“Artistic Blue Ocean” or “Leek Scam”? The source of value, rights dilemma and countermeasures of NFT

Deng Jianpeng: Professor of Law School of Central University of Finance and Economics, Director of Fintech Legal Research Center

Li Jianing: Master of Law School of Central University of Finance and Economics

Original title “The certificate of rights of digital artworks – the source of value, rights dilemma and countermeasures of NFT”

This article is published in the sixth issue of “Exploration and Contention” in 2022

Unless otherwise stated, the pictures in the text are from the Internet

Since its inception, blockchain technology has been widely used in the financial field. With the continuous development of blockchain finance, it also brings certain risks due to its own characteristics. The non-homogeneous token (hereinafter referred to as “NFT”) relying on blockchain technology may make the blockchain better serve the digital economy era and avoid financial risks, thus becoming the focus of practitioners in recent years. NFT is a concept opposed to a homogeneous token (FT, Fungible Token). Its “Non Fungible” feature is reflected in that each NFT has a unique digital ID (Token ID) and records the creation time, Information such as transaction records, each NFT is unique, which makes NFT an excellent tool for determining the ownership of digital assets, proving authenticity, and reflecting scarcity. NFT records the ownership information and transaction process of the mapped digital assets, which helps to solve the long-standing problems of digital artworks such as unclear ownership of rights and rampant piracy. Therefore, the field of digital artwork has become an important application scenario of current NFTs.

“Artistic Blue Ocean” or “Leek Scam”? The source of value, rights dilemma and countermeasures of NFT

As a new thing combining blockchain technology with digital artwork, before 2022, there were few legal studies on NFTs in China, and it was only recently that some legal researchers paid attention. Some commentators say that NFT is currently mainly focused on cultural and artistic products, which may cause intellectual property risks. If the work that is first completed on the chain itself has intellectual property defects, the issuance of NFT will likely greatly increase the damage caused by infringement. However, it has not conducted in-depth research on the risks of NFTs in the field of intellectual property. The commentator also said that NFT can be considered to restore its technical essence, characterize it as an encrypted digital certificate, separate the mark as a carrier from its additional value and products, and pass the legal positioning independent of digital tokens and other encrypted assets. , and establish another regulatory system framework, in order to achieve the separation of the carrier itself and the directed content at the level of legitimacy. This means that a new legal relationship framework needs to be established, and a new governance framework needs to be established. The author believes that “encrypted digital certificate” is a superficial description of something, not a special legal term/legal concept. Whether such descriptions accurately capture the characteristics of things and are sufficient to be incorporated into legal provisions remains to be considered. In addition, such new things have been around for a short period of time, and their future business development remains to be seen. Establishing a new legal relationship framework and a new governance framework for them is immature in terms of timing, legislative costs, and regulatory costs.

According to the nature of the transaction object that NFT refers to, some commentators divide it into two types: asset-based NFT and rights-based NFT. Asset-based NFT refers to the NFT of various physical or digital assets. Rights-based NFT means that the holder has rights such as equity, bonds, or the right to use specific goods or services. Such divisions need to be rethought. If NFTs are regarded as rights such as equity or bonds, first, the sale of such rights (certificates) can be shared or homogenized, which contradicts the connotation of “non-homogenized” tokens; second, such rights (certificates) have The nature of investment income and securities attributes, if the issuance of NFTs is regarded as securities issuance, it is inconsistent with the mainstream issuance practice of combining NFTs with digital works in recent years, and it is also in line with the requirements of industry organizations such as the China Internet Finance Association in April 2022 that “not included in the underlying products of NFTs. Financial assets such as securities, insurance, credit, and precious metals are issued and traded financial products in disguised form.

