NFT? WTF!

Almost ten years ago, in Spring 2012, I supervised a thesis written by Micha Schimmel simply called Bitcoin. A year later Joeri de Leeuw wrote From cash to virtual currency. Then, in 2014, I was asked by a group of fanatic cryptocurrency people to lecture on “Bitcoin 2.0 and digital contracts”. I told them “I haven’t really fully grasped Bitcoin 1.0 yet, so don’t know if I’m ready for 2.0”. I did accept the invitation, though, and around the same time did another bitcoin lecture for the Dutch IT & Law association. My motivation was the well-known mantra: “If you want to learn something, read about it. If you want to understand something, write about it. If you want to master something, teach it.”

Although since 2014 I did quite some teaching and Ph.D. thesis supervising on bitcoin, blockchain, etc., I am still somewhere in between learn and understand. I am afraid I will never master it. Now it is 2021. And we have this new blockchain offspring: Non-fungible Token, for short NFT.

There is a lot going on with NFTs this year. Some piece of digital art was sold for 69 million dollars. My students told me NFTs are used for money laundering. You create this NFT piece of art and buy it yourself with bitcoins. Whatever you pay yourself is then no longer black money. On 31 August Andres Guadamuz tweeted about a fake Bansky NFT sold for over 250k euro. I wrote him:

“Hi Andres, probably a stupid question, but is it that people see a particular digital copy as original via a token because it is secured/defined as such? (without it can ever be original other than “by definition”- or am I too old-fashioned in thinking it can never be).”

This was an observation from a copyright perspective, so rooted in a legal framework stemming from the era of the printing press that had a far from lucky marriage with the digital world (Boonk & Lodder 2006). In this short piece I do not analyse NFTs from a copyright perspective, but approach it from a property law perspective, or rather from the concept of exclusivity. This is a short piece, a real extensive analysis is provided by Fairfield (2021).

NFT is nothing

Virtual currencies originate from nothing, are created out of thin air. Just some bits and bytes, on a peer-to-peer network, that allow peers to carry out secured transactions with special tokens on a blockchain. The only reason the virtual coins have value is that there are people that want them (a market mechanism). At its core, this is not different from tangible objects. Another aspect virtual tokens share with tangible objects is their singularity. If I own a bitcoin, no one else can own that same bitcoin. This is an important difference with electronic information in general: if you possess information someone else can have an identical copy, even without you knowing it. For currencies, it is important that if someone pays she loses whatever you gain. It would be problematic if someone could spend the same virtual money multiple times. Bitcoin solved this so-called double-spending problem. No matter how unique your NFT is, it is just a link between you and the digital object. You do not own the object. Have no exclusivity over the object. It is a mere link. Just a link. At its core, this is just nothing. Emptiness.

In terms of the evolution of electronic information, it is weird. You could not steal electronic information, because electronic information lack of exclusivity. Whatever electronic information you take from someone is still in the original owner’s possession (in theory you could delete it, but that is not really changing the basic principle). Then we got these unique electronic pieces, like objects in virtual worlds, call credit for a phone (there are Dutch Supreme court cases on both, see Lodder 2013). And now we have NFTs, the worst of both worlds you could say. Fake exclusivity.

NFT is something

But what is an NFT really? Yes, it is unique for the one who owns it. But there can be in theory infinite copies of that where you have this exclusive token for. So, assume I create an NFT of my Twitter background. I am sure people would be willing to pay thousands of euros for my quote on that internet is at its core about linking the virtual to the physical, also because of my renowned drawing skills that are demonstrated in the background. A real piece of art. So someone who buys this NFT has a sort of exclusive ownership. The exclusivity is somewhat limited though since everyone can still see the same background when going to twitter.com/arlodder. Odd as it may seem, I believe I can even sell the same NFT twice. Not sure what this means for the value, but the exclusivity of the NFT becomes at least less. However, no matter how limited, for sure there are people who appreciate this digital exclusivity.

NFT is everything

Now you are this modern person, who really lives online. You shop online, you chill online, you watch movies online, listen to the radio online. Like this man in a bar on an old Wasserman cartoon saying “I’m switching everything over to the internet – my phone bills, my TV, my human contact”. You like Warhol, Bansky, Chagall. But, you in particular love digital art. And you miss the exclusivity you have with physical art. Way back you bought paintings in Second Life. These pieces were exclusive, you really owned them. Sure, the creator could make copies, but the one you had was really yours. No one could take that copy from you. It was there on the wall in your virtual living room. Always. And now, NFTs came into the picture. The same sensation. No matter how many other people have what you have, you know that your NFT is unique, like the painting in your Second Life room.

All three explanations are true

My first reaction to NFTs was that it is unbelievable, just nothing. I checked it with real technical and legal experts, and they confirmed, it is nothing. But in a way my reaction was like the Chinese police man laughing at the guy who reported his virtual “Dragon Sabre” stolen. For sure unlike in the Chinese case no one got killed because of my initial reaction. However, I think it is too old-fashioned to just say that it is nothing. It is something to some. And, even everything to others. I do understand all these positions. They are all right in their own way, it just depends on your perspective.

Arno R. Lodder

***

References

Boonk, Martine and Lodder, Arno R. (2007), Virtual Worlds: Yet Another Challenge to Intellectual Property Law. Global IP Summit Magazine, https://ssrn.com/abstract=1079970

Fairfield, Joshua (2021), Tokenized: The Law of Non-Fungible Tokens and Unique Digital Property. Indiana Law Journal, https://ssrn.com/abstract=3821102

Lodder, Arno R. (2013), Dutch Supreme Court 2012: Virtual Theft Ruling a One-Off or First in a Series? Journal of Virtual Worlds Research, September, 2013, Vol. 6, No. 3, https://ssrn.com/abstract=2327008