Writer: Bahar Nalan Danış, Attorney at Law – Mediator
While each passing year brings us experience and adventures on individual basis, it also presents new concepts to global terminology. As we say goodbye to 2021, we want to touch on the concept of NFT (Non-Fungible Token), which has created a bombshell effect in the art circles as well as in the finance and technology sectors.
The reason why “NFTs” suddenly came to the fore in this way was their sales prices reaching millions of dollars. In March 2021, the NFT of artist Michael Joseph Winkelmann’s -a.k.a. “Beeple”- digital artwork “Everydays: The First 5000 Days”, went down in history as the most expensive digital artwork, when it was sold for $69.3 million by the famous auction house Christie’s.
Digital art, which is accepted as the art of the Digital Age; is a type of art where the virtual objects that are produced via technology such as digital processes, computer programs, etc. are aesthetically constructed. NFT, which literally translates to “coin that cannot be exchanged or interchanged,” is often referred to as “fungible crypto asset” in Turkish sources. On the other hand, the NFT of a digital artifact refers to the original encrypted digitally of that work.
Creating an NFT…
NFT is somewhat similar to Bitcoin-type cryptocurrencies; both are decentralized digital assets created using blockchain infrastructure and cryptography, which are digital ledgers that permanently record and timestamp transactions. However, while Bitcoin is countable and interchangeable, NFTs are unique digital assets that are non-interchangeable. For example, 1 Bitcoin can be exchanged with another Bitcoin without losing any of its value or quality, but it is not possible for an NFT to replace another NFT, since a particular NFT has a unique code and “metadata” that distinguish it from the others.
Smart Contracts are open-source blockchain protocols that regulate transactions such as property verification and transferability with software codes, thereby controlling the transfer of cryptocurrencies or digital assets between parties. The terms and agreements that constitute a Smart Contract reside in a blockchain network. NFTs are also created using Smart Contracts. Subjects such as property rights, intellectual rights, transfer of rights, royalty payments, limitations on the use of the digital asset, conditions for resale of an NFT can be regulated with Smart Contracts.
NFTs can be created for works of art such as movies, pictures, music, or for any video, photo or even social media posts such as Twitter posts, that do not fall within the scope of “artwork”. Apart from these, NFTs can also have uses such as supply chain management of physical goods and financial transactions. With NFT, an indisputable record of the authenticity and ownership of digital data is created. This is to say that, the NFT is able to create a digitally unique record that verifies the ownership of the digital asset.
When an NFT is purchased, the digital work itself is not bought. What you buy is a collection of code that links to the original version of the work. This metadata is written to the blockchain and includes information about where the original artifact is located and who owns that particular version of the artifact.
Digital data by its very nature can be copied and reproduced indefinitely; NFT doesn’t change this fact. Anyone can view the digital work “Everydays: The First 5000 Days” mentioned above, free of charge and online. There are several copies of the work; however, the ownership of the version verified by the artist himself belongs only to the person who has the NFT of the work.
Paintings of famous painters can be copied professionally by methods such as ageing etc. and crimes such as smuggling and art fraud can be committed in this way. Thanks to NFT technology, the person who buys the work can be sure of the originality of the work.
Legal Aspect of NFTs
Since the widespread application of NFT technology is seen in the field of selling digital artworks, we can say that the field of law with which NFTs are most associated is the Intellectual Property Law.
The creator of a digital work is the “Author” within the scope of the Law on Intellectual and Artistic Works and is the owner of the financial and moral rights on the work. A common misconception is that when you buy an NFT, the intellectual property rights of the work are acquired, but just like when buying a painting from a gallery, the rights of the related work are not directly acquired when the NFT is purchased. The terms of sale on NFT codes will determine the extent of the buyer’s rights in the work. It has been seen in NFT sales made so far that the NFT owners has generally been granted the rights to own, sell, lend and transfer. In terms of Intellectual Rights, the benefit of NFT is that it will facilitate the pursuit of copyrights, as it functions as a “banderole” that certifies the uniqueness and originality of the work.
However, NFTs are not free from certain dangers. How the platform associated with the purchased NFT is maintained and the possibility of cyber-attacks are the main question marks. The facts that the people are anonymous in blockchain transactions and the system is not dependent on a central authority pose great risk, since there will be no contact person to attribute the legal and criminal responsibility in case the artwork is stolen or any other violation occurs.
Since NFT technology allows artists to reach buyers and make their pricing freely, many artists in the world have started to sell their digital works as NFTs.
In this sense, we can say that NFTs currently offer an innovative and free medium for art. Despite the uncertainty and risks, we will witness further implementation of NFTs beyond their artistic function, thanks to the rapidly increasing participants on both the seller and buyer side.
Bahar Nalan Danış
Attorney at Law – Mediator