Lesson 9 of 10
In Progress

9. What is digital property rights in NFT?

When talking about digital property rights, it is hard not to link this topic to NFT and tokenization. It is worth knowing that the token itself is a digital right of ownership to various types of assets such as securities. Such securities are, for example, shares of a company. This enables us to trade on an exchange or to make a primary issue, known as tokenization. Therefore, if we take a look at blockchain exchanges (DEX’s) we will notice that it is entirely dominated by cryptocurrencies, and exchanges – by tokens. They represent real values, and crypto tokens carry digital ownership of many assets. They will become even more popular in the near future. Why? Because some time from now, records of ownership rights will take place on the blockchain. This will increase efficiency and reliability.

What is a token, and what is tokenization?

When talking about digital property rights, it is worth distinguishing between the two terms. A token does not yet have a fully fleshed out legal definition. In the crypto world, it is considered to be a certain contractually accepted unit of account. At the same time, it grants the owner certain rights. Tokens are purchased and traded on an exchange; they are created on the Blockchain of another cryptocurrency. They perform various functions, so consequently they do not have a single, legal definition. As a result, tokens are considered to be a sign of legitimacy. Complicated? A little, but all because tokens and related NFTs are a relatively young market that is only just forming. And with it, the associated regulations are being formed. It also all depends on the type and function of the token, but more on that in a moment ☺

We won’t surprise you if we say that tokenization doesn’t have its legal and single definition, either. Tokenization is the digitization of something (e.g., a company/project/property/licence) using blockchain technology and reflecting this good/asset in the form of a token.

Tokens – breakdown

We will now discuss the basic types of tokens, making it easier to understand the topic discussed.

  1. Payment tokens. Are a kind of alternative to traditional money. They are used exclusively to pay for goods or services in the ecosystem of a given digital asset. A good example of the use of this type of tokens is tokenization projects. It is payment tokens that reflect digital value.
  2. Utility tokens. With them, we can purchase a good or service that the token issuer offers us. They are distributed by the ICO (Initial Coin Offering) process. 
  3. Investment tokens. We use them to invest in a particular issuing entity.
  4. Mixed tokens. The last type, which combines the features of all three previously mentioned tokens.

NFT and digital property rights

With such an obvious breakdown of this type of asset, you already know how they reflect digital ownership. Systematizing – depending on the type, a token is assigned to a specific work of art, stored digitally. As a user, you can become the owner of a particular asset at any time. We are witnessing as the boom in NFT continues. Objects, images and other things in the form of digital tokens are being sold for millions of dollars. NFTs imitate the world of art galleries, shops or museums. Just like DeFi copies banks when lending or borrowing money. However, all this is done without unnecessary intermediaries. Non-exchangeable tokens connect the NFT creator directly with the buyer of his work.

NFTs are a type of token that are indivisible or non-exchangeable. Hence, the origin of their name – non-exchangeable tokens. What distinguishes them is that they cannot be counterfeited. The transaction that take place between the creator and the buyer are defined as a “digital asset”, whether we are dealing with music, real estate, animation or games. Digital assets are increasingly more popular and valued than physical ones.

Artists’ rights to their works

We then realize that the use of NFT can play an important role in the art and collectibles market. In the music industry, which finds it very difficult to authenticate the work of its artists, NFT can solve this problem and thus offer artists the opportunity to sell their work to protect their creativity on a simplified contract.

Indeed, even if the original file can be copied, the original version, registered on the blockchain, can ensure the uniqueness of the work and subsequently provide the artist with a defence of their intellectual property – giving them greater control over their copyright. This type of token could even be a new source of income for many artists. This new system could then affect the entire cultural sector.

NFT in the sports sector

NFTs can also find applications in the sports sector. For example, “NBA Top Shot” tokens, offered for sale by the National Basketball Association itself, are original videos of memorable shots from NBA games that can be sold for gold (up to several million dollars) and thus be owned by fans who will be proud to have an official memory of their favourite sport. The non-exchangeable tokens can also represent collectible player cards in many other sports besides basketball.

