Non-fungible tokens (NFTs) have hit the headlines recently, with sales of of tokens for digital collectibles, such as art by Beeple and Pak, commanding millions of dollars.
But what are NFTs, and where does their value lie?
In reality they are unique records, which use blockchain to register who owns a piece of digital art or a digital collectible. Unlike other blockchain assets, such as cryptocurrency, they are not fungible: they cannot be exchanged. In the digital world, where it’s so easy to reproduce, doctor and disseminate a work, NFTs can guarantee authenticity and, it is argued, preserve value.
IP lawyers are increasingly scrutinising where that value lies. Unless the purchase of a NFT carries with it ownership of, or permission to use, the copyright in the underlying work attached to the NFT, the purchase of the NFT gives no rights to copy or distribute that work. If you are buying a NFT, therefore, it’s crucial to understand what rights - if any - you are acquiring.
Equally as important is understanding whether there are any restrictions or obligations that might limit your access or use, or require you to account to the work’s creator for a percentage of the selling price on an onward NFT sale.
The term “NFT” is often used as a shorthand for a certain kind of blockchain-linked artwork, but it really refers to the digital certificate of authenticity to which these artworks are attached.