In foreign countries, NFT initially had a great influence in the field of copyright protection such as online games, and changed the existing pattern of interest distribution among authors, intermediaries, and work buyers. Related researches mainly discuss this. Since 2021, with the increase of NFT application scenarios, the focus of legal research has shifted from intellectual property rights to broader types of rights. For example, from the perspective of information theory, it is demonstrated that possession theory can become the basis for private law to protect intangible properties such as NFTs, and that NFTs constitute a new type of ownership. etc., but mature legal research is still in short supply. Existing research mainly focuses on whether a specific right in the current law can be used to describe the rights status of relevant subjects after the emergence of NFTs. It is not based on how to reflect the value of NFTs based on real cases, and what rights does holding NFTs mean? A more comprehensive refinement has not reflected on what kind of rights dilemma NFT is currently facing and the countermeasures to resolve it. Like when people buy an NFT of Jack Dorsey’s tweet, what rights do they have over the NFT itself? What rights do you have over this tweet? Among the copyright and owner of the artwork, who has the right to issue NFT? If the original no longer exists, what does the NFT associated with it represent and what is its value? Focusing on these issues, analyzing the rights attributes of NFT, providing theoretical reference for the healthy development of the industry, and providing academic wisdom for future legislation or judicial practice are the top priorities of NFT legal research.

Dual Sources of Value for NFTs

As a token built on the blockchain, NFTs are usually indivisible. NFT is to the mapped digital assets, just like the real estate certificate is to the real estate recorded in it. NFT is especially suitable for becoming the certificate of rights and authenticity of digital artworks. For original digital artworks, NFT has the functions of defining its ownership of rights, publicity of rights and proof of rights, which provides unprecedented technical convenience for the transaction, circulation and income of digital artworks.

In the past, because people can easily obtain unlimited and undifferentiated copies of digital artworks, the value of digital artworks has been underestimated for a long time, and the author’s creative motivation has been suppressed. The characteristics of NFT can solve these problems. The source of value is the cornerstone of rights. To analyze the rights involved in NFT, you should first understand the source of its value. Digital art is different from the traditional art collection experience. NFT buyers usually cannot physically control the work, and the meaning of the work’s ownership needs to be redefined. We need to understand: Is the high price of some NFTs due to the value of the assets they map, or is it due to the scarcity of the NFTs themselves, or is it just hype for new concepts? What rights do people have when they spend a lot of money on an NFT? The value of the assets mapped by the NFT is an important factor affecting the value of the NFT. For the NFT of digital artwork, its value mainly comes from the value of the object mapped by the NFT, but the uniqueness of the NFT itself may also make it a collectible value. of digital assets. In other words, the source of value of NFT includes the digital artwork mapped by NFT and the independent value of NFT itself.

First of all, NFT records its own unique content such as creation information and transaction information, which may become a source of value. For example, before and after the sale of Alipay skin NFTs in June 2021, some users posted information on the “Xianyu” platform, “Recover Dunhuang Feitian skin NFTs with numbers 0001 or 6666 at a high price, 100,000 pieces”. In order to prevent speculation, “Xianyu” officially removed all NFT-related products from the shelves. In this case, the NFT with a specific number is considered to have higher value, which is derived from the scarcity of the NFT itself, and can also convey information that the assets it maps cannot convey.

“Artistic Blue Ocean” or “Leek Scam”? The source of value, rights dilemma and countermeasures of NFT

Second, to measure the value of NFTs, it is necessary to get rid of the inherent thinking of only focusing on what rights holders have over the assets mapped by NFTs. Social media Twitter CEO Jack Dorsey put his first tweet “Just set up my twitter” to auction in NFT form, with bidders fetching 1630.58 ETH Get this NFT (about $2.9 million at the time). The tweet is still visible on the entire network, and the NFT buyer does not have exclusive access to the tweet except for the NFT itself. If it is measured by the real-world rights content, it is difficult to understand why the NFT is expensive. The high price of this NFT is not only related to the speculation of speculators, the historical event of the social network that Twitter founder “published the world’s first tweet” and Jack Dorsey’s “opinion leader” in the blockchain field. Factors such as status may increase the value of the NFT.

