Non-fungible tokens: What they are and why artists are upset about work being ‘tokenized’

Digital Exclusives

ROCHESTER, N.Y. (WROC) — Following a recent rise of Bitcoin, not to mention the “dogecoin” touted by Elon Musk, one of the hottest terms for investors is “cryptocurrency.”

But now, another related term, “non-fungible token” (or “NFT” for those short on time) is making waves.

It was spurred by a recent announcement that indie band the Kings of Leon would release their latest album, “When You See Yourself,” as a non-fungible token. However, a dark side of this has emerged, as a number of prominent digital artists have seen their work claimed as a NFT on Twitter without their permission.

Once the art has become a token and its information is inscribed in a block on the Blockchain, it can theoretically be bought, and someone owns the token. This has concerned many artists that their digital art will no longer belong to them, and that their copyright will be null and void.

Before we get too deep into this, let’s backtrack with some key terms:

Cryptocurrency

It is a kind of currency that is traded online instead of in person. Prominent and the most valuable cryptocurrency Bitcoin and others, are registered in an online database through technology called Blockchain — a remarkably safe system that only allows the addition of information, in form of “blocks” of information.

Because it’s “add only,” cryptocurrencies can only increase in value. The value increases only because more people find it to be more valuable.

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That cryptocurrency is just made up, and no country issues it. However, just because its value is inherently “made up” doesn’t mean it doesn’t have value.

“If everybody agrees that it’s worth something, than it is worth something,” said Derek Mohr, Clinical Associate Professor of the Simon Business School at University of Rochester and cryptocurrency expert.

Non-fungible token

“The token — instead of a coin or a dollar — a token is a thing like at Chuck E. Cheese, where you get the little thing and put it in the machine,” Mohr said. “A token is intended to not be a monetary thing.”

Mohr instead says a token is something that is meant to be used, and cannot be exchanged for something of “equal value.” What makes these tokens “non-fungible” is that each token is not of equal value.

Someone can pay $5 for game tokens at The Playhouse on S. Clinton Avenue in Rochester, but those only have value at that establishment. If The Playhouse were to offer tokens of a different value — say some only operated certain machines, or allowed for more plays — then they would be non-fungible.

Mohr says that cryptocurrencies have moved to the token model so the SEC can’t regulate them like a normal security.

But how this works like a normal cryptocurrency is that each token is registered on the Blockchain; which again, is add-only technology. This “add only” function, which makes it nearly impossible to edit or change its history, is key when it comes to making art into a NFT.

“It’s unique to the thing you have, and the ownership of it is locked in forever,” Mohr said.

He continues by saying that he believes this is the digital equivalent of an artist selling prints, and labeling them 1/100, 2/100, etc.. The artist owns the original image, but will sell tangible copies (more on that an a spacious coffee mug metaphor coming up); but this way, it’s in a digital form.

“It lets you prove your ownership,” he said. “That way, if I was going to sell it somebody, I could prove that I owned it… We can go to the blockchain and check to see who owns copy 2 of 100.

“It’s a new way of protecting artwork, and limited edition artwork,” he said.

More on ownership in 3, 2, 1…

Copyright

News 8 spoke with copyright and intellectual law expert Steven Fox by phone to break down how NFTs apply to copyright law, but let’s establish what copyright actually is.

“It all traces back to the First Amendment’s protection of expression,” Fox said, which was shortly followed by an insistence that copyright is a noun only; specifically two types of nouns:

Those nouns refer to both the actual property, and the set of rights that the creator of the authorship has.

But what defines authorship? As simply as possible, Fox says that things like facts, ideas, information, and processes are free. However, if those intangibles are filtered through a lens of what lawyers call “a creative spark,” and then affixed to a tangible medium, it is protected by copyright.

Example: the shape of a coffee mug is not protected. But, if an artist were to paint something their own creative interpretation of that shape onto a canvass, both the image itself (what Fox refers to as the authorship), as well as the canvass (the substrate).

Typically, when someone buys a piece of art, whether it’s a canvass, the hard drive, or the digital image itself, they buy the substrate and the rights to do whatever they want to it: hang it, store it, boil it, mash it, and maybe stick it in a stew… But they do not buy the rights to the actual image itself.

So here’s how it comes together

All of this copyright jargon is well and good, but what happens when a piece of art becomes a NFT? This is when, according to Fox, the “functionality doctrine” in activated.

“If an element of what you created is part of a thing that has value in itself, then it moves into an article of commerce,” he said.

When a piece of art becomes a NFT, part of its use is to prove its own authenticity, meaning that it no longer can be protected by copyright.

Fox used the example of a bike rack. An artist can create a very specific combination of metal tubes, creativity assemble the various bends, shapes, and colors, and call it art; but the functionality of the piece makes it a bike rack.

And as we learned before, ideas and processes are free under copyright law.

But here’s the good news

It is true that if a piece of art is assigned as a NFT, it is no longer protected by copyright. But the key piece is that the artist permission is needed.

So all of these Twitter users, who Mohr says are often overseas and are very difficult to trace, who are assigning art to NFT without permission, and is therefore illegal, which “has serious penalties.” He also says that the reason these tokenizers are targeting digital art is because of the inherent difficulty of proving where a piece of digital art comes from in the first place.

A problem that would ironically be solved by artists using blockchain technology, assuming that artists don’t use other kinds of evidence: social posts, photos of you working on the art, witness testimony, etc.

“This is a new form of digital theft,” Mohr said.

Fox, who after all is a copyright lawyer, says that artists can protect themselves even further by registering every single thing they do with the Library of Congress. That will provide them with even more protection.

“They are trying to recreate the Library of Alexandria,” Fox said.

Mohr does recognizes however that even though American artists who would be protected, that the anonymous and overseas nature of these tokenizers would make it very hard to legally defend.

Mohr, long term, actually sees this as a good thing for artists, even if its ten years down the line.

“If the artists are the ones creating the non-fungible token and selling it, then that supports the arts community,” he said. “It’s a way to get your work out there. And it doesn’t just have to be digital art; it can be physical art. You take a photo, say its a physical item, but item one out of 100 is registered here.”

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