NFTs are regularly featured in the press, with reports of individual NFTs selling for tens of millions of dollars. Given their high profile and potential value, the notion of purchasing an NFT may be tempting. Before investing, it’s important to understand what an NFT is, what it is not, and the interplay with traditional copyright norms.
What Are NFTs?
An NFT is shorthand for a "Non-Fungible Token," which is a unique token on a blockchain such as Ethereum or Solana. A blockchain is a decentralized digital database in which records of transactions are maintained across multiple computers. The most well-known use of blockchain is for cryptocurrencies, like Bitcoin. Both NFTs and cryptocurrencies are stored on blockchains. The key difference is that cryptocurrencies are fungible, while NFTs are not. NFTs represent ownership of specific rights relating to particular assets such as digital art. You can think of cryptocurrencies like money and an NFT like a deed to a particular house.
The proliferation and sale of NFTs have led to some confusion regarding copyright and especially the rights a buyer obtains -- or does not obtain -- when purchasing an NFT.
Copyright and Copies
Copyright protects original works of authorship fixed in a tangible medium of expression. Copyright protection attaches as soon as a work is “fixed,” i.e. written down on paper, recorded on a computer, painted on a canvas, etc. Registration with the U.S. Copyright Office is not required for copyright to exist, but offers certain important benefits and is a prerequisite to litigation over US works.
The Copyright Act grants five exclusive rights. These include the right to:
Reproduce the copyrighted work
Prepare derivative works based upon the copyrighted work
Distribute copies of the copyrighted work (i.e., selling, renting, leasing, or lending)
Perform the copyrighted work
Display the copyrighted work publicly
Copyright protects the “work,” which is embodied in one or more copies (or, in the case of sound recordings, phonorecords). When you buy a copy of a work, like a book, you do not automatically acquire the copyright in the work. Similarly, when you buy a painting, you own the particular physical object and have the right to display it privately, but you do not automatically have the right to reproduce it or display it publicly. Unless otherwise specified, the copyright owner retains those rights and is free to exploit them, including by making and selling reproductions and derivative works.
Buyer Beware: You Are (Probably) Not Buying Everything You Want
As with a painting, when you buy an NFT for digital art, you are typically not acquiring copyright to the underlying work. Unlike the situation with paintings, when you buy an NFT, you usually get the right to publicly display a digital copy of the work for non-commercial purposes.
As with all works of art, there are many factors that go into the valuation of digital art NFTs, such as the reputation of the artist, the popularity or appeal of the underlying work, the copyright owner’s retained rights, and the scarcity of the NFT and the underlying work. A digital work of art can be one-of-a-kind, part of a limited edition, or part of an open edition. If an NFT is for a one-of-a-kind work, it is a “one of one” that will have no other versions. A “limited edition” has a set number of editions, like the unique yet themed works of digital art known as CryptoPunks: Larvae Labs minted a limited edition of 10,000 CryptoPunks and will not produce any others that would potentially dilute the value of each Punk. Open editions allow the creator to make as many editions as they like, and so are less scarce.
If an NFT includes additional rights, such as the right to make derivative works or commercially display it, the NFT will likely be more valuable. Similarly, an NFT would be more valuable if it conveyed exclusive and/or unlimited rights to the underlying work.
However, such rights are typically not granted in an NFT purchase.
A good example of an NFT with limited rights is NBA Top Shot. A purchaser of an NBA Top Shot NFT obtains limited rights to use, copy and display video media of NBA game highlights for personal, non-commercial use. Purchasers do not own the copyright to the underlying media and are expressly prohibited from commercial use or modifications to create derivative works.
The Big Takeaway
If you are considering purchasing an NFT, it is essential to understand precisely what rights you are acquiring, as well as what rights the author is retaining. As with any intellectual property purchase or license, we recommend consulting with an experienced attorney to ensure you understand exactly what you are buying.