By Alton Law
Technology comes at us fast, new techno-terms pop up at a moment’s notice. The FOMO (Fear of Missing Out) can be overwhelming. Sometimes, with all the new terms flying around, I feel like Neville from Harry Potter and the Sorcerer’s Stone, staring off into the ether trying to remember what floor of Hogwarts Dumbledore said to avoid for anyone who does not wish to die a very painful death.
As far as terms go, recently there have been SPACs in stocks, DOGE in crypto, and NFTs in something. NFTs in particular piqued my interest when I heard one sold for millions of dollars and the news story used the word “collectibles” to describe the NFT sale. If you ever have the chance to see my office desk, you’ll immediately see that I’m very much a “things” person (much to the chagrin of my office mate). So that “collectible” attribute put me on a mission to find out:
1. what are NFTs,
2. how do I get one, and
3. what are the legalities surrounding them
This blog post strives break down these questions.
What is an NFT?
The NFT stands for Non-Fungible Token. Folks hip to Bitcoin and other cryptocurrency may be able to parse that right off the top of their heads. Even with my own understanding of what cryptocurrency is, I was still not clear. After researching, the Non-Fungibility of an NFT is the first step to understanding it.
The lack of fungness (made up word there) means it is unique. A fungible asset has a set value that can be easily divided and still retain that value. Think of a $20 bill that can be exchanged for twenty $1 bills – although the asset looks different, it is not and it maintains its value, therefore, it is fungible! A non-fungible asset can not be exchanged with something else, because it is unique. Its value is associated with a market determination. For example, a work of art, a baseball card, or a chair are considered non-fungible.
The technical side of the NFT is the “token”. A token is essentially a blockchain enabled smart contract. An Indian company named Allerin, has a great explanation of a smart contract. “Vending machines… are the simplest versions of this concept. These automated machines release an item only after it has been selected and the correct value has been paid.” Blockchain enabled means the smart contract relies on blockchain which is a form of technology that records certain facts in a chain of events, to verify a transaction. For bitcoin, each block in the chain records the sender and receiver of bitcoin and the amount of that bitcoin.
As a Law School professor once told me, “Well, those are words strung together in some fashion, but what are you really trying to tell me?”
Put simply, NFTs are digital artworks that travel with a digital and verifiable certificate of ownership. That artwork can be music, a picture, a funny cat gif, or a trading card. Its value is determined by the market and its perceived scarcity. It can be bought and sold like any other piece of property, and its certificate of ownership travels with it.
How do I Get One?
I want to be specific about something first: I do not recommend any particular path to NFT ownership, and the information I’m sharing here is solely for educational purposes. There are many legal and personal concerns raised with every route to NFT ownership, and some of these are addressed in the last section. That said, I eventually found at least one way to purchase an NFT, which was the basis for this blog!
I read a neat CNN article about a reporter’s venture in the NFT world. She laid out a good a road map on how to get cryptocurrency, what are some popular NFT online markets, and how to buy an NFT. First, I had to get some crypto. I downloaded the cryptocurrency exchange the article mentioned and bought some Ethereum (basically another form of cryptocurrency, similar to Bitcoin). I then had to transfer that cryptocurrency to a digital wallet, so I had to learn how to transfer my funds from the cryptocurrency exchange to my new “wallet”. This process has been one of the biggest critiques of NFTs so far, since it is not easy and all along the way you pay the piper in purchase fees and transfer fees. But, once I had my wallet ready to purchase, I found the same NFT exchange the CNN article mentioned.
I made my purchase (shockingly, the Bulldog Digital Photo Card I selected cost me only $1.00), but the catch came with the transfer and delivery of the NFT, or what is referred to as “the energy transfer fee” which amounted to almost $90.00. Luckily, there is an option where you can request a lower transfer speed for cheaper (but there are no details about how quickly or slowly the transfer will be). I opted for a really low speed, and as of the date of this blog post, I still have not received my little Bully NFT (which purchased about eight (8) weeks ago). I take comfort in knowing that the CNN reporter whose article I relied on to purchase my first NFT noted that she was still waiting on receiving hers, and at least a few weeks had passed since her purchase. This seems to be the norm for the cheaper, slower transfer option.
