About the author:
Michael Pokrachynskyi works in the trade mark team at Appleyard Lees, helping a wide range of businesses, from start-ups to large corporations, to protect, commercialise and increase the value and identity of their brands. As a trainee trade mark attorney, Michael is engaged in a wide range of IP work, from technical tasks concerning trade marks and design registrations to more academic work related to the law of passing off and the law of copyright.
We all live in the unique and unprecedented era of the prosperous digital world. This means that, more than ever, we consume, create, trade and interact commercially in many ways with a variety of digital products. This trend is on the rise. Take for instance cryptocurrencies, that until recently seemed like an ambiguous currency used by specific groups of people; well, not anymore. Soon the UK Central Bank Digital Currency (CBDC) will hold a consultation, as part of the UK taking its first steps towards creating its own digital money.
Many forms of digital data are exceptionally vulnerable, due to the ease with which they can be copied. From a legal perspective, the online world, along with its global participants, more than ever requires appropriate copyright laws. Non-Fungible Tokens (NFT) may be the answer.
What is an NFT?
An NFT provides verification of a digital product through blockchain technology. NFTs are a unique method of identifying information, recorded in smart contracts. Put simply, an NFT is a publicly verified digital record of ownership that is ‘non-fungible’ – it cannot be replaced or replicated, hence totally unique. Sounds incredible! But why do we actually need one and why is there so much “noise” around it?
What is the benefit of an NFT?
The use of NFT technology could provide a concrete solution to the vulnerability of digital data, as it enables non-physical products to be recognised, meaning that the authenticity of digital products can now be verified and ultimately protected. NFT technology provides a contemporary, effective and popular way to commercialise digital products across the globe, while maintaining the unique identity of digital creations.
The recent popularity of NFTs is in part due to its recent adoption by celebrities and influencers. High-profile instances of NFT usage have included:
- The transaction by Twitter’s CEO J. Dorsey, who sold his very first tweet – “” just setting up my twttr” – as a form of NFT for around £2.1 million
- A recent collaboration of Paris Hilton and designer Blake Kathryn: “Hummingbird in My Metaverse,” “Legend of Love,” and “Iconic Crypto Queen”, where all three featured unique NFTs
- TA creation by digital artist ‘Beeple’ (Mike Winkelmann), “Everydays – The First 5000 Days”, sold at almost £52 million at auction, starting a global polemic over the future of digital art
Although, not much luck so far for Quentin Tarantino, who is struggling to sell some iconic Pulp Fiction scenes as NFTs due to a recent objection from Miramax, who claim to be the owners of the original work.
Despite warnings from The Financial Conduct Authority that there is no guarantee for investors that NFTs can be converted back into cash, there seems to be a sturdy trend among start-ups and bigger platforms, that sell NFTs, to invest in this innovation. For instance, the platform Nifty Gateway that sells digital art, or Mintable, which offers a variety of NFTs from music to domain names.
Even the Apple App Store is following the trend with its app, created by InstaCoin, offering to simplify the creation of NFT assets from a user’s social media. The creators of the app have further confirmed full language compatibility with both Chinese and European markets, demonstrating their global ambition.
What are the issues around NFTs?
There are number of legal considerations here, many of which are still ambiguous or unresolved. Some key areas include:
- Copyright law – it is imperative to bear in mind that owners of NFTs have no rights to copyright in the works, as they merely acquire ownership associated with specific copies of the works. NFTs’ owners inter alia have no rights to display copies of the works in public or deal with them to an extent that can amount to public performance. The same rules apply for protection from derogatory treatment for creators – moral rights – which remain with the original author of the copyright work, unless waived.
- Money laundering and taxes – NFT investment is still a grey area for the purposes of financial regulations, as financial institutions both in the UK and US are still struggling to clearly define what NFTs are. Although, some degree of similarity between NFTs and other well-established commodities may suggest that NFTs should fall within the scope of online trading laws as well as attract Capital Gain Tax on gains or losses on disposals of NFTs, and Inheritance Tax when accessing NFTs on death of the owners. NFTs remain unregulated at present.
NFTs are likely to impact many areas of law from contracts, trusts and probate to cybersecurity, data protection and the law of privacy, all of which will be tested, and may have to evolve, as the popularity of the technology grows.
Hype or reality?
In the near future, it’s highly likely that most of us will end up dealing with digital products on a daily basis, whether purchasing media, software or art online, or perhaps even acquiring property in virtual reality cities or buying virtual clothes for our avatars, for work, play or socialising in the metaverse. NFTs may soon play a large role in how we commercialise these digital products, although as things currently stand, we are a long way from fully understanding how this evolving technology will interact with the current legal environment.