NFTs TREND: what are NON-fungible-token and how do they work?

Updated: Mar 15

It happens more and more often to hear about NON-fungible tokens! Also known as NFTs, they are revolutionizing the concept of copyright and intellectual property. Let's find out what they are and how they work.

The NFTs' trend is constantly growing and in the last year, it has recorded dizzying numbers! Having now reached the end of 2021, therefore, a question arises: what should we expect for 2022?

Before making any predictions, however, it is necessary to deepen this topic and really understand what NFTs are and how they work

To start our analysis, it is necessary to know that non-fungible tokens owe their origin and survival to blockchain technology and its versatile application to the macro area of intellectual property.

In a nutshell, NFTs are nothing more than "virtual ownership certificates" to which the art and music markets (but not only) have decided to orient themselves in order to protect unpublished works.

Everything is guaranteed by a complex blockchain system capable of generating an alphanumeric string called token (unique and secure certificate of ownership) which guarantees its owner the right of ownership and use of the asset.

What does an NFT consist of?

Those who buy NON-fungible-token work are guaranteed the opportunity to demonstrate a right to the work, guaranteed through a smart contract.

It all begins with a digital version of the work of art such as a photo and a scan.

This digital version is uploaded on dedicated portals capable of registering it and associating it with a long sequence of numbers, 0 and 1 in computer language.

This sequence is then "compressed" into a string called hash, obtained through a non-invertible process known as hashing.

It is important to emphasize that whoever owns the digital document can easily calculate its hash, while it is practically impossible for anyone else to reconstruct a digital document starting from a hash.

The next step is storing this hash on a blockchain, with an associated timestamp. The use of these tokens has paved the way for an automated hash market, where the creator of the hash can use the token to add their own hash to it and then sell it in exchange for a cryptocurrency payment, such as the ETH coin used in Ethereum.

The NFT keeps track of hash sales internally so that it is possible to trace the hands of the hash, up to its creator, thus demonstrating ownership. This mechanism, therefore, provides proof of authenticity and, at the same time, of ownership of the work.

The owner of the hash, as reported in the NFT, can demonstrate his rights without the need to contact intermediaries and without time limits (as long as the blockchain on which his token is hosted will continue to be active).


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What data does an NFT certificate hold?

If we then take a closer look at what the NFT "contains", we realize, however, that the data entered is very few. Also for a matter of energy used and available space, it is not possible to insert large files in the blockchain (which would end up weighing down the whole chain), but only a few elements (the file hash along with some properties).

Some of these NFTs also contain the contractual conditions of the sale, but more often these are found only on the site that the intermediary (with the risk, however, that the complete purchase discipline will be lost when the platform's website is no longer available). Here the first problems begin.

What are the rights of the owner of an NFT?

When a person buys an NFT, the only thing they can say with (relative) certainty is that they own an NFT, a non-fungible token that refers to "something" (a work of art, a tweet, a video, etc etc). Defining the rights on that "something" to which the NFT refers becomes complicated. In fact, from a legal point of view, not all NFTs are the same.

Before purchasing, it is necessary to understand the specific conditions generally reported on the official websites of the respective authors of the works. But even the NFTs that transfer the "ownership" of a work, in reality, most of the time transfer the ownership of that copy of the work, without preventing the free proliferation of the same on the web.

Blockchain technology allows us to say only that the purchase constitutes a first transfer of the work, nothing else.

The Copyright problem

A further critical point of the NFT market (which started with art but is moving to increasingly disparate sectors, thus ending up by forcing the legal mechanisms that regulate transactions relating to works of art) is that of the right of art. author.

First of all, in a global and unregulated market such as that of NFTs, it is easy to imagine that copyright infringement cases are on the agenda (especially when it is not the millionaire transactions that earn the headlines), as well as that it is difficult to obtain protection especially at a transnational level, with the difficulties of a cross-border recovery of compensation due and with the conflicts between copyright regulations further complicating the situation (especially if the transfer of rights is not clearly regulated and in any case it is not included in the NFT).

It is difficult than in the digital art market not to talk about works derived from other works, of reinterpretations, of contaminations, which often create works of art that are a real nightmare when it comes to reconstructing the bundles of copyright. that overlap it.

In this sense, the example of the NFT which will be banned at auction by Christie's and "created" by the model and actress Emily Ratajkowski is significant. In deciding which work to include in a smart contract, Ratajkowski opted for a photograph that portrays her in front of a painting (made by a third party and of which the model has a copy) which in turn reproduces a post from Ratajkowski's Instagram profile, which shows a photograph of the model made for Sports Illustrated.

The provocation that this NFT represents is entirely legal and raises the question of whether Ratajkowski can legitimately sell what is, in fact, a simple hash code of an image, although it does not hold all the rights relating to the image itself (with regard to which they could claim rights Sports Illustrated, the photographer of the magazine, the painter who made a picture from the Instagram post, as well as the photographer who photographed the model thus creating the "collective work" that became NFT).

For the future of NFTs, it is, therefore, essential to clarify what the sold work is and whether the object of the NFT is simply a hash code, or a link, or the digital work to which the previous references refer or, finally, some or all rights to the work itself? From another point of view it must then be considered that often, in selling an NFT, the author agrees with the buyer to obtain a percentage on each subsequent transfer of the asset, a pact which is then "transferred" from buyer to buyer.

At an economic level, this is one of the most interesting strengths of this tech market, and it is one of the not immediately perceptible traits that is determining its overwhelming success on the supply side. The impossibility of negotiating an NFT without going through a shared ledger (Blockchain) guarantees maximum transparency for the artists, who therefore do not have to worry too much about the initial sale price of the work, being able to then take advantage of the subsequent "handovers" of the work. their creation and earn in proportion to any increase in the value of the asset.

NFTs in 2022

The NFTs are an artistic drift that has shaken the art world, which on the one hand has finally given dignity to a creative form debased by its infinite reproducibility, but on the other hand, it has created an opportunity for speculative bubbles and incursions of non-artistic products. exactly worthy of the name. It is likely that this form of art is here to stay and that the first disparaging reactions (which for centuries have accompanied the evolution of the world of art that precede the times) are destined to be disavowed.

However, it is important that enthusiasts approach this market with the necessary knowledge, including technical and legal ones, to be able to separate the wheat from the bran.