Thirdly, recognizing the independent value of NFT is conducive to understanding the current transaction logic of NFT and its rights attributes, and better protecting the rights of NFT holders. For example, Marble Cards is a web page collection game. Users can enter URLs on the platform to create and collect web card NFTs. The center of the card displays the image of the bookmarked web page. Users do not have any rights to the bookmarked web pages and card images, and holding NFT only means owning an NFT representing a specific website in the game. It is not uncommon for the transaction object to be only the NFT itself and not the asset to which the NFT is mapped. In the Marble Cards game, each website can only generate one NFT, which is scarce; as web traffic increases and fame increases, the price of the corresponding NFT may also rise. People recognize this value and are willing to pay for it. The law should respect the recognition of value that the market spontaneously forms. Of course, tolerance for new things does not mean that the law can be absent in the protection of rights and the maintenance of transaction order. NFT is a digital asset native to the blockchain. As a digital asset, it has property interests, and the law should confirm it. The rights of NFT buyers are worthy of protection, which must be premised on the legal recognition that NFT itself is a digital asset with independent value.

Rights attributes of NFTs

In terms of the rights of NFT holders to NFTs, as mentioned above, aside from the mapping relationship between NFTs and off-chain assets, NFTs themselves are digital assets with objective value and should be protected by property rights. Like the virtual equipment in the game, NFT is a virtual object generated in the electronic and network environment, and should belong to the legal object of civil rights of “network virtual property”. Article 127 of my country’s “Civil Code” clarifies that online virtual property is a type of property protected by law, but this clause is only a declarative provision. There is a lot of debate in the academic circles on the design of the “Civil Code” property rights “from the real to the virtual” and “from the virtual to the real”. There are real rights theory, creditor’s rights theory, new property theory, and multiple rights for the protection path of virtual property on the Internet. Object theory, etc., and lead to the debate on whether online virtual property can be issued by securitization. The rights attributes of NFT can be analyzed from the perspective of the technical characteristics of blockchain. The underlying technologies of NFT and FT (homogenized tokens, such as ether, etc.) are both blockchains. The existing discussions on the attributes of FT property rights also Can be applied to NFTs. Regarding the property rights attributes of blockchain tokens, the theory of real rights and the theory of creditor’s rights are two mainstream views. Although some commentators say that there are tokens in NFTs that are very similar to “things” (such as “star cards”), we cannot simply consider them to be “things”. There is also a big difference between NFT and the existing examples of movable property. At the same time, there is no law that stipulates it as the object of real rights, and a series of existing real rights legal systems are not applicable.

This article believes that NFT should be protected by real rights, and the right of NFT holders to the virtual property of NFT is ownership. The reasons are as follows:

First of all, the NFT holder can exclusively control the NFT by mastering the private key, and other subjects cannot take action against the NFT, which is in line with the basic legal principle of “one property, one right” and the dominance of property rights. Secondly, the non-homogenization and uniqueness of NFT itself make it meet the specific requirements of the object of real right. Third, the blockchain is a public ledger that records all transactions that have occurred on the entire network. The NFT transaction information is completely recorded, cannot be tampered with, and is open to all nodes, which is equivalent to solving the problem of publicity and credibility of changes in property rights through technical means. Taking NFT as the object of real rights and protecting it in accordance with the rules of the Civil Code on movable property, acknowledging that the holder of the NFT private key has ownership of the NFT is not only in line with the technical principles of the NFT, but also conducive to further broadening the exchange value of the NFT. For example, when a pledge right is established on NFT in the future, the effects of exclusivity, pursuit, priority, and claim right of property rights can also be applied to NFT.

The reasons for questioning the blockchain token property rights include “things must have a body” and “property rights are legal”. With the rapid development of science and technology, the concept of “things” is limited to physical objects, and it has been unable to keep up with the changes of the times. The principle of legal property rights limits the space for NFT property rights protection through interpretive theory. However, as mentioned above, unlike non-blockchain virtual assets such as game props and virtual tokens controlled by centralized institutions, the underlying technology of the blockchain enables NFT holders to independently decide to initiate and confirm according to the code rules of the blockchain Transactions are made and made effective, and holders can use, enjoy, display and dispose of NFTs in the blockchain space without third-party interference, and their rights conform to the characteristics of ownership. With the rapid development of NFT and the current hot “Metaverse”, it is necessary to expand the scope of legal property rights in the future.

