NFTs are copyright for Web3
Just over ten years ago Marc Andreessen wrote his seminal Why Software Is Eating the World piece, outlining the investment thesis for his then-2-year old VC fund Andreessen Horowitz (A16Z).
Over the last decade it’s become deeply apparent that this thesis applies particularly well to finance. But we are just starting to see it apply to intellectual property law.
A quick history of FinTech disruption
In the Web2 days we saw this with the rise of Software-as-a-Service (SaaS)-style FinTech (Financial Technology) companies which took a software-first approach to traditional finance areas. Companies like Stripe have become wildly successful by using software to solve problems that were traditionally solved manually using people’s labor.
More recently, DeFi (Decentralized Finance) companies and protocols have taken this further by replacing whole facets of what used to be the business development and contract negotiation part of business with permissionless, composable software. As I previously wrote, tokenization is the key Web3 piece that allows value to automatically flow when composable software is combined together.
What happens next?
But this “software eats the world” process doesn’t just apply to finance — it applies everywhere. The key thing that holds it back is a representation of the world that can easily be manipulated in software. Finance has a long history of securitization (which is basically tokenization in fiat currencies) and we have seen how capable smart phones with location services and cameras have enabled software to manipulate real world systems too. Mobile apps like Uber have let software eat entire industries, and that trend will continue.
But we believe the trend towards “tokenize all the things” will let software eat other industries too.
NFTs are Intellectual Property
One part of this trend we haven’t seen commented on enough is how Non-Fungible Tokens (NFTs) are beginning to supplement and displace the intellectual property (IP) legal market.
Intellectual property (IP) is an international legal arrangement to assign ownership and rights to non-physical goods. The idea of owning software or authorship rights of music is IP.
There are four main types of intellectual property:
- Copyright: automatically assigned, for free on any “creative work”. This gives rights to restrict the distribution of things like books, software, music and art.
- Trademarks: a very specific symbolic representation of a company or brand. This can be a logo, or can — in some cases — be something like a color or smell.
- Patents: a limit of the rights to replicate a process. Something like the specific mechanisms inside a bike gear system are patented which limits other companies copying that exact mechanism.
- Other: There are other, mostly fairly minor types of IP. Things like “Design Patents” somewhat limit the ability to copy the physical appearance of something, and “Moral Rights” give original authors ongoing rights that cannot be transferred.
We see NFTs increasingly being used as substitutes for copyright, trademarks and moral rights.
Copyright
Instead of legal contracts being used to prove ownership (copyright), the NFT status on the immutable blockchain is used.
This is why “The Pirate Bay” analogy for the recent “NFT Bay” project is exactly right. You’ve always been able to pirate movies, but no one claims that gives you ownership. You can copy the images associated with NFTs too, but — again — no ownership comes with that.
Trademarks
If the case for NFTs being used as copyright is obvious then what about trademarks? Trademarks are about branding, and with @richerd famously rejecting $9.5M for his cryptopunk saying he used “[crypto punk] 6046 as my identity and have built up a significant brand around it” the same month that someone as brand-smart as Stephen Curry set his Twitter avatar to the Bored Ape he purchased the case for it is just as clear.
Moral Rights
Moral rights is one of the most exciting parts of NFTs. Finally the rights of original creators can be enforced natively within the distribution mechanism! We are currently seeing this mostly as a royalty going to creators on resale of NFTs, but I hope we will see a great variety of this.
Comparison of Web1, Web2 and Web3 IP rights
What is next?
As the table above shows, we are in the very earliest phase of the disruption of IP law by NFTs. There are very large pieces of infrastructure still required and probably entire industries to build.
Some are obvious:
- Music, filmmakers and other artists want to issue pieces as NFTs. It should be possible for people to play or view those pieces, but the usage itself should be tokenized so both the new owner of the NFT can be compensated and the original artist can receive usage rights.
- NFTs need standard, legally enforceable licenses. In the same way open source and creative commons are underpinned by the law, NFT-based licences should be underpinned by a legal foundation. Developing and issuing standard licenses for NFTs shouldn’t be particularly difficult and both platforms like OpenSea and artist groups should collaborate to release these licenses as soon as possible.
Some are less obvious:
- There is already a problem with “look-alike works” being issued. Modern artificial intelligence (specifically computer vision) offers a way forward on this, since it is now possible to quantify the similarity of two images in a standard way. NFT listing platforms would do well to develop this facility.
Other areas of legal disruption
NFTs aren’t the only blockchain concept disrupting the legal system. DAOs in particular are interesting, and can be utilized both to make decisions about the ownership of NFTs but also to rely on NFTs to issue decisions that previously would be issued as contracts.
Acknowledgements
Thanks to Ryan and Yolanda for their reviews.
