The Capital
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The Capital

NFTs: What Do You Really Own?

Tim Berners-Lee’s original source code for the World Wide Web is being auctioned by Sotheby’s as an NFT with a starting price of $1,000. Yeah, right! That is like offering Manhattan for a starting price of $25, $1 more than what the Dutch paid. NFTs are heating up in breadth and depth and this is just the beginning.

The hyper-exclusive Limited Edition Colnago NFT
Crankset — but not just any crankset. Campy Super Record. I am not worthy.

Have NFTs reached the crazy era yet?

I have a passion for things on two wheels or four legs, and I have to admit that this Colnago NFT is special, but only because I can’t imagine the hernias people will get when they find out how much one actually paid for mere bragging rights. Have we become that vain?

What do you own when you buy an NFT?

When you buy an NFT, you hold the right to claim ownership of the NFT itself and the right to exclude others from claiming ownership of the NFT. Beyond that, it will depend on whatever terms govern the NFT, which has to be clearly stipulated in the NFT’s smartcontract.

Who is the Author?

In the simple and most cases, that is where an individual independently creates a piece of digital artwork or music, the said individual is the author. But there are scenarios where the works are created throug

Who owns the Copyrights?

Copyrights are the crown jewels of intellectual property (IP) ownership. Its protection is granted to the creators of original works of authorship such as literary works (including computer programs, tables and compilations including computer databases which may be expressed in words, codes, and schemes or in any other form, including a machine readable medium), dramatic, musical and artistic works, cinematographic films and sound recordings.

Can Copyrights be Transferred

The author is free to transfer ownership of the copyright, but to do so, the transfer must be in writing and signed by the copyright owner. Until that happens, the author retains the copyright. The same rules apply to subsequent copyright owners. How to implement copyright’s “signed writing” requirement in the context of the blockchain — with digital wallets and absolute anonymity — is a wonderful question.

Viewing the NFT Smartcontract

I don’t think many NFT holders have ever viewed the NFT smartcontract. It is not difficult to do as ALL NFTs will have a contract address which is immuatable along wth the contents of the smartcontract which resides in the address. If you do own an NFT, I would encourage you, as an interesting exercise, to examine and walk through the NFT’s smartcontract. Similarly you can go through the exercise of examining smartcontracts listed in the OpenSea marketplace. Below is an example.

1- Details section from NFT marketplace — View the Contract Address
2- Click on Contract tab to view the smartcontract code

Other IP and legal issues raised by NFTs?

NFT development is running at breakneck speeds. Here are other issues that I envision that will be raised — in no particular order:

  • What are implications of the unauthorized tokenization of trademarked goods and services?
  • In case of violation of license terms and contractual restrictions surrounding an NFT, what legal remedies or reliefs will be available?
  • Does a licensee of an existing work need to go back to the licensor to acquire additional or different rights to create an NFT in connection with the work, or does the existing license cover the use?
  • How do you design NFT projects to comply with existing laws and regulations, such as auction laws, tax laws, securities regulations, anti-money laundering statutes?
  • What rights and remedies does an NFT owner have, and against whom, if the underlying asset disappears or changes?

Conclusion

If the NFT is going to mature into a bona fide business instead of a fad, the legal framework and issues will have to be thoroughly vetted. The courts will have to eventually rule and decide on how existing laws will be interpreted should conflicts arise as NFT development is pushing the envelope of both technology and the edges of lunacy, such as the Colnago “bike”, or the first deleted ever deleted tweet? Which raises the question: what if Jack Dorsey were to delete his first ever tweet which was recently auctioned off as an NFT? Can he even do legally do that now?

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Edward Wong

Co-founder QuantDart. Co-founder Shanghai Futures Exchange. Former Treasury Architect at the Federal Reserve. World Champion Spicy Eater. Cat lady.