Non-fungible tokens (NFTs) and copyright

• Author: Andres Guadamuz
• Position: Senior Lecturer in Intellectual Property Law, University of Sussex, United Kingdom

There is widespread confusion surrounding the rights that buyers acquire when they purchase an NFT. Some think they acquire the underlying work of art, and all its accompanying rights, but, in reality, they are simply buying the metadata associated with the work; not the work itself. (Photo: sjscreens / Alamy Stock Photo)

Twitter’s CEO Jack Dorsey sold an NFT of his first tweet for the equivalent of USD 2.5 million. The NBA had been selling NBA Top Shots, “unique” NFTs of NBA moments, the value of which has exploded. An NFT of a collage of works by digital artist Beeple was auctioned at Christie’s and sold to another crypto entrepreneur for the eye-watering sum of almost USD 70 million. Old memes have been selling at auction as well, with the famous meme of Nyan Cat, an animated colourful cat whose body is in the shape of a pop tart, selling for 300 ETH (the cryptocurrency generated by the Ethereum protocol), over USD 1 million at the time of writing. Musician Grimes has also reportedly sold over USD 6 million worth of digital artworks.

What is going on? What are NFTs? And what does copyright have to do with it?

In 2021, NFTs have taken the art and tech worlds by storm.

NFT basics

First, what is an NFT? One of the most heralded uses of blockchain technology is the tokenization of assets, where a token is a programmable digital unit of value that is recorded on a digital ledger. There are various types of tokens; they can represent anything from commodities and loyalty points, to shares, coins, and more.

While there are many different types of token standards, the most popular is found in the Ethereum infrastructure, which deploys tokens using the ERC20 standard, which sets the rules for fungible tokens. Fungible goods are by definition exchangeable regardless of the specific item you’re selling or buying. Commodities tend to be fungible: silver, gold, oil, grain. Conversely, non-fungible goods are unique one-offs, like a custom-made silver necklace, or golden statuette, or a painting. Non-fungible goods use a different token standard, known as ERC-721.

Any digital work, including physical goods, which can be represented in digital form, such as a photo, video or a scan, can be turned into a non-fungible token.

The first use of the NFT standard in the Ethereum environment was a set of pixelated images of characters called Cryptopunks, and was released in June 2017. In the intervening years, other types of works have been turned into NFTs, including memes, music albums, and digital art.

Anything that can be digitized can be turned into an NFT.

There are various types of NFTs, but the most common is a metadata file containing information encoded with a digital version of the work that is being tokenized. The other type is where the entire work is uploaded to the blockchain; these are less common as it is expensive to upload information to the blockchain.

The most common type of NFT is a piece of code that is written into the blockchain. That code is made up of various bits of information. The ERC-721 standard for NFTs specifies elements that must be present, and some that are optional. The first core element of an NFT is a number known as the tokenID, which is generated upon the creation of the token; the second is the contract address, a blockchain address that can be viewed everywhere in the world using a blockchain scanner. The combination of elements contained in the token make it unique; only one token in the world exists with that combination of tokenID and contract address. At its very core, the NFT is simply these two numbers. However, there...