Beyond speculation

How creators and businesses are strengthening their IP through NFTs and blockchain

From Christie’s $69 million sale in March this year of a nonfungible token (NFT) of digital artist Beeple’s “Everydays: The First 5000 Days” to Twitter founder Jack Dorsey’s sale in April of an NFT of his first tweet for $2.9 million to the sales in May of model Emily Ratajkowski’s NFT of her digital photograph titled “Buying Myself Back: A Model for Redistribution” for $175,000 and Kate Moss’s three NFTs “Drive with Kate”, “Sleep with Kate”, and “Walk with Kate” for a total of $32,000, NFTs have been all over the news, mainly on account of the impressively high prices they can command, but also because much about them remains unclear. What an NFT is, what drives its value, and what the purchaser of an NFT may do with it are just three of many questions that can be asked. An NFT, by virtue of its uniqueness, is a means to generate scarcity. In particular, an NFT functions as a collectible, and like any other collectible item such as an artwork or an object previously owned by a famous person, its value rises or falls according to the market’s current estimation of its signaling value as well as the market’s sentiment concerning its resale value in the future. Put differently, the value of an NFT is driven by speculation on the market. However, what ownership of an NFT entails for its holder is a more difficult question.

Owning an NFT of an artist’s work does not allow one to dispose of it however one wishes. In an interview published in Input, Linkin Park’s Mark Shinoda, who is active in the NFT-art/music market, remarks that “There’s nobody who is serious about NFTs who really humors the idea that what you’re selling is the copyright or the master. […] In other words, if you buy an MP3 of a song as an NFT, you don’t own the song. It’s the equivalent of buying a print of a piece of artwork or buying an original piece of artwork. Just because you buy a print of Mickey Mouse doesn’t mean you get to put Mickey Mouse on everything”. Indeed, on Shinoda’s website, he lays out the following NFT terms: “Only limited personal non-commercial use and resale rights in the NFT are granted and you have no right to license, commercially exploit, reproduce, distribute, prepare derivative works, publicly perform, or publicly display the NFT or the music or the artwork therein. All copyright and other rights are reserved and not granted.” In buying the NFT one also agrees to be bound by whatever terms and conditions are set by the creator. If we bracket off for a moment the NFT status of an MP3 sold as an NFT, what we have is simply an MP3 which would provide equivalent use value (here, listening pleasure). The excess value reflected in the price a person is willing to pay for an NFT above the price that an equivalent non-NFT good is being sold reflects the value of the NFT to the collector. Now let us consider a quick thought experiment. Suppose I own an MP3 in two versions: first as an NFT and second as an MP3. Now as far as listening goes, I am indifferent as far as each digital file is concerned: the music from the NFT is the same as the music from the ordinary MP3. But should the artist who created the NFT suddenly rise in cultural value (e.g. become an icon of an era, like Kurt Cobain after 1994), then I might very quickly be tempted to sell the NFT for profit. Again, what is key here is the value of the NFT to the collector.

If the NFT market behaves to a great extent as does the market for collectibles, there is an important way in which it differs – and which is of great interest to artists and other creators. While in conventional collectibles markets it is often the case that once a creator has sold an artifact, he or she is no longer entitled to proceeds from subsequent sales, NFTs allow to continue to realize profits from sales that occur after they have sold to the first buyer. In order for this to be possible, at least two conditions need to be met. First, one needs to be able to track the sales of the NFT, and second, one needs to be able to set and enforce a fee structure for sales in the secondary market. The blockchain environment in which an NFT exists allows for this. The NFT’s existence in a blockchain means that its authenticity can be verified, and furthermore that details of every transaction involving that NFT can be tracked, including past or present owners. As a consequence, every sale of the NFT can be pinpointed: in particular, the seller of the NFT and the price at which it was sold can be established on inspection of the blockchain. Also, creators can, in minting the NFT, exercise the option to collect a percentage of the resale price for all sales of the NFT on the secondary market. In this way, creators can continue to profit from future sales of their works. This is an aspect of NFTs that Emily Ratajkowski has put to use in the creation of the NFT of her photograph “Buying Myself Back: A Model for Redistribution”, for which she stands to receive a share of any proceeds from future sales of the NFT. Indeed, a comment she posted on Twitter suggests that for Ratajkowski, the option to monetize the diffusion of one’s image is part of the wider issue of control over the sharing and use of one’s image. In the larger context of her experience of having had her image appropriated, shared, and monetized without her consent, she writes that “The digital terrain should be a place where women can share their likeness as they choose, controlling the usage of their image and receiving whatever potential capital attached.” At any rate, the use of blockchain technology for a more extensive control of a person’s or business’ intellectual property rights is already taking place in the luxury goods sector.

As with collectibles more generally, authenticity and exclusivity are two hallmarks of the luxury experience. And the blockchain, with its capacity for transaction tracking and its virtually unfalsifiable records, lends itself to verifying and guaranteeing the origins and genuine status of a luxury good: in April this year, the LVMH Group, ConsenSys, and Microsoft launched Aura, a platform in development since 2019 in which each product is recorded in the blockchain: the platform can be consulted to confirm the authenticity of a product and to provide clients with information on product care and after-sales service. The Aura platform, however, is private, and according to an articlein Vogue Business, “operators can decide to hide or to show the events they track within the system, meaning that customers only see what a brand gives them access to.” While this controlled-information environment goes somewhat against the ideal of the informationally transparent and decentralized blockchain landscape envisioned in Satoshi Nakamoto’s white paper on bitcoin, other fashion blockchain startups such as Arianee offer a public blockchain and open-source protocols, thereby ensuring as much transparency as possible in the registering and tracing of a product through its lifecycle. In particular, Arianee uses a form of NFT which they call a “smart-asset” that lists key product features such as proof of ownership, authenticity, and warranties.

The advent of blockchain technology and the emergence of NFTs signal a change in the way that creators, businesses, and consumers think about and manage issues of ownership generally and intellectual property rights more specifically. While the traceability of transactions on the blockchain and the immutability and uniqueness of NFTs have helped to make it possible for creators to continue to generate value from their works once they have been released into primary and secondary markets, and while these same features have allowed the luxury industry to increase the cachet of brands and protect themselves against counterfeit and fraud, these appear to be actions based on first-order insights into the features of what is essentially a new technology. It will be interesting indeed to observe how higher-order insights into the technology may over time shed new light on problems that businesses and individuals already face in the management of intellectual property rights.