Three-Minute Legal Tips: NFTs

Non-fungible tokens — aka NFTs — are the hottest cryptoassets on the blockchain these
days, and entrepreneurs, artists and corporations are cashing in big.

NFTs run the gamut of digital assets, and consumers are purchasing tokens for everything
from artwork and sports clips to news articles and more. But if these assets are widely
available elsewhere, what is the value of selling, investing and trading as part of this latest
cryptocraze?

To break it all down, Zahr Said, UW Law associate dean for research and faculty
development, takes three minutes to address some of the biggest issues about the market, including motivations for buyers and sellers, copyright considerations and potential pitfalls to keep in mind.

Read the Transcript

Zahr Said: Hi, my name is Zahr Said. I'm associate dean for research and faculty development, University of Washington School of Law.

TMLT: Can you explain what an NFT is?

ZS: NFT, which stands for non-fungible token, is a marker of authenticity that's included with the purchase and sale of certain digital assets. They're a way of using the blockchain ledger to guarantee that an asset that you're buying is authentic and to keep records of transactions. In that sense, it's a unique crypto asset that's linked to an object. It's usually digital like a clip of a song or a section of a highlight from a basketball game or a tweet or a digital article online or a visual art that's produced as a set of digital images.

TMLT: Why would artists want to sell NFTs?

ZS: It allows them to market directly to their audiences or to consumers. It's a really fast way to monetize your work and your ideas. It also cuts out most of the middleman like publishers, recording companies and various other, you know, distributors and so forth in that chain

TMLT: Why would consumers want to buy NFTs?

ZS: You know, for me that's the more puzzling question and if you're a collector of fine art you might buy an NFT in the same way that a collector of fine art previously purchased a permission certificate or a certificate of authenticity with a fancy installation or some very high worth work of art. If you're an investor and you purchase an NFT as a speculative asset and you're betting that's going to appreciate, that also is something that i can understand. In some sense it's harder to understand why someone would purchase an NFT linked to something that's readily available online like a New York Times article or a tweet that anybody can see just with a simple Twitter login. The theory is that NFTs allow an ownership interest but it's not going to allow you to stop anybody else from accessing it or seeing it. So, it's not like an ownership right in the way that we typically understand it. All you own is that certificate of authenticity, that NFT itself. You don't actually own the underlying asset.

TMLT: What copyright issues arise when dealing with NFTs?

ZS: If a work of art is layered or a collage, and a number of them are, that are bundled with NFTs, there may be lots of different rights holders. There's also a risk that people are minting NFTs with works they don't own. But without being the rights holder it's likely that that's infringement. There's also the fact that you can't get certain things through copyright that you can get through using a contract. And it's not really clear yet, because this is a new vehicle, whether NFTs will be parallel with certain copyright permissions and exclusive rights or whether they'll be additional or whether they'll in some ways compete with them. So, there's a lot that hasn't been sorted out yet.

TMLT: What are some potential pitfalls to keep in mind?

ZS: The digital file that contains the work of art that is connected to the token NFT that you're purchasing is stored somewhere and in most cases it's stored through a URL provided by the auction house or the platform where you've bought it. So, if those companies go bust your NFT could implode in value and even beyond that if you're somebody who's ever forgotten where you put a passport or keys to your car. There are some people who worry that they can't find their digital cryptocurrency or their digital, you know, assets and that this could be one of them.