Existing NFT transaction cases have described the rights of NFT holders to the NFT itself as ownership. For example, NBA TOP SHOT is an NFT published on the Flow public chain that records the “Moment” videos of NBA players on the court.According to the platform’s terms of service, purchasing Moment means completely owning the underlying NFT, and the buyer has the right to exchange, sell or give away Moment; the ownership of Moment is completely regulated by the Flow public chain; if the holder does not obtain Moment from a legal source, the platform has The right to delete related pictures and descriptions, but such deletion does not affect the buyer’s ownership of the NFT already owned; Moment exists by virtue of the ownership records maintained in the Flow public chain. According to the above rights description, the holder’s rights to the NFT conform to the characteristics of ownership. It needs to be clarified that NFTs are different things from the digital assets they are mapped to. Some people believe that NFT reshapes the existing business model of the virtual world, and through NFT transactions, the holder regains the ownership of the virtual property. This view may confuse the relationship between NFTs themselves and the digital assets they map. Holding NFT only means ownership of NFT, the blockchain token, and the rights to the digital assets mapped by NFT depends on the specific agreement between the parties.

In the homogenization token (FT) stage, functional tokens do not directly map other assets, and security tokens are recognized as securities by countries with mature supervision such as the United States. The rights of token holders to the mapped assets can be referred to The relevant provisions on the rights of holders of financial assets such as securities and bonds shall be determined. After the emergence of NFT, the application of the token broke through the scenarios of payment and financing, and the holder’s rights to the mapped assets showed a trend of diversification. NFTs can not only self-certify ownership, but also prove their relationship with the mapped digital assets. In view of the fact that digital artwork is the most important application scenario of NFT in recent years, it is also the object of property rights and intellectual property rights, and the rights relationship is more abundant. This article mainly takes digital artwork NFT as the object to analyze the rights of NFT holders to the mapped digital assets. . By typifying existing digital artwork NFT trading practices, it can be found that holding NFT may mean ownership, copyright, or only the right to access specific content to the artwork mapped by NFT.

NFT can be used as a certificate of rights for the ownership of digital artworks. For example, in the digital artwork NFT transaction of “Every Day: The First 5000 Days”, the author Beeple has the encryption key of the work, which is equivalent to owning the authenticity certificate of the work; after the auction is successful, the buyer will receive the encrypted file of the work and private key, the NFT will be transferred to the buyer’s digital wallet. The author recognizes that the NFT holder who has obtained the private key has the ownership of the work, and at the same time recognizes that the private key holder has the right to resell the NFT, that is, transfer the ownership of the work. Holding NFT means ownership of the mapped digital artwork, which is the most attractive part of NFT-related publicity. The Internet has cultivated people’s attachment to the virtual world. People spend a lot of money on game equipment, spend a lot of time building their own social platforms, and place their past emotions on physical items in digital assets. However, the development of the digital economy has eroded the ownership-based approach. The asset transaction mode of the main object. “We have a lot of digital assets, but we never really own them.” In the past, when people bought digital music and in-game item skins on the Internet, they did not take ownership of these virtual properties, but acquired non- License to commercially use these virtual properties. NFT attempts to satisfy people’s desire to obtain ownership of non-native digital assets in the blockchain – issue NFT as a certificate of ownership of off-chain assets, and establish a technical relationship between NFT and works by holding and trading tokens representing ownership. One-to-one correspondence to realize the “ownership” of digital artworks.

“Artistic Blue Ocean” or “Leek Scam”? The source of value, rights dilemma and countermeasures of NFTEvery Day: The First 5000 Days

NFT can be used as a certificate of rights for digital artwork copyright. According to Article 20, Paragraph 2 of the Copyright Law, the transfer of the ownership of the original works does not change the ownership of the copyright of the works, but the right to exhibit the original works of art and photography shall be enjoyed by the owner of the original works. Therefore, if the ownership of a work of art is transferred, the exhibition right is also transferred. Therefore, the NFT holder of the aforementioned Beeple work has the right to publicly display the painting in accordance with the law, but other copyright property rights of the work, such as reproduction rights, adaptation rights, etc., do not belong to the statutory rights to be transferred with the ownership of the work. If Beeple does not explicitly grant these copyright property rights to the NFT holder, these rights remain with the copyright owner, Beeple. The copyright owners of some digital artworks have granted NFT holders some copyright property rights, but the degree of restriction of their copyright property rights varies. For example, Dapper Labs, the founding team of CryptoKitties NFT, allows buyers to commercialize the image of CryptoKitties with a total annual revenue of no more than $100,000. Additionally, NFTs may only entitle holders to access to specific digital artworks. For example, after the purchaser obtains the digital collection issued by JD.com in “Zhizhen Chain” in December 2021, his rights are mainly limited to limited rights such as access to the digital artwork mapped by NFT and non-commercial display.

