NFTs are all the rage right now, rightfully so, and are completely shaking up the art world. Artists have become very crucial to the NFT industry, but what is largely stopping artists from minting NFTs is the confusion surrounding how they work. There is a ton of data out there (which can get very overwhelming), so continue reading for a simple breakdown of how NFTs work and the legal mumbo-jumbo behind them.
Fungibility vs non-fungibility
Before diving into what an NFT is, it is important to understand the difference between fungibility and non-fungibility. A 100 Rupee note is fungible because it can easily be replaced with another 100 Rupee note. But something that is non-fungible is something that is unique and cannot easily be replaced; Vincent Van Gogh’s ‘Starry Night’ for instance, cannot be switched with Da Vinci’s ‘Mona Lisa’.
What is minting?
To create an NFT, you must first ‘mint’ the digital version of your artwork. This means that if you want to mint an NFT from your artwork – like a sculpture or a painting – you would have to create a digital file of that artwork and then upload that digital file onto the NFT platform that you are using.
When you upload the digital file, a token gets attached to it and is uploaded onto the blockchain being used, thus minting an NFT.
Minting turns a simple file into a crypto asset which can be traded on a digital marketplace using cryptocurrencies or even fiat currency. The existence of the token on the blockchain allows verification of the ownership of the underlying artwork. You would also have to pay a fee i.e. ‘gas fees’ to initiate the transaction on the blockchain and list your NFT for sale on the NFT marketplace you choose.
Legal jargon you need to know before you mint an NFT!
1. Ownership vs. Copyright: When you mint an NFT or permit a marketplace to mint one on your behalf, any transfer of that NFT will usually mean the transfer of ownership of the NFT, but the copyright in the underlying artwork will remain with you unless contractually parted with. Copyright grants the owner the exclusive right to, amongst other things, create derivate works, distribute copies and reproduce the work.
2. Original work: The underlying artwork should be original and unique. Minting an unoriginal artwork or stealing art from someone else would be considered copyright infringement or copyright theft.
3. Collaborative work: If you want to mint artwork that: (a) incorporates another artists’ work, or (b) has been created in collaboration with another artist, you will need to get permission from that artist.
4. Commissioned work: Make sure the underlying artwork of the NFT was not commissioned by somebody else. For artwork that is commissioned by someone else, or created during your employment, you may not be the owner of the intellectual property rights and would therefore be restricted from minting an NFT from it or would need permission.
5. Licensed work: If you have licensed or transferred your rights in the underlying artwork to somebody else, it would be optimal to review your contracts with the licensee/transferee before minting the artwork.
6. Marketplace T&C: When you’re minting your NFT, make sure you read and understand the terms and conditions of the NFT marketplace that your NFT will be sold on. An NFT marketplace would usually require you to grant certain rights to them in order to promote your NFT. They will also pocket a percentage of the initial sales. Be careful about what rights you part with.
7. Double whammy: After minting your artwork on the marketplace of your choice, you must not mint it on any other marketplace. This could amount to your NFT being deleted and you being banned from one or both the marketplaces!
8. Remember that an NFT is not the digital file itself, but rather a representation of it on the blockchain network.
How artists benefit from minting NFTs
1.NFTs offer you a chance to take on the digital market and unlock an international audience for your work, thus making your art more accessible and opening up a whole new revenue stream.
2. Traditionally, when art is sold, the artist only receives payment from the first sale. But with NFTs, since they are sold using blockchain technology, you would get a royalty or percentage of all future sales. For instance, if your NFT is sold for 100 USD the first time and you are entitled to 20% on all sales, you would still get that 20% if it is sold subsequently for 10,000 USD, and a percentage on every following sale.
3. NFTs enable the trading of your work in a more secure manner. Since NFTs live on the blockchain and the certificate of ownership attached to them verifies authenticity, it becomes very difficult for anyone to duplicate the digital file and very easy to trace previous owners, thus creating a safe and clear title during the sale.
4. You do not need to worry about storage and maintenance costs, since the NFT exists in the digital world and can be easily accessed by anyone from anywhere with an internet connection.
The bottom-line
The above list is still very non-exhaustive. The benefits for artists entering the NFT space are high. While art NFTs are the most popular category of NFTs, they aren’t the only types out there.
NFTs exist in several other forms such as collectables, sports memorabilia, video games assets, virtual land, memes, music, domain names, fashion NFTs, utility NFTs, etc.
One can purchase an NFT to gain access to exclusive communities, perks, rewards and even offline parties! Then there are real-world asset NFTs which provide virtual ownership of a physical object, and the token attached to such NFTs provides an additional layer of security to establish ownership of a real-world asset or commodity since it cannot be forged. Further, NFTs are also being developed to be used for the verification of online identities of individuals!
The potential application of NFTs is explosive and endless, and companies and individuals all over the world are joining the trend. For artists, those who are established as well as those still to make a name for themselves now is the best time to enter the global marketplace that NFTs offer.
Anuradha Chowdhary Anuradha is a corporate and intellectual property lawyer, specialising in tech law. I focus on helping businesses in the emerging tech space (Web 3 + NFTs + crypto + Metaverse) and also work with clients in the media and entertainment industry.
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