The digital world of blockchain and NFTs
Introduction
There is a lot of talk about 'blockchain' and 'NFTs' at the moment. In this article, George English of Gardner Leader provides an overview and considers some of the legal issues that may arise.
Works of art, books and music scores have been tangible items have been around for centuries.
This has meant that the laws that protect them are well established, preventing copies from being made and ensuring the originality of the works, the author of the works and the ownership of the works are protected.
In the modern digital age, works of art, literature and music have become increasingly digitalised.
These new digital works, based off of a blockchain, has given rise to new legal dilemmas that need to be addressed as the current laws are at risk of being outdated.
What is blockchain?
In its simplest form, a blockchain is a series of pages of records (block) and a link (chain) that connects each block to blocks created earlier on in the database, creating a chain of blocks.
The entire blockchain database is distributed to every participant of the network (sometime referred to as miners) who keep the database up to date.
Traditionally data storage of a database is stored and controlled by a single entity. Blockchain is significantly different.
With a blockchain, every participating member (or entity) to the blockchain holds a copy of the database and has the ability to contribute to it.
The fact that the blockchain is held by every member ensures that it is very well protected and secure.
A common use of blockchain technology is in relation to non-fungible tokens (NFTs).
What is a Nun-Fungible Token (NFT)?
An NFT is a unique cryptographic token that utilises blockchain technology to record ownership of an asset and provides evidence of authenticity.
The use of blockchain technology makes them impossible to duplicate.
Unlike a fungible token (for example if you have a one pound coin, which is identical to all other one pound coins, this can be exchanged with any other identical one pound coins), an NFT is unique and cannot be traded or exchanged for an identical token, as there is no other identical NFT.
Most commonly NFTs are used to authenticate digital items, such as digital art, digital trading cards and content (such as video clips).
General problems with NFTs
There have been incidents where NFTs have raised potential legal concerns.
NFTs and digital artwork is an area where there have been issues pertaining to the ownership of the copyright. The Copyright, Designs and Patents Act 1988 (CDPA) sets out what works are protectable by copyright.
The CDPA covers artistic works, literary works, moving images and music.
As NFTs are most commonly used for works of digital art, it is fairly safe to assume that a digital work of art or picture would be protected within the category of an artistic work.
Furthermore, as NFTs are created and stored on a blockchain, which in its simplest form is software code, this would be protected as a literary work under the CDPA.
Particularly for NFTs, the question of ownership can become a potential issue.
Generally, the stance has been taken that the author of the work is the first owner of the copyright.
However, there is some debate whether this is the correct position to take.
As NFTs gain protection as literary works under CDPA the question of whether the author of the work should hold the copyright or should it be the software programmer who programmed the blockchain be the true copyright owner (as author of the literary work).
The current position is that the first owner of the copyright is dependent on the complexity of NFT.
If the NFT has been automatically generated by the blockchain, than the software programmer will own the copyright.
Conversely, more complex NFTs have seen the ownership generally given to the author of the work.
The question of ownership relating to the copyright also emerges when discussing NFTs which have been commissioned.
Currently the position is that the author of the NFT remains the copyright holder until the work has been assigned to the client who commissioned the work.
Conclusion
NFTs seem to have dropped in popularity recently.
However the question of whether they will remain to be exclusive and generally, expensive, means of authenticating pieces of digital art or whether they will eventually become the norm is unknown.
All of the issues relating to NFTs should start to be addressed as NFTs become more commonplace and mainstream in society.
The Law Commission has commenced its digital assets project which aims to address the issues relating to the ownership and possession of digital assets.
However, until the issues relating to copyright and ownership are addressed and clarified definitively, there will be inevitable hesitation from potential investors/buyers.