As a proof of authenticity of off-chain digital assets, NFT can be used as a proof of copyright in digital artwork transactions. The copyright certificate is different from the confirmation certificate. The former only means that the digital work mapped by the NFT is a genuine work, not an infringing work. Holding this NFT is equivalent to legally holding a work authenticity confirmation certificate and obtaining access to genuine digital works. qualifications. For example, the digital music NFT released by musician Mike Shinoda clearly defines the rights granted to NFT holders: NFT only grants limited personal non-commercial use and resale rights, and NFT holders have no right to license commercial use, reproduction, distribution , making derivatives, public performance or public display of NFT, Mike Shinoda reserves all copyright and other rights to the music and all artistic content contained in it.

It can be seen that the digital music NFT is equivalent to a copyright identification certificate. The NFT holder has the right to access the content of the genuine work, that is, to listen to the genuine music, and can also sell the NFT to others, but does not have any ownership or copyright to the music work itself. This restriction of rights is prevalent in current NFT transactions. The digital art trading platform Foundation’s restrictions on the rights of NFT holders more clearly explain the difference between NFT rights and work rights: NFT is the property of the collector, but the collector does not own the work itself. There are no rights to the relevant intellectual property rights, and the collector is given a limited, worldwide license to demonstrate that the collector’s digital work is legal and appropriate.

According to the above typological analysis of the connotation of NFT rights in digital artworks, it can be seen that NFTs are related and relatively independent of the digital artworks they point to. The attributes of NFT as a certificate of digital artwork rights should have two meanings: First, based on technical characteristics, NFT’s own creation information, ownership of rights, and transaction process can be clearly checked on the chain, which determines that NFT has the ability to determine ownership for itself. function. Second, NFT has the function of confirming the rights of the mapped digital artwork, but the connection between NFT and digital artwork does not necessarily lead to the transfer of the rights of the mapped digital artwork along with the issuance and transaction of NFT. Rich or thin depends on the specific prior agreement between the two parties to the transaction. In the digital artwork NFT transaction, unless the parties agree otherwise, neither the ownership nor the copyright of the work is transferred to the NFT holder, and holding the NFT can only prove that the holder is the owner of the NFT and has the right to access the NFT. A genuine work of mapping. In practice, the terms of service of most NFT project parties and NFT trading platforms indicate that NFT does not represent the ownership or copyright of the original work. Therefore, as some skeptics have claimed, holding NFTs may only express “emotional sustenance for connecting the digital realm.”

NFT’s rights dilemma and countermeasures

NFT brings vitality to the digital art industry, but its application potential is not limited to this. As people spend more time in virtual space-time activities such as the “Metaverse”, more digital assets will be combined with NFTs, such as granting membership in the form of NFTs, issuing digital tickets, or confirming various virtual assets in the “Metaverse”. right. NFTs also have the opportunity to be applied to the physical world, such as property registration, authenticity identification of wine and other objects, etc. It can be seen from the scenarios in which NFT is expected to be applied, the long-term value of NFT mainly depends on whether it can truly solve the problems existing in digital asset transactions and realize the ideal of confirming the rights of digital assets in the cyberspace. But the reality is that current NFTs have not fully established “free and clear” rights in the digital world, as the promoters promised. There are still major obstacles to the realization of NFT’s application potential, and the connotation of NFT’s rights faces the following dilemmas:

“Artistic Blue Ocean” or “Leek Scam”? The source of value, rights dilemma and countermeasures of NFT

