Law in the Internet Society

NFT Art and its effect on Internet Society

-- By TorahikoMasutani - 20 Oct 2021

What is NFT art?

A non-Fungible Token (NFT) is a digital asset (digital token) issued on a blockchain such as Ethereum without alternative possibility; however, it has not been defined in relevant laws and regulations. NFT recently and rapidly attracts many people as it is used for digital arts, and such arts are sold for millions of dollars and more. For instance, Nyan Cat, a 2011-era GIF of a cat with a pop-tart body, sold for nearly $600,000 in February 2021 (Robyn Conti, John Schmidt, What You Need To Know About Non-Fungible Tokens (NFTs) (https://www.forbes.com/advisor/investing/nft-non-fungible-token), May 14, 2021).

Effect of NFT (and NFT Art) to development in digital technologies

Basically, digital data can be copied for free and efficiently, and such feature of digital data has supported growth and innovation in digital (and internet) technology. However, NFT uses blockchain technology and enables the creation of unique and one-of-a-kind “data," and it also allows us to track and report its ownership and transfer history.

At this moment, I do not believe that NFT technology has a substantial impact on digital technologies. NFT only serves the satisfaction of its buyer in a volatile format. However, if NFT comes to be used to trace the transfer history of particular digital data, it may improve our experience in digital assets or deeply hurt the value of digital technologies and hinder their development. Thus, we should carefully observe the influence of NFT in the future.

Legal right to NFT – No Ownership

As NFT is the unique digital data, it is often said that "NFTs enable data ownership" or "NFT holders acquire ownership and copyright of digital art.” If NFT enables us to acquire ownership of digital data, it completely changes our relation of rights in digital (internet) society.

NFT is like a record of a deed for real property; however, the law currently does not treat NFT the same as dealing with real properties (Ali Dhanani and Chris Sabbagh, How Non-fungible Tokens Could Disrupt The Legal Landscape (https://www.law360.com/articles/1365534/how-nonfungible-tokens-could-disrupt-the-legal-landscape), May 24, 2021).

Even with NFT, ownership of digital data is not granted under relevant laws and regulations (at least in the U.S. and Japan). NFT is merely a token issued on a blockchain, and the transfer of NFT does not imply the transfer of rights outside the blockchain, such as digital arts underlying under NFT. Further, it is sometimes unclear what exactly is being transferred when parties trade NFT (Elise Hansen, NFT Craze Generates Slew Of Legal Questions (https://www.lw.com/mediaCoverage/law360-NFT-craze-generates-slew-of-legal-questions), May 24, 2021). Therefore, NFT does not make any difference in the fundamental legal owner relationship of digital art itself. Besides, a creator of digital art has copyright as a creator of real art.

NFT Art and its value – Colloquially No Value?

Uniqueness and Collectability

NFT art is digital art that records the history, etc., of the holder of the digital artwork on a blockchain. However, the artwork or its expression of NFT art itself is not unique and can be digitally reproduced by anyone.

The value of artwork expressed on a physical medium such as canvas is based on the greatness as a work of art and the scarcity of the original work. On the contrary, artworks expressed in digital media are less valuable than real art because anyone can reproduce them without any costs. In the NFT arts transaction, the buyer obtains a "token" that proves he owns the "original" work. However, the artist of such NFT art still retains the copyright ownership of their underlying digital art after he sold his NFT art and can continue to produce and sell copies.

If so, what makes NFT art so expensive? It is said that the collectability of NFT arts establishes the value of NFT arts. It may be true that NFT art is a "collectible," like a real property such as a baseball card signed by a prominent player, or a ballpoint pen used by the President of the United States signing important legislation. However, while the number of “collectible” real property is limited and unique, there is nothing to prevent an artist from creating many NFTs representing the same piece of digital art. Thus, “digital art represented by NFT” may not be unique (Daniel J. Barsky, Non-fungible Tokens and Intellectual Property Law: Key Considerations (https://www.hklaw.com/en/insights/publications/2021/07/non-fungible-tokens-and-intellectual-property-law), July 2021). As stated above, NFT technology itself cannot guarantee the "uniqueness” and “collectability” of NFT arts since certain NFT art is valueless if a number of such underlying art is not limited. We should remember that NFT is not “art” itself but something like a mere record of a deed.

Greatness as a work of art

We also should not forget that the value of artwork is based on both its greatness as a work of art, and its finitude and rarity. Therefore, even if NFT can guarantee that a particular artwork is an on-of-a-kind item, NFT art of valueless digital art has no value. NFT can provide the value of the finitude and rarity of an artwork, but never provide a foundation for greatness as a work of art.

Possibility of NFT and NFT Arts

As mentioned, NFT Art may be colloquially and legally valueless at this moment. However, its characteristic that we can trace the transfer history of such digital data may be helpful to monitor and confirm the dignity of digital data (used as much more accurate “hash”) in its transaction and development. However, such traceability may harm our privacy. Thus, we think carefully when using NFT to trace the transfer history.

Apart from NFT arts, manufacturers may use NFT as a certificate to prove that a certain real item is an official product and weaken the counterfeit market by creating an NFT for each collectible that they sell. It also seems useful if manufacturers can attach NFT to a real item in an inseparable way.

The concept of "legal valuelessness" at the center of this essay is unestbalished. You offer no legal sources: astonishingly, the only source cited is a BBC feature story.

A bitsttream with a digital signature on it is legally worth what someone will pay for it. It's a "collectible," like a baseball signed by a prominent player, or a ballpoint pen used by the President of the United States signing important legislation. If you buy it and then resell for a higher price you owe capital gains tax on the profits.

The route to improvement of the draft is to get to the legal analysis the present draft assumes it doesn't need. The factual presentation can be cut to one paragraph with appropriate links to authoritative sources, leaving room to do the real work.


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r3 - 22 Jan 2022 - 21:54:38 - TorahikoMasutani
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