Still, not discouraged by the lag in delivery of my Bulldog NFT, I ventured even further into other potential digital buys, and I soon learned the Topps trading card company was in the NFT market as well. This time around I was able to secure several NFTs, including some pretty amusing Garbage Pail kid cards. I had to go through a similar process. While you can technically buy NFTs directly from Topps when they go on sale, you need to be hip to the scene because they sell out fast. Since I am not “hip”, I had to resort to the secondary market. Since it is a recognized and reputable company, I felt comfortable purchasing directly from Topps and following their recommendations, including about the preferred secondary market. For this NFT purchase, I had to buy a specific cryptocurrency, this time called WAXP. I was able to buy WAXP through another cryptocurrency exchange (unfortunately the first one I downloaded for my Bulldog did not trade in WAXP so yes, this required more App downloads, account creations, and sign-ups). After I received my WAXP, I transferred it to my WAX wallet. Once there I had free reign on all of the secondary markets. Luckily, they are easy to navigate, and you can order price from lowest to highest. Thus, I was able to buy my second NFT, and the first I actually received, which is a Garbage Pail Kid card called “Bobby Wasabi”. I have since purchased additional NFTs, including baseball cards and Atari style cards. The Topps based cards also come with a Topps certification, so that adds further assurance to my ownership of these NFTs in particular.
What Are Some Legal Concerns?
The first immediate concern is what the copyright of the NFT is, especially on open markets (where you are not buying an NFT directly from a certain company, i.e. Topps, or an artist’s verified webpage, or an auction site). There is no promise that the person who is selling you the NFT is the one who created it. Whenever you create a unique piece of art from scratch you generally have a copyright on that image, as it is your creation. If someone tries to make money off of it without your permission, you have the ability to ask them to stop and you may even be eligible for damages. That said, you can also request for your art back. When it comes to NFTs, if someone sells you an NFT they did not create, you may have to end up destroying it or giving it back. They could even request the certificate that traveled with your NFT be voided, thus devaluing the NFT itself. Even the Topps approved secondary markets come with warning signs as to be careful about potential copyright issues.
The other legal concern is how susceptible these NFTs may be to hacking. As you can see from my experienced described above, this process involves a lot of moving parts, apps, wallets, downloads, accounts, email sharing, and marketplaces. All of these come with different levels of interaction and disclosure of personal information online. Thus, you should be cognizant of the risk associated with divulging your personal information online. There are some steps you can take by reading reviews and reports about the various apps and marketplaces involved in the potential purchase of the NFT. The other additional concern from hacking is loss of value. The hope is that once you own cryptocurrency or an NFT, no one can take it from you. However, with the increasing value of these kinds of digital property, it may be worth investing in additional measures and security for your unique assets.
The value of an NFT comes not only from its features or designs, but from its traceable certificate of ownership. The provenance of an NFT (i.e. its record of ownership) is the real key and is equally important as the artwork itself. It draws comparison to an interesting example from the book, Veritas: A Harvard Professor, a Con Man and the Gospel of Jesus’s Wife, by Ariel Sabar. The book reinforces the idea that a historical object can be remarkable, but tracing its origins is just as important.
In my humble opinion, of the various fads currently floating out there, this one has legs. Generations dating as far back as the Vikings loved to collect things, and their grave sites were filled with coins from the Arabian Peninsula and carved tokens from Ireland. So why not, with the advance in technology today, we continue to carry our collectibles with us, much like we do with photographs? Besides, I’m sure my office mate would love to see my desk a little less crowded (and our bookshelf at home, for that matter).
I hope this NFT overview has helped light the way in this new and interesting field, and serves as a reminder that with Alton Law, you are on the Alton Road to a brighter tomorrow