NFT in the games industry

This is undoubtedly the most developed industry in terms of NFT technology. Here, the sale of these tokens can take many forms. They can represent: a character, a piece of territory on a map, a skin, maps… Here they also ensure the authenticity of a digital object and approve the rarity and also the value of this object. Blockchain technology in the video game industry is booming this year, with many game-related ICO on the Ethereum network and over a billion (BE) dollars of investment already attributed to the gaming sector.

NFT application examples:

Now let’s take a look at a small NFT statement that will show you how these digital assets have sold for more than traditional artworks.

  1. Beeple and the EVERYDAYS:THE FIRST 5000 DAYS collection. Sold for nearly $70 million. It counts the first 5000 days of digital artworks.
  2. Jack Dorsey’s first Tweet. It’s simply the first tweet ever made. You could say – technology history. Sold for $2.5 million. Sold in the form of an NFT image.
  3. The Rick and Morty collection. That’s right – from the well-known cartoon. These were pictures by Justin Roiland. Sold for 1,300 ETH.
  4. NFT CryptoPunks. This is a collection of pixelated avatars of as many as 10,000 Cryptopunks. They can be a woman, a man, an alien, a zombie, or even a monkey. It sold – notice – for nearly $8 million.
  5. Dragon CryptoKitty. Specifically – this game where we breed and collect crypto cats. The cat character was sold for over a million dollars.
  6. Land in another blockchain game – Ax Infinity. There we build our own kingdom. And as the kingdom – so the land. The price of the sold property – over 1.5 million dollars. In the real world, we would have a nice villa with a swimming pool. Well… ☺
  7. Hashamasks, a collection of paintings gathered from 70 artists from all over Europe. The entire collection consists of as many as 16 000 unique hashmaskas. What is interesting – each hashmask has its token, which allows us to slightly change the portraits from another world. The collection sold for 420 ETH.
  8. Nyan Cat – a popular meme from my childhood. Its author is Chris Torres, who sold it for 300 ETH.
  9. The album “When You See Yourself” by the group King of Leon. Of course, it could be purchased in the traditional way (CD), but the artists also decided to sell it as a collection of NFT tokens. These were a confirmation of the purchase of the original file from the band.
  10. Jay-Z and the graphic “Heir to the Throne: NFT in Celebration 25th Anniversary of Jay-Z’s Reasonable Doubt by Derric Adams’. Adams created the artwork inspired by the artist’s music. The graphic was sold as an NFT.
  11. Method Man and his Tical World saga. It’s a comic book anthology, sold as non-exchangeable tokens. As a purchaser, you will be able to choose the pictorial story, the visuals, or the audio layer.
  12. Dolce and Gabbana also released their NFT in the form of a clothing collection.
  13. Sport is also an area where NFT has made its presence felt. Football teams or players issue tokens that give their fans, for example, rights to gadgets with logos or to vote on issues concerning the club.
  14. Chicago Bulls – who hasn’t heard of them! The popular basketball team is selling videos of the team’s successes from 1991-1998 in the form of NFT.

As you can see, such examples can be multiplied. What is important though – by purchasing NFT, we do not have any copyrights to the product. We describe this in detail in our lesson on how tokens are created. By acquiring such a token, we only have a digital property certificate. We have the “product”, but we cannot change or copy it. This ability belongs solely to its creator. By investing in NFT, we become collectors of a given limited edition in a virtual form. The author gives us access to the digital file.

When entering into any transaction based on non-exchangeable tokens, this does not include the transfer of copyright. Therefore, we cannot use the file in question without the author’s consent. All we have when we acquire an NFT work is the digital ownership of it.

Summary

NFT is still a young, growing market. So, it is not surprising that its regulation is still ongoing. However, the advantages of NFT over traditional works of art are flexibility, indestructibility, accessibility and ease of sale. It is easier to sell us a Van Gogh painting in the form of a token than to transport his physical work. However, remember to check it carefully before any investment in tokenized collectables. Never spend more than you stand to lose.

Digital technology offers more and more ways to authenticate goods, both physical and digital. While it is expected that many jobs will be created around this new system, it is also likely that a legal environment governing rights will need to emerge, as well as a legal code to title these tokens.