective.
In late December 2020, after a torturous year of Covid, lockdowns and political unrest all seemed lost for many who worked in the creative industries. The ongoing transition from analogue to digital had already taken its toll on photographers, musicians, directors, producers and many creative businesses; Covid now seemed like the nail in the coffin. Then the universe, or more accurately, the “metaverse", delivered what appeared to be a miracle from the creative gods, or so it seemed. It all began with a relatively unknown digital artist, Beeple. One weekend in December, Beeple took the art world by storm, $3.5 million of his art represented as NFTs sold in one weekend and soon after, another sold for $69 million at the auctioneers, Christie's. In a few short months, he has become the most financially rewarded living artist and perhaps the most well-known. Even Warhol would have been impressed. The Beeple era had arrived.
In the first quarter of 2021, over $2billion of NFTs have now been sold and, in doing so, created a huge amount of press coverage and attention. The current NFT mayhem promises to empower artists, transform the art market, and bring the copyright system up to date. Unfortunately, things have moved so fast; the legal system can't keep up and, consequently, there is a ton of confusion about what precisely an NFT is? Is the seller the legal owner with the right to link an NFT to the work? Who owns what, when an NFT is sold? What rights are granted? Until these questions are answered, the NFT market will be plagued with legal issues and uncertainty. The hard part is how you create a legal framework around a new technology and a major paradigm shift that is still not defined and is still evolving?
But, as with any new market, NFTs face a number of challenges:
Copyright lawyers and attorneys and infringement trolls are already licking their lips as confusion results in lawsuits and big paydays. Attorneys worldwide are working furiously, trying to make copyright law fit NFTs. A big mistake and futile. They never got Copyright correct, and it's been at least 400 years now! Moving forward, a whole new framework is required which complements a digital era, not pre-Internet ownership, licensing, distribution and collection structures. The rise of social media has made matters a little more complex. As Computing.which pointed out: “Post a photo to Facebook or Instagram and yes, you do own it. But Facebook and Instagram have the right to use it in their promotional activities and can transfer or sub-license this right to their partners. To put it another way, it’s your car. But, park it in the Facebook or Instagram garage and you give Facebook or Instagram (and its friends) a spare set of keys and the right to go for a drive whenever it likes.” Thus, you can see the need to ensure that you have proof and have registered your IP before you post on social media, so you can prove you own the IP and did not take the IP from a social media site!
Although blockchain technology brings a lot to the table, it is not a magic bullet. Registering an NFT doesn't prove ownership; it is just a claim that the minter writes. How do you know that the work being represented is authentic and the seller is the owner? A good start would be to record the creation origin point and the history from concept to NFT using the blockchain. One central, trusted, updatable record for the life of the NFT. Think of it as a passport of sorts; it travels with the NFT. The metadata and a link to the file become part of the smart contract and can be independently authenticated by the viewer.
There is a lot of confusion on what rights are transferred with an NFT sale. An NFT is simply metadata registered on the blockchain and, in most cases, linked to the origin file via a URL to view or download. When you purchase an NFT, you are only receiving a small string of code representing the file. It's nothing more than a digital receipt and immutable proof that you own a signed version of something, not the actual art itself. It's essential to understand the difference between ownership of an NFT as a unique token and ownership of the content with which the NFT is associated. Unless legally defined, when an NFT is sold, the legal rights only govern the ownership of the token and not the IP rights. Legal agreements have to be part of an NFT sale to clearly define the rights granted to the buyer and to reduce misunderstandings and costly legal spats.
The NFT marketplaces must also play a significant role in authentication. Stricter methods are needed to identify people's identities before opening an account and to be able to mint an NFT. Currently, the NFT marketplace is fragmented. There is no standard. It should be seamless to move a token from one marketplace to another without losing features or breaking the smart contract. For instance, currently there is no guarantee that secondary sales will follow if you move an NFT to a different platform. This is because the payment is often separated from the on-chain ERC-721 standard ownership functions when NFTs are moved to another platform. To solve this problem, payments have to be more integrated with the transfer process. This will result in a more cohesive marketplace where buyers can seamlessly navigate across an aggregated global network of NFTs and discover, buy, and sell across all marketplaces.
Multiple tokens for the same work
Due to the lack of interoperability between marketplaces, there is nothing to stop the same work from being minted and listed multiple times on different marketplaces. This could be solved with platforms like TheGraph.com, an indexing protocol for querying networks like Ethereum and IPFS. The marketplaces, independent buyer and sellers could run a search to ensure there are no duplicates.
Currently, an NFT will link to a file, whether it's art or music off-chain, using either hosted or decentralized storage, IPFS. Either way, storage over time could fail or be degraded and, in turn, render the NFT worthless. There is no simple solution; even if you solve it in the short term, how do you ensure the link will exist 50 years down the road? Perhaps an NFT ‘tax’ is subtracted from each sale to fund a non-profit storage solution. Another issue is a lack of standards for viewing and working with more complex file types, like AI, VR, and AR.
It has become a whole lot easier to share one’s photos, articles, blogs songs, videos (e.g., creative intellectual property) which, at one level, is great as it is now more accessible to reach a global audience. However, the downside is that unless you are able to prove it was you that created the IP, or you are the owner, it makes it very difficult to pursue someone or an organisation for IP infringement. As we see NFTs become a bigger and bigger market, having your IP protected and registered before you buy or sell an NFT is going to become more and more important.
This article first appeared in Digital Bytes (30th of June), a weekly newsletter by Jonny Fry of Team Blockchain.