Understanding the Blockchain Opportunity and Legal Rimifications of NFTs

Blockchain technology is a powerful technology that can help customers in a number of ways. However, it must be applied correctly from both a legal and technical standpoint. Here are some tips to make sure you have the technology covered. Blockchain technology is starting to get leveraged to solve business problems and serve as the foundational technology for many digital assets and applications–perhaps most notably now in the form of non-fungible tokens (NFTs). As the technology matures, there are still many gaps and loopholes to be filled, both legally and financially. Any tech company that uses blockchain technology to support NFTs or is considering using it should ensure they are protected.
Let’s say, for example, that one of the biggest fans of a rock band purchased NFTs representing 50 unreleased tracks from the band through an established blockchain marketplace. But there’s a problem. The songs were stolen from the band’s server and you, the blockchain marketplace owner, are now facing a $1.5million contributory copyright infringement suit. This article will give you an overview of NFTs, who owns them, and how to protect yourself and your customers from such a lawsuit.
It is important to understand how an NFT and blockchain relate. The NFT is a unique cryptographic asset or hash. There is no other one like it. The NFT cannot be traded for other NFTs. They are therefore non-fungible. There are however blockchain marketplaces that allow you to register, buy and sell NFTs.
What is an NFT?
An NFT is a digital certificate proving ownership. An example: A rock band may register a musical composition that they have created with the U.S. Copyright Office includes the musical notes. The certificate is the public’s proof of ownership. If you buy an NFT on a specific blockchain, it means that you are the sole owner (or should be the sole owners) of that NFT.
A blockchain is a digital ledger, similar to an Excel spreadsheet. Every transaction is recorded. The difference between Excel spreadsheets and the blockchain is that any change in one section of the blockchain affects the rest of the entries, making it immutable. Another example is a poem that is placed on the blockchain and can be edited by multiple people at once. Any change made by one person could change the structure of the poem. If someone makes a change in the poem that doesn’t rhyme, it would be obvious. Each entry on the chain would represent an idiosyncratic cryptographic haveh, such as #12n4387901h59. To represent their account, anyone who does business on such a chain will typically use an idiosyncratic number like the one above. The identifying idiosyncratic number can be thought of as an avatar, which is an electronic image that represents the user’s identity on the blockchain. Some blockchains verify subscriber identity while others do not.
NFTs offer many benefits. According to many users transparency and accounting are the most important benefits of NFTs. Kings of Leon, for example, was the first major band to offer its limited edition album “When You See Yourself”, as an NFT. Blockchain can make accounting and royalty streams seamless. This allows for transparency in the sometimes opaque accounting associated with recording and song royalty streams.
Who is the owner of the digital asset in NFT?
It depends. Some copyright registrants may not own the assets that are used to file the copyright with the U.S. Copyright Office. It would be similar to The Beatles filing a copyright registration over the song, and not a particular recording, even though The Rolling Stones own the song. Like a deed to a home, copyright registration can represent ownership of the underlying asset, but sometimes it doesn’t.
Similar to the above example, ownership of an NFT does not necessarily mean ownership of the underlying digital assets. In this case, the 50 unreleased tracks. The NFT is a representation of your ownership of a particular token. A chain of title, similar to real property, is required to determine who owns the digital asset. Copyrighted material such as a song would require a trail to link back to the copyright owner in the recording, to whomever an assignment has been recorded, etc. If the digital asset’s owner or author is selling it, such as in the Kings of Leon case, there doesn’t need be any chain of title analysis. These transfers of title can be efficiently done via smart contracts on a blockchain.
The end result is the