IP, Blockchain, and Digital Assets

5 min

In 2008, a still-unknown person or group going by the alias Satoshi Nakamoto introduced blockchain technology and the first cryptocurrency to the world. In 2020, the cryptocurrency market was valued at $1.49 billion. And, in early 2021, the artist Beeple shattered records when the digital art piece Everydays – The First 500 Days sold, as a non-fungible token (NFT), at Christie’s for a whopping $69 million in Ethereum cryptocurrency. President Biden signed an executive order on government oversight of cryptocurrency in March 2022 that urges the Federal Reserve to explore whether the central bank should join the fray and create its own digital currency. What exactly is fueling this interest and investment? Well, it may be interest in speculative investments, or the desire to embrace the latest technology, but we don’t yet have all the answers on that. However, we can discuss these new technologies, emerging blockchain markets, and digital assets, and highlight the potential intellectual property (IP) challenges and opportunities that come along with it all. So welcome to our first installment in an ongoing series: IP, Blockchain, and Digital Assets.

What is blockchain?

Blockchain is a decentralized, digital ledger that stores data in “blocks” that are connected in a chronological “chain.” The blocks verify the data contained in each new block added to the chain, which ensures the validity of the record. Blockchain allows for the recordation of information and digital transactions in real time, and these records are irreversible, ensuring security and accuracy. Most often, blockchain is used to record transactions involving various digital assets, including cryptocurrency, NFTs, and smart contracts, though blockchain technology is being explored as a tool in many other industries, such as authentication of luxury goods as a means of combating counterfeits, or tracing chain of title for fine art provenance.

Why is blockchain useful?

Blockchain is useful because it is public, secure, and largely unchangeable, which makes it one of the most accurate recordation methods. It is also decentralized, which allows for many identical copies of the record at various locations rather than one, single record vulnerable to attack, deletion, or other methods of destruction. Blockchain also has verification technology built into its design, enabling it to detect fraud and prevent single users from making unverified changes to the record, unlike traditional methods of recordkeeping.

What is cryptocurrency?

Cryptocurrencies, like Ethereum and Bitcoin, are encrypted digital assets that are decentralized and unregulated by a government authority like traditional currencies. There is no fiat currency or precious metal backing cryptocurrency that determines its buying power; the market determines its value instead. Cryptocurrency is produced, tracked, and traded on decentralized ledgers, like blockchains, and is typically stored in digital wallets that interact with blockchains to record transactions.

What can make cryptocurrency preferable to money?

Because cryptocurrencies are based in cryptography (a type of secure encryption), transactions are automatically authenticated and therefore incredibly secure and less susceptible to fraud. Cryptocurrency transactions are also semi-anonymous, affording crypto users a degree of privacy and discretion in their online purchases. The lack of government or bank involvement allows transactions to be completed quickly and easily accomplished across borders, completely circumventing long international banking delays and foreign transaction fees.

What are NFTs?

A non-fungible token is a non-interchangeable unit of data stored on a blockchain that can be sold and traded. NFTs are most often associated with digital files such as photos, videos, and audio. As the name suggests, these tokens are non-fungible, meaning they do not have a one-to-one equivalent in the way that, for example, bitcoin does. Each NFT is unique, which makes them a seemingly perfect way to sell digital artwork.

NFTs are “minted” on platforms like Nifty or OpenSea, which allow content creators to upload works that are then mapped onto a token stored on a blockchain, like Ethereum, where it remains untouched in perpetuity. Each time the NFT is sold or transferred, the transaction is recorded on the blockchain, which acts as a ledger that verifies the provenance of the work.

What is the value of an NFT?

Why would someone spend millions of dollars on a JPEG file when they can just as easily download the image from the internet? There are several potential reasons. For example, NFTs could be considered similar to other valuable copyrightable works such as original manuscripts, paintings, or photographs. Like works in those more familiar mediums, copies can easily be purchased by many people, but there is only one true original. Though the value of NFTs is broadly subjective, there are a number of factors that currently seem to influence it. These factors include, but are not limited to, potential underlying IP rights, rarity, utility, tangibility, ownership history, and speculation. However, keep in mind that, because NFTs are a nascent ecosystem, the various factors that determine the value of NFTs are rapidly evolving.

Blockchain technologies and IP

IP concerns should be top of mind for anyone who wants to wade into the still-murky waters of these emerging technologies. The most relevant concerns broadly surround three common types of intellectual property: copyrights, trademarks, and patents. Copyrights protect the exclusive ability of creators of original tangible works (e.g., art, poetry, music, novels, etc.) to use and duplicate the original work. Trademarks are any words, designs, slogans, or symbols that represent a brand, product, or company. Patents grant exclusive rights to inventors to use and sell their inventions (e.g., designs for tools, scientific processes).

For example, NFT owners have the right to display the digital art and resell it through other blockchain transactions but do not necessarily obtain the copyright associated with the work. The same issues can arise with trademarks and patents. Buying an NFT of a cup of Dunkin’ Donuts coffee does not necessarily allow the buyer to freely use the Dunkin’ Donuts logo in that NFT for any purpose. Similarly, purchasing an NFT that has patented elements would not allow the purchasers to reverse engineer that technology and sell it as their own.

Without an express agreement to the contrary, the creator may retain all exclusive rights as the IP owner. NFTs are flexible in that the seller may grant a limited license to the IP associated with an NFT in the terms and conditions of sale, but such licenses are granted at the discretion of the seller. NFTs by their nature can be “minted” by anyone; therefore buyers and sellers alike should be cautious and explicit about what IP rights are being transferred with the NFT.