Partner Nick Eziefula comments on how businesses can benefit from the NFT boom and whether the potential rewards outstrip the risks inherent to emerging technologies. Nick’s comments were published on 17 February 2022 in Croner-i. In this article, we recap Nick’s responses to Croner-i’s questions.
NFTs seem to be inherently secure, but is the success of NFTs really about the users’ trust?
The “security” of NFTs could be a double-edged sword. On the one-hand, NFTs are very secure – unlike traditional currencies they cannot be forged or duplicated and there is an immutable record on the blockchain. On the other hand, this also means that (unless extreme measures are taken, like creating a new branch of the blockchain), it is very difficult to correct issues if cryptoassets are stolen or an element of the underlying ecosystem is compromised, like we saw in January with Crypto.com.
Users do need an element of trust in the underlying technology they are using to buy or sell NFTs. This is why many transactions occur on established blockchains like ETH. However, the true success of NFTs, much like other assets, depends on users’ willingness to speculate on their investments. The NFT ecosystem is increasingly more established and trust is being built, but the underlying risk is still present.
Protecting intellectual property (IP) has been a challenge for several years – particularly digital assets – will NFTs finally offer a reliable way to secure these assets?
A common misconception is that an NFT and the IP it relates to are the same thing. This is not true – a purchaser of an NFT typically owns the NFT itself (i.e., the short lines of code on the blockchain) but any rights to IP linked to the NFT will depend on whatever terms the minter of the NFT is willing to give. Protecting IP is increasingly complex in the internet-era, as items are copied and disseminated online faster than the owner of the IP can monitor use. NFT's are unlikely to be a silver-bullet here – if someone were to illegally copy an image that has been sold as an NFT, the fact that the image can be identifiably associated with an NFT will not stop the copying of the image itself.
How may NFTs help businesses monetise their intellectual property rights?
Although NFTs may not be a silver bullet for addressing issues with IP, they do provide excellent avenues for creatives and businesses to monetise their IP in new ways and get new (often younger) audiences interested in their work. An artist seeking to sell digital artwork now has an effective way of doing so via an NFT.
A recent example is Quentin Tarantino’s Pulp Fiction NFT launch. Tarantino is not giving away the original Pulp Fiction manuscripts, just selling a licence to hold/use them to the owner of the NFT. Through this mechanism, Tarantino has monetised a valuable collectable whilst retaining the original memorabilia and IP for his own use. A key challenge for the growing NFT industry will be educating users as to what exactly they are buying when they purchase an NFT.