NFTs can be used as a form of digital collectible and be traded and exchanged and their value can be determined by market.
Media stories abound with reports of artwork, tweets, and other digital media selling for millions of dollars on blockchain marketplaces when they are represented by an NFT. An NFT refers to unique crypto tokens that are managed on the blockchain. Non-fungible tokens can be used to represent a variety of things, including: domain names, usernames, trading cards, esports steams and more. The use of NFTs is not limited to cryptocurrency projects.A blockchain acts as the decentralized ledger that tracks the ownership and transaction history of each unique NFT. The main difference between NFTs and other traditional cryptocurrency like bitcoin is interchangeability (or lack thereof) many blockchains can be used to manage NFTs, including Ethereum.
NFTs can authenticate ownership of a token itself, as well as the unique history of how such token was developed and linked to a creative work. On the public blockchains, anyone can see an owner’s wallet address and its linked metadata, as such information is available as a public record. However, a simple NFT by itself cannot help matching the creator or owner of an NFT to a real person in the physical world.
If someone purchases an NFT tied to a piece of content, they have not automatically purchased the underlying intellectual property rights on such a piece of content. Under Section 106 of the U.S. Copyright Act, a copyright owner has certain exclusive rights to reproduce, prepare derivative works of, perform, display, and distribute the copyrighted work.
A digital creative work can be linked to an NFT using an “on-chain storage” technique. On-chain storage is impractical on most blockchains, since transfers on the chain incur a transaction fee. Pointing the NFT to the address at which the digital asset is hosted online cuts down on monetary and time costs. A buyer often has no guarantee that the URL or other web address will not be changed or be taken offline.
On-chain storage eliminates the need for users to download and store the blockchain, and it also provides access to all of the NFTs linked to a specific digital asset. NFTs have the potential to be used as the basis for non-fungible tokens. For example, a digital artist could create an NFT that can only be owned by one person. This is similar to how people can own pieces of art by signing a copyright form.
The world of NFTs is a fast-moving space, but participants should be aware of some fundamental legal issues. A buyer of an NFT does not automatically receive all the intellectual property rights underlying the work associated with the NFT being acquired. Participants should pay close attention to how the underlying media is being stored, and who has the obligation of storing the media associated with an NFT. Despite all the uncertainties for NFTs, participants can expect to see more and more creative applications of NFTs beyond.