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An Introduction to NFTs

Consider Non Fungible Tokens, a concept that has been making waves (and dips) all over the internet for a few years now. NFTs are not a new idea, but they have risen to prominence a lot lately, being the subject of multiple academic papers.

We can define a fungible asset as something that can be readily interchanged as units for example money, but non fungible assets cannot be interchanged with something else due to their unique properties. To elaborate, we can exchange Rs. 10 note with two notes of Rs. 5 and it will still have same value, but this exchange is not possible for non fungible tokens.

In the digital world NFT’s can be termed as being “One of a kind” assets that can be bought and sold like any other property but they have no tangible form of their own. A house or a painting is one of a kind. In digital world the tokens can be analogous to certification of ownership for physical and virtual assets.

How do NFTs Work?

Digital works can easily and endlessly be duplicated, regardless of how original they are in the first place. This is why copyright infringement of digital art and assets is particularly widespread, with 52% of internet users having watched pirated movies.

NFTs enable tokenisation of the digital work for creating certification that determines ownership and facilitates in trade of that work as an original work. This may be helpful to small artists, who have a history of online work being reproduced and sold by other people.

NFTs may also be combined with contain smart contracts, opening new avenues of interaction and protection to artists. Smart Contracts Are digital contracts where terms are decided in form of code by the parties to contracts. These contracts are capable of self-execution upon fulfilment of certain conditions and can be used to present the terms of licensing, limitations for copyright, tracking sale and purchase as well as automated royalty deposit in case of resale.

NFT and Copyright

If we try to draw connection between copyright and NFT then we find that in any work whose NFTs has been created by the owner on block chain, the sale of those NFTs will only grant rights in NFT and not on what they represent. Therefore, only the copyright owner will have the right to publish, distribute or earn from original work. These can have an additional level of security through smart contracts.

So we can say that the NFT holder will be left with rights on NFT that may be purchased by third party later. With respect to copyright, debates has also begun over considerations of if NFTs are copyrightable or not.

How Can We Use NFTs?

NFT can be used for various purposes such as Ticketing. In case of use of NFT in tickets no one can steal, scalp or use counterfeit of the same ticket since token replacement for same ticket in block chain is not possible.

NFT can effectively be used in Fashion Industry where keeping digital record of goods helps in authenticating regarding counterfeit goods. It can also help in knowing the origin of item with respect to usage of material, its manufacturing place and place of travel.

NFTs also have a crucial role in video game industry where it allows gamers to own in game items and help in promoting in game ecosystem, with greater security and less chance of manipulation from outside forces.

The Potential Benefits of NFTs

NFTs are not less than a revolution in digital world and their use is expanding globally at a tremendous pace. They can be a transparent and secure way to trade the digital assets.

NFTs instill confidence in collectors by acting as a digital signature. It also gives the proof about any asset being valuable by allowing traceable transactions. As the world become increasingly digital, with many of us starting to work from home and spend entire lives online, the importance of accessibility to NFT increases.

The Potential Benefits of NFTs

NFTs, despite their potential, also have a variety of drawbacks as the system is entirely based on speculations of market and value totally depends on emotive quality of NFTs. The next problem is that although you own the token for an asset, it does not mean that you are able to prevent someone from copying said asset. In addition, despite the technology itself being secure questions has been raised on the platform and exchange security. 

Looking at the present situation we can say that NFTs have opened a new dimension in the Intellectual Property field, demonstrating how various IP legislations need to make provisions and advancements when dealing with the digital reality today.

Author: Tushar Srivastava, Legal Intern at PA Legal.

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