NFTs And Certificates Of Authenticity
A Non-Fungible Token or NFT has become a popular way for creators to license digital artworks including scanned prints, multimedia and music. Aside from being a novel application of blockchain technology, NFTs are considered a breakthrough in artistic licensing because digital works are so easily copied and misused.
In technical terms, an NFT (or ‘token’) is a unique smart contract stored on a blockchain. The smart contract is associated with some digital file, the artwork, typically by including the internet address where the file is hosted. The token is non-fungible because the artwork it refers to is unique and isn’t mutually interchangeable with other assets. The contract is written in such a way that anyone can inspect it, it is transferable, and the disposition of proceeds for each sale can be predetermined. So if an artist creates an NFT and sells the token to some collector, that artist can earn a commission if the token is later resold to another buyer.
Legally, an NFT is an intangible asset which consists of a title to certain rights licensed by a creator. For example, an NFT usually does not include the right to make derivative works or display the artwork in commercial exhibitions. It certainly does not include copyright. So the title granted in an NFT refers to a subset of the creator’s authorship and copyrights. Typically these include the right to non-commercial exhibition and sharing via social media, so-called “bragging rights”.
The title which is licensed at the time of first sale of the NFT, is completely transferred if the token is resold, without effect to the creator’s own rights. In this way, the rights of a token owner are similar to those of a buyer of a limited edition signed reprint of a physical artwork. But in the case of an NFT, the creation is digital. So the owner of the token possesses something which is scarce, even though the digital art can be copied and shared by others.
In financial terms, an NFT is a derivative. This is not the same term as derivative artworks, by which we mean reproduction on T-shirts and coffee mugs, remixes or adaptations. A financial derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset. In this case the artistic creation is the underlying asset and the token is a financial derivative. An investor must take extra care when purchasing or selling financial derivatives — they can be risky.
Unfortunately, an NFT does not provide much protection from the risk of forgery. An artist could be cheated if someone who is not the copyright owner produces an NFT without their permission. A buyer could be cheated when acquiring an NFT for an unlicensed work of art. They could also be cheated by an unscrupulous artist who produces two ‘one-of-a-kind’ tokens for the same work of art.
Remember that the token includes the internet address where the artwork is hosted. This is the source of many problems with NFTs, because someone other than the creator and the token buyer is responsible for hosting. If the hosting provider goes out of business or simply fails to pay the hosting fees, the artwork will not be accessible using the address given in the token — the link is broken. One technical solution is to host the artwork in a decentralised cloud storage such as the Interplanetary File System or IPFS. But even these links can break if the artwork is unpopular and if someone does not constantly ‘seed’ the IPFS system.
If the hosting is working and the artwork can be located, attempts at NFT forgery can be mitigated because an authorised original is publicly accessible for comparison against any unlicensed works. If the artist produces two ‘one-of-a-kind’ tokens for the same artwork, the hosted files and creation dates can be compared and the 2nd one can be shown to be illegitimate. But if the creator has not produced an NFT of their work, unauthorised tokenisation is difficult to prove.
NFTs can prevent obvious forgeries but art forgery is often extremely sophisticated. Comparison of visual images is not sufficient to prevent facsimile copies. What would be reassuring to both the creator and the buyer is a certificate of authenticity which contains not only a thumbnail of the art (if it is a visual work) but also a ‘hash’ or cryptographic digest of the file which contains the artwork. A hash is like a fingerprint of the file and each is verifiably unique. If even a small change is made in the artwork, the hash will be completely different.
The wonderful thing about certificates of authenticity is that — if they include a hash — there is no need to watermark the artwork to identify which file is being certified. The hash is a unique reference to any instance of the same image. This is a much stronger proof of authorship than what is presently provided by a standard NFT, and the creator can produce a certificate whether or not they intend to tokenise their work.
In summary, an NFT is an intangible asset which consists of a title to certain rights licensed by a creator. Some NFTs are extremely valuable to collectors and investors. To protect the creator and the buyer from digital forgery, the creator can produce a certificate of authenticity which contains a full legal description of the artistic asset, together with a hash of the artwork. This certificate can be referenced within the NFT to ensure the rights of all parties are properly protected.
By Bill Claxton, CEO and Founder of NextID Pte Ltd
Photo by Anthony Shkraba from Pexels