First, the unrestricted “minting right” (issuing NFT) has impacted the legitimacy of the property rights attribute of NFT. As mentioned above, NFT can establish a one-to-one mapping relationship with off-chain assets to provide legally required certificates of rights. However, the “minting rights” of NFTs are not limited, and there may even be a situation where different NFTs for sale on multiple trading platforms jointly map the same popular digital artwork. The blockchain can ensure that the information cannot be tampered with after being put on the chain, and ensure the authenticity of the original digital assets on the chain, but it cannot verify the authenticity of the data source outside the chain. If there is fraud before the information is put on the chain, then ensuring authenticity or the so-called right confirmation through blockchain technology can only be a false proposition. NFTs are native assets of the blockchain, but digital assets such as artworks mapped by NFTs are not native to the chain, but have original versions in physical or digital form outside the chain, and there is a risk in the original confirmation of assets. At present, there are many simple and easy-to-operate NFT issuance platforms on the Internet, and the unrestricted so-called “minting rights” may cause major infringement problems.

Among them, the most common form of infringement is to “mint” NFT for a specific asset without the permission of the original right holder. At this time, the legitimacy of NFT-related rights is in doubt. On July 15, 2021, the well-known domestic media “Caixin.com” issued an announcement saying that its media report “Development: China Says Goodbye to Bitcoin “Mining”” is an original photographic work, but some people have not authorized the work and The adapted version of the work is uploaded to mainstream NFT trading platforms such as OpenSea for sale. These infringers may be hidden in any corner of the world, making Caixin face realistic obstacles to accountability. Some researchers pointed out that in today’s digital age, compared with traditional intellectual property rights, intellectual property rights, including copyrights, have new developments in the types of infringements and behavior patterns, and there are defects in the path of accountability for network service providers. . Although the previous article pointed out that NFTs can help people realize the “ownership” of digital artworks through agreements, buyers may own infringing works. People expect that NFT can become a conversion interface between the real world and the blockchain world, but this conversion process may be a high-incidence area of ​​infringement. Another type of infringement occurs between different blockchain platforms. A popular NFT project on one blockchain platform may be counterfeited on another blockchain platform. For example, the “Binance Punk” of the well-known virtual currency exchange Binance was accused by the Ethereum community as an imitation of the Ethereum “Crypto Punk”. The former is similar to the latter in terms of visual effects and code.Infringement issues may lead to bad coins driving out good coins and “broken window effect” in the NFT market, seriously damaging the rights and interests of the original rights holders and buyers. In addition, the “minting” and trading of NFTs also have a natural global trend, which makes it difficult for overseas infringers to be sanctioned by the laws of a single country.

At present, NFT overseas transactions are mostly conducted on mainstream platforms such as OpenSea, while domestic transactions are mostly implemented in blockchain systems built by well-known Internet companies such as Ant, Tencent and JD.com, or in international mainstream auction companies such as Sotheby’s. Before these well-known institutions launch NFT, they should undertake the obligation to review the legality of the creator’s NFT source, and can set up a margin system, and adopt a real-name authentication system for the NFT creator (or issuer) to strengthen the post-event accountability mechanism and make NFT “minted”. rights” are effectively controlled to reduce infringement disputes in the NFT field. When an NFT infringement dispute occurs, a “blockchain-based dispute resolution mechanism” can be considered. The consensus mechanism of the blockchain and the smart contracts established on this basis provide an effective solution to the problems of “applicable norms” and “execution basis”. Smart contracts based on consensus mechanisms and algorithmic trust have changed human reliance on the legal system based on subject trust. Even in the absence of clear legal provisions, with the help of general common sense and basic principles of contract law, it can be solved efficiently and at low cost. On-chain disputes with simple legal relationships. After the decision to deal with the dispute is made, the blockchain-based dispute resolution mechanism will trigger the execution clause of the smart contract to automatically execute the decision. This mechanism solves the difficult problem of enforcement, and at the same time avoids the legitimacy disputes of enforcement in the private governance field.

