Two American and French reports converge: buying an NFT is buying wind

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

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

Based on an analysis of the main NFT collections on the market, Galaxy Digital concludes that “the vast majority of NFTs confer zero intellectual property rights to their underlying content”than NFT transmitters “seem to mislead buyers”, and that marketplaces like OpenSea do nothing to clarify the situation. The company summarizes the situation as a “labyrinth of opaque, misleading, complex and restrictive licensing agreements”.

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

Zero intellectual property rights

Galaxy explains the root of the problem. “The mere fact that an NFT points to an image does not, in and of itself, give the owner of the NFT any rights to that image, any more than creating a Mona Lisa NFT gives its creator any 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 a simple holder of a license by which the author grants him certain rights. “What you own is the token that points to a rarity. In this sense, an NFT buyer is leasing the rarity to the true holder of that rarity”for example at Yuga Labs, translated Galaxy.

However, copyright holders have the right to modify or revoke this license when and how they want. “which is a major flaw in the architecture of NFTs”, considers Galaxy. The proof, Moonbirds (pixelated owls, 8e global collection of NFTs in market value) has gone from rhetoric “you own the intellectual property rights” to a Creative Commons CC0 license, which amounts to bringing the works into the public domain. No more copyright, but no longer any interest in buying the NFT!

“Major flaw” 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 modified its license for Bored Ape Yacht Club. This stipulates that the buyer of an NFT BAYC “owns the underlying work, completely”. 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 who can grant a license. If you really own a work, why need a license?

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

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

A CSPLA report (Higher Council for Literary and Artistic Property) on NFTs, published on July 12, offers additional insight into the thoughts of the Galaxy study. Despite the differences between American and French copyright, the CSPLA comes to the same conclusions.

The president of the mission and the rapporteur, respectively lawyer at the Court and master of requests at the Council of State, conclude that the NFTs cannot be similar, except in exceptional cases, nor “to a work of art within the meaning of the intellectual property code, its smart contract not being able, in the state of observable technical capacities, to contain the file underlying in the blockchain (…), nor to a certificate of authenticity, in the absence of any third party verifier of the authenticity of the associated file or of its authorship”.

The mission proposes to consider an NFT “as a title deed to the token registered in the blockchain, to which may be associated other rights to the digital file to which it points, the purpose, nature and extent of which vary according to the will of its sender.” In other words, what the buyer of an NFT owns is the NFT. Point.

No economic rights on the associated digital work

Consistent with the meaning of the American study, the CSPLA adds that the purchaser of an NFT “is not necessarily the holder of the economic rights attached to the digital file associated with it, except for contractual assignment or license of the rights”.

Thus, even if the Council considers that NFTs “raise complex legal issues”he writes that they “are not part of a legal vacuum: by default, the protected files to which they point remain subject to copyright and related rights. Except for explicit contractualization or general conditions provided by the platform, NFTs are therefore not automatically transferred with all the rights associated with these files.”

Enough to give cold sweats to speculators who bought their NFTs at the top in early 2022, the market having since literally collapsed in volume and value, in the wake of the fall in cryptocurrency prices.

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Two American and French reports converge: buying an NFT is buying wind

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