‘Dune’ NFT copyright fiasco is the least of Crypto’s legal worries

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Before Spice DAO dropped $3 million on a rare copy of Alejandro Jodorowsky’s production book for Dune at Christie’s, the group tweeted plans to “tokenize” the book.

He can’t do that.

The decentralized autonomous organization has since backtracked, now claiming (somewhat implausibly) that it never believed that owning a copy of the book would amount to copyright ownership, with the associated rights to reproduce the work in NFT form or to prepare derivative works. The incident nonetheless caught the attention of crypto skeptics, who cite buying Spice DAO as an example of what can go wrong when crypto enthusiasts get ahead.

Whoever was in charge of legal research at Spice DAO seems to have missed it badly, but many legal questions about NFTs are confusing because there are no clear answers yet. Since NFTs are just units of encrypted data stored on a digital ledger, typically the Ethereum blockchain, they themselves contain no visual content. Rather, they are tokens that merely reference digital artworks by linking them. NFT purchasers generally acquire neither a physical object nor the copyright in a digital object. To possess an NFT is to possess a signifier without a referent.

NFTs, or non-fungible tokens, have emerged from the anarcho-techno-libertarian recesses of an internet where “standards” are the enemy and anything as insipidly mainstream as “the law” must be treated with suspicion. 2021 was the year NFTs hit the mainstream, with artist Beeple’s NFT Everydays: The First 5000 Days selling at famed auction house Christie’s for $69 million – a sum of unfathomable money for an asset that, in an important sense, does not exist.

For some, this is why NFTs represent the ecstatic apotheosis of concept art. For others, NFTs are a collective illusion, or one more symptom of doomsday capitalism. Polarizing and confusing, NFTs are exploding in popularity, however, attracting investors enthusiastic about this new asset class but not necessarily sharing the utopian impulses of the crypto artists who have been operating in this space for years. “There is a new class of investors who are attracted to NFTs and stocks even because they are interested in stories,” says investment strategist Yuri Cataldo, “but I would classify NFTs as extremely high risk. .It’s just like the game.”

This makes many people uneasy, and a clash of cultures seems inevitable as lawmakers begin to watch this volatile new market, considering regulations that will strengthen consumer protections.

Matt Kane, a former oil painter who now designs his own software, using code as a medium for NFTs, recalls that “those of us who got into it when there was no money had a more collective spirit and a collective vision of disinterested leadership”. this technology should enter.

The idea was that “smart contracts” would replace traditional legal frameworks governing property. Traditional contracts are agreements between parties, usually written in natural language, that create legally enforceable obligations. If one of the parties breaks a traditional contract, the other party can sue them. The downside to this age-old model is that litigation is often prohibitively expensive. Too often, the richer of the two parties to a contract can break it with impunity because the other party does not have the resources to enforce its performance.

Smart contracts, or self-executing transaction protocols, are software. They are written in the formal code language. Since they live on the blockchain, backed by a vast distributed network, one cannot break a smart contract as one would with a regular contract; their terms are executed automatically. In theory, there are no court costs. No attorney fees. No need to trust the other party or the flawed and often inaccessible legal system. For these reasons, smart contracts are attractive to some artists, especially early-career artists, who typically have fewer financial resources.

Artists like Kane have worked to ensure that many smart contracts controlling NFT sales contain provisions for artist royalties. In the world of analog art, an artist is paid when he sells a painting to a collector, with his gallery owner taking a share of up to 50%. After this first sale, even if the value of the painting has increased a hundredfold, the artist earns nothing when the collector resells it. To address this perceived injustice, NFT contracts now often provide for artists to automatically receive a 10% royalty for all secondary sales.

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