buying an NFT is buying wind

What do you own when you buy an NFT? This is the question posed by a study by Galaxy, an investment, mining, financial advisory and trading company active in the blockchain sector, published on August 19. It shows that neither the makers nor the buyers really know where they are going, and that the marketplaces voluntarily perpetuate the artistic vagueness.

No, buying an NFT is not the same as buying a JPEG

Galaxy Digital concludes this based on an analysis of the most important NFT collections on the market “the vast majority of NFTs grant zero intellectual property rights to their underlying content”than NFT channels “seems to mislead buyers”, and that marketplaces like OpenSea do nothing to clear up the situation. The company summarizes the situation as a “labyrinth of opaque, misleading, complex and restrictive license agreements”.

“Most people think buying NFTs is buying jpegs, the image files we see on OpenSea for example. But in reality, the publishers of NFT collections retain full ownership of these images”, says Galaxy, which has examined the licenses associated with these collections in detail. Almost all offer only a right of use, with variable commercial use rights.

Zero intellectual property rights

Galaxy explains the cause of the problem. “The mere fact that an NFT references an image does not in itself give the owner of the NFT rights to that image, any more than creating a Mona Lisa NFT gives its creator rights to the Mona Lisa.” The law is clear: in the United States, copyright (which differs from French copyright) is the only recognized form of ownership of digital content. Without copyright, the owner of the NFT is not the owner of the content, but is simply a holder of a license by which the author grants him certain rights. “What you own is the token that references a rarity. In that sense, an NFT buyer rents out the rarity to the true holder of that rarity”for example at Yuga Labs, translated Galaxy.

However, copyright holders have the right to change or revoke this license whenever and however they choose. “which is a major flaw in the architecture of NFTs”, Galaxy considers. The proof, Moonbirds (pixelated owls, 8e global collection of NFTs by market value) has disappeared from rhetoric “you own the intellectual property rights” to a Creative Commons CC0 license, which means putting the works in the public domain. No more copyright, but no more interest in buying the NFT!

“Big mistake” in the architecture of NFTs

Yuga Labs (BAYC, Crypto Punks…), which would represent 63% of the capitalization of the 100 largest NFT collections, has also changed its Bored Ape Yacht Club license. This stipulates that the purchaser of an NFT BAYC “owner of the underlying work, in full”. For Galaxy, it’s very contradictory: the mere existence of the license proves that Yuga Labs owns the rights. The company is the only one that can grant a license. If you really own a work, why do you need a license?

Galaxy deals a serious blow to the building of NFTs, believing that while the rights to use content associated with an NFT depend entirely on the permission of the real copyright holder, “it’s not even certain that a blockchain is needed”. There remains the importance of the blockchain for the secondary market.

In France, the CSPLA decides: an NFT is a title deed on a token

A Higher Council for Literary and Artistic Property (CSPLA) report on NFTs, published July 12, sheds additional light on the Galaxy study’s reflections. Despite the differences between US and French copyright law, the CSPLA comes to the same conclusions.

The chairperson of the mission and the rapporteur, lawyer at the court and applicant at the Council of State respectively, conclude that, except in exceptional cases, the NFTs cannot be comparable, nor “to a work of art within the meaning of the Code of Intellectual Property, her smart contracts be unable, in the state of observable technical capability, to contain the file underlying in the blockchain (…), nor on a certificate of authenticity, in the absence of a third party verifying the authenticity of the associated file or its authorship”.

The mission suggests considering an NFT “as proof of ownership of the token registered in the blockchain, which may have other rights attached to the digital file to which it refers, the purpose, nature and scope of which vary according to the will of the sender.” In other words, what the buyer of an NFT owns is the NFT. Point.

No economic rights to the associated digital work

Consistent with the significance of the US study, the CSPLA adds that the purchaser of an NFT “is not necessarily the holder of the economic rights associated with the associated digital file, with the exception of contractual transfer or license of the rights”.

So even if the Council believes that NFTs “raising complex legal issues”he writes that she “are not part of a legal vacuum: the protected files to which they refer remain subject to copyright and related rights by default. Thus, subject to explicit contractual terms or terms and conditions provided by the platform, NFTs are not automatically transferred with all associated permissions with these files.”

Enough to work up a sweat for speculators who bought their NFTs at the top in early 2022, as the market has since literally collapsed in volume and value, in the wake of the fall in cryptocurrency prices.

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