NFT: a new cryptoasset

Bruchou & Funes de Rioja - April 14, 2021
Intellectual Property, Privacy, New Technologies and Legal Advertising

What is an NFT?

From a technical point of view, a non-fungible token (“NFT”) is a unit of data in a digital ledger where each NFT represents a single item. NFTs implement blockchain technology to record ownership over an object and validate its authenticity. In recent months, NFTs have been vigorously incorporated into the crypto ecosystem and today thousands of digital items are certified through NFTs and traded on specialized marketplaces. Unlike cryptocurrencies, which are identical to each other and worth the same, each NFT is unique – hence non-fungible.


What is an NFT used for?

NFTs can be used to validate all kinds of digital creations, from artworks and literary pieces to video game items and soundtracks. Similar to notarial deeds or certain entries in public records, NFTs are proof of ownership of a digital object. Their use does not prevent a third party from actually gaining access to a copy of the item -just as a title to real estate does not prevent an intruder from entering. However, the NFT gives the owner of the original a technical means to prove ownership.


Are NFTs trusted assets?

NFTs are highly reliable cryptographic certificates to prove both the authenticity of a digital object and the ownership of that object. However, in recent times a trading market has grown in which NFTs are bought and sold as financial assets.

Some specialists believe that NFT can radically transform the art market. In fact, the term NFT gained public awareness in March this year, when a visual artist named Beeple sold “Everydays: the First 5000 Days,” a digital collage of images, for USD 69.3 at auction. According to qualified sources, it was the third highest price ever paid at auction for a work by a living artist. And this is just one of many transactions that have taken place in recent weeks. Recently – to give another example – Jack Dorsey, the CEO of Twitter, sold a certified version of his first tweet for more than USD 2.9 million. It is surprising that a digital copy of a tweet – which is accessible to everyone – could sell for such a value.

In the specialized press, some believe that the NFT market is highly speculative and will soon burst like any financial bubble. Many of the NFTs are completely abstract: they are mere digital copies and do not secure any kind of property rights over an existing object. Other experts point out that NFTs, like any commodity, have value because people buy them. According to the latter, there would be no major difference between an NFT and any collectible item. Like works of art or antiques, NFTs would have value because people are willing to buy them.


Do NFTs only serve to authenticate ownership of digital objects?

For many years, it has been considered that blockchain technology could have many possible uses. Some of them are precisely related to the authentication of ownership no longer on digital objects, but on real objects. Enthusiasts of the innovation consider that in the future notaries and public registries will no longer be necessary because it will be possible to issue NFTs certifying all property rights, whether on tangible or intangible goods.

Other more cautious voices warn that while blockchain can authenticate the chain of title, there may be misrepresentations or errors in the original chain entry. In those cases, NFTs will simply confirm and perpetuate the falsehood.


Can an NFT transfer copyright?

It is important to distinguish between ownership of an NFT and copyright ownership. NFTs are transferred by means of smart contracts. As with all copyright assignment contracts, ownership of rights will only transfer if the assignor and assignee expressly provide for it. In the absence of express terms, ownership of an NFT will not confer intellectual property rights. In that sense, NFTs may represent a certified copy of a digital item without conferring any copyright in that object. In the example we gave above of Jack Dorsey’s first tweet, the NFT transferred ownership over a certified, collectible copy of that tweet – however, it did not grant intellectual property rights over it as if it were a written work.


In short, what is an NFT really for?

NFTs are digital property titles. They can contain certified representations, collectible versions, of certain objects – such as a copy of a tweet, a song, a work of art – or they can grant material rights to those objects – copyright or even rights over real state. They are presumed to have value because they are digitally unique. Although anyone can copy and download video clips or image files, the NFT is on record as having a single owner. Certainly, beyond what happens in the traders’ marketblockchain is a technology that is here to stay. The appeal of a technology that allows transactions and rights to be authenticated without an intermediate authority is obvious. That is why, in the coming months, we may learn about new practical applications of NFTs.