NFTs and the power of licensing

Plenty of NFTs out there act as title deeds to physical objects. Both GAP and Adidas have partnered up with the NFTers to merge the worlds of physical fashion and decentralised ledgers (a record of all transactions on a network).

 "Deeds" is how Ethereum refers to non-fungible tokens. It is a useful way of describing the situation. The NFT itself is the unique, incorruptible, decentralised parcel of information confirming the owner's rights in the item to which it relates. The item is something else. If it is digital there is normally a link to a file of some sort stored on a server or, rarer, a file stored within the NFT itself. Things are a little more complicated when it comes to physical assets. There is no option of an IPFS hash, or a hyper link to the real world... at least for the time being. This means that the majority of NFTs relating to physical assets still rely on QR codes or, more simply, company records - present proof of NFT ownership, and the holder of the physical asset will hand it over. Nevertheless, minters the world over continue to press on with NFTs relating to physical assets.

All of this is quite well understood by collectors. 

Slightly less well understood is whether or not they are able to convert one into the other - whether ownership of an NFT always means that the owner is free to move the item it represents from digital to physical and back again.

This is not an exercise in chin scratching. There is real money at stake. Take, for example, Tiffany & Co's Cryptopunk limited edition release (as reported by CNN here).

Cryptopunks started life as the NFT movement's most recognisable collectibles. But, as of August 2022, they have also joined the world of physical collectibles. Tiffany's have converted 250 of them into bejewelled pendants following commissions from their owners. Each piece is worth an astonishing c.$50,000 (30ETH). A quick look at Tiffany's UK webstore shows that even their most expensive diamond ring on offer is worth a measly £30,900! 

So should we expect an explosion in NFT owner-commissioned merch?

Well, potentially not. 

The entire exercise was only made possible by the recent acquisition of all IP in the Cryptopunk NFTs by Yuga Labs. This led to a liberalisation of the IP rights granted to owners. Without this, both Tiffany's and the punk owners involved will have almost certainly faced lawsuits for the infringement of Yuga Labs' newly acquired copyright. 

Copyright litigation in relation to NFTs is far from an unusual occurrence. Miramax sued Tarantino, Jay-Z sued Demon Dash, and so on.

All of this highlights the importance of considering not only the nature of both the NFT and the item for which it serves as a deed, but also the rights that are transferred along with them. Generous licensing provisions may set owners up for substantial merchandising and exploitation opportunities, which in turn will almost certainly boost the value of their investments in the NFTs themselves. Stingy licensing, or absent licensing on the other hand, should be carefully noted. Commercial use will likely only end up one way.