K
Kathleen Martin
Guest
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). But as the technology, and its use cases, start to mature there are still plenty of gaps and loopholes that need to be addressed—both financially and legally. Any tech company using or considering blockchain technology to help companies support NFTs should make sure they’re protected.
For example, let’s say one of a rock band’s biggest fans just purchased NFTs representing 50 unreleased songs from the band through a reputable blockchain marketplace. But there’s a problem. The songs were hacked from a server owned by the band and now you, the owner of the blockchain marketplace, is hit with a $1.5 million contributory copyright infringement lawsuit. In this article, I’ll provide an overview of what is an NFT, who owns the digital asset represented by the NFT, and how do you protect yourself or your customers as an intermediary from such a lawsuit if you process NFTs or run a marketplace that leverages blockchain.
It is important to understand the relationship between an NFT and a blockchain. The NFT is an idiosyncratic cryptographic hash or asset. There is not another one like it. This means the NFT cannot be exchanged for other NFTs, in that regard they are non-fungible. However, there are blockchain marketplaces where you can register, buy, and sell NFTs.
What is an NFT?
Think of an NFT as a digital certificate of ownership. For example, when the rock band registers a musical composition they created with the U.S. Copyright Office, including the musical notes, the certificate represents to the public the band’s ownership of the song. When you purchase an NFT on a particular blockchain, it means you are the sole owner—or should be the sole owner—of that NFT.
Think of a blockchain as a digital ledger—like an Excel spreadsheet. Every transaction is recorded. The difference between Excel and the blockchain is that a change in one part of the blockchain changes the rest of the entries on it—thus making it immutable. Another example: a poem is put on the blockchain and is worked on by several people at once. In this case, any change made by one person would change the way the poem is structured. If someone makes a change to the poem and it doesn’t rhyme, the out-of-sequence change would be obvious. Similarly, each entry on the chain would generally represent an idiosyncratic cryptographic hash, a number like #12n4387901h59. Anyone who conducts business on such a chain typically will use an idiosyncratic hash number like the one above to represent their account. Think of the identifying idiosyncratic hash like an avatar—an electronic image that represents the user’s identity on the blockchain. Some blockchains confirm subscriber identity, but others do not.
There are several benefits to NFTs. At the top of the list, according to many users, are transparency and accounting. For example, Kings of Leon is one of the first major bands to offer its limited edition album “When You See Yourself” as an NFT. Accounting and royalty streams can run smoothly via a blockchain. This brings efficiency to the sometime opaque accounting associated with recording and song royalties.
Who owns the digital asset in the NFT?
The answer is… it depends. Some copyright registrants don’t own the underlying assets for which the copyright is filed with the U.S. Copyright Office. It would be akin to The Beatles seeking to file a copyright over the song, not a particular recording of the song, even though the song is owned by The Rolling Stones. Copyright registration, like the deed to a house, represents ownership of the underlying asset—but sometimes it does not.
Continue reading: https://connect.comptia.org/blog/understanding-the-blockchain-opportunity-and-legal-ramifications-of-nfts
For example, let’s say one of a rock band’s biggest fans just purchased NFTs representing 50 unreleased songs from the band through a reputable blockchain marketplace. But there’s a problem. The songs were hacked from a server owned by the band and now you, the owner of the blockchain marketplace, is hit with a $1.5 million contributory copyright infringement lawsuit. In this article, I’ll provide an overview of what is an NFT, who owns the digital asset represented by the NFT, and how do you protect yourself or your customers as an intermediary from such a lawsuit if you process NFTs or run a marketplace that leverages blockchain.
It is important to understand the relationship between an NFT and a blockchain. The NFT is an idiosyncratic cryptographic hash or asset. There is not another one like it. This means the NFT cannot be exchanged for other NFTs, in that regard they are non-fungible. However, there are blockchain marketplaces where you can register, buy, and sell NFTs.
What is an NFT?
Think of an NFT as a digital certificate of ownership. For example, when the rock band registers a musical composition they created with the U.S. Copyright Office, including the musical notes, the certificate represents to the public the band’s ownership of the song. When you purchase an NFT on a particular blockchain, it means you are the sole owner—or should be the sole owner—of that NFT.
Think of a blockchain as a digital ledger—like an Excel spreadsheet. Every transaction is recorded. The difference between Excel and the blockchain is that a change in one part of the blockchain changes the rest of the entries on it—thus making it immutable. Another example: a poem is put on the blockchain and is worked on by several people at once. In this case, any change made by one person would change the way the poem is structured. If someone makes a change to the poem and it doesn’t rhyme, the out-of-sequence change would be obvious. Similarly, each entry on the chain would generally represent an idiosyncratic cryptographic hash, a number like #12n4387901h59. Anyone who conducts business on such a chain typically will use an idiosyncratic hash number like the one above to represent their account. Think of the identifying idiosyncratic hash like an avatar—an electronic image that represents the user’s identity on the blockchain. Some blockchains confirm subscriber identity, but others do not.
There are several benefits to NFTs. At the top of the list, according to many users, are transparency and accounting. For example, Kings of Leon is one of the first major bands to offer its limited edition album “When You See Yourself” as an NFT. Accounting and royalty streams can run smoothly via a blockchain. This brings efficiency to the sometime opaque accounting associated with recording and song royalties.
Who owns the digital asset in the NFT?
The answer is… it depends. Some copyright registrants don’t own the underlying assets for which the copyright is filed with the U.S. Copyright Office. It would be akin to The Beatles seeking to file a copyright over the song, not a particular recording of the song, even though the song is owned by The Rolling Stones. Copyright registration, like the deed to a house, represents ownership of the underlying asset—but sometimes it does not.
Continue reading: https://connect.comptia.org/blog/understanding-the-blockchain-opportunity-and-legal-ramifications-of-nfts