The second is the dilemma caused by the storage paradox. The storage space of the blockchain is limited, especially in recent years, the fees for “minting” and storing NFTs on Ethereum are high. Therefore, NFT projects mostly store the metadata of the mapped digital assets outside the chain, which means An NFT is only associated with the digital asset to which it is mapped through a link to an off-chain storage location. Currently, metadata is usually hosted on a centralized server, which brings two problems: First, if the specific company that the server belongs to stops operating, the content pointed to by the NFT may no longer exist, resulting in a specific NFT that may become worthless. , the right has lost the cornerstone of its dependence. Second, the metadata on the centralized server can be modified, resulting in the NFT mapping no longer the assets that the right holder expects to own, violating the legal rights of the holder. The concept of NFT is to enable the right holder to confirm the right of digital assets by holding the blockchain certificate. The defects of the storage mechanism may make the above goals impossible to achieve. Although NFTs themselves will be perpetuated in the blockchain, trading platforms and operators can delist their mapped digital artworks, close trading pages, and stop project operations, which may make NFTs useless datasets. At present, some trading platforms are exploring the use of decentralized off-chain storage methods. For example, the NFT trading platform OpenSea allows NFT creators to use decentralized distributed systems such as IPFS and Filecoin to store metadata to ensure that metadata cannot be tampered with and persist. Complying with the trend of decentralization, NFT can truly realize the ideal of confirming the rights of assets in the virtual world. However, for NFT suspected of infringement, centralized storage can ensure that the information deletion request for the website host (specific server storage) is effective and executable. NFT ecological governance and industry compliance still need to retain the possibility of centralized power intervention. How to deal with the paradox between the two tests the wisdom of technology and law.

In response to this problem, centralized storage can be converted to a consortium chain (multi-center storage mechanism) to reduce the possibility of a single point of failure for centralized storage institutions. At present, the “digital collections” launched by Ant, Tencent and JD.com in China are all derived from the alliance chains developed by themselves, which are independent of each other and are essentially similar to private chains. In the future, these chains can be connected to each other to form a real alliance chain and multi-centralized storage through the introduction of industrial policy incentive mechanisms by the state. For overseas public chains, a completely decentralized storage mechanism (such as using IPFS, Filecoin, etc.) can be adopted. At the same time, in order to avoid possible infringement of NFT products stored on the chain, a blockchain security company can be audited, and a blacklist system can be set up. Network information notification mechanism. Once NFT infringement is found, the entire network will be specially marked to reduce the willingness of others to purchase, reduce the liquidity and value of the infringing NFT, and play a role in regulating and guiding subsequent potential infringers.

The third is the legal risk dilemma of “fragmentation” of non-homogeneous tokens. As mentioned above, although NFTs are generally indivisible, each NFT has its own uniqueness. In recent years, there has been a technological trend of NFT “fragmentalized NFT” (F-NFT for short in the industry). Decentralized protocols such as Fractional can convert NFT to FT based on the ERC-20 protocol, and the trend of F-NFT in the digital art market is becoming more and more popular. The reason is that the price of a single NFT of popular digital artworks is too high, and the fragmented sale of NFTs can lower the participation threshold, release the liquidity of digital artwork NFTs, and enable authors to extract more income from the circulation of NFT fragments. But these ERC-20-based tokens are homogenized and divisible, they collectively represent the underlying asset (NFT and its mapped digital artwork) and can be distributed among multiple owners. As a result, F-NFT is similar to FT with token financing function, and it is suspected of selling “financial products” in disguised form, which may lead to financial risks and strict supervision. In the U.S., F-NFTs have attracted the attention of U.S. financial regulators because they may constitute securities; in China, F-NFTs may deviate from the financial regulatory ban on “token offering financing” (ICO), making NFTs suspected of standardized contract transactions, NFT financial Illegal businesses such as productization that have not been approved by regulatory agencies may be targeted by regulatory agencies. This trend has recently aroused the vigilance of industry associations, which require relevant institutions and individuals to “do not weaken the non-homogeneous characteristics of NFTs by dividing ownership or batch creation, and carry out token issuance financing (ICO) in disguise.” Perhaps based on concerns about such legal risks, well-known companies such as Ant and Tencent renamed the NFTs they issued “Digital Collections”

“Artistic Blue Ocean” or “Leek Scam”? The source of value, rights dilemma and countermeasures of NFT

Regarding this issue, industry associations or financial regulators can jointly issue a document calling for (or requesting) to prohibit unapproved NFTs from conducting “any standardized contract transactions”, illegal asset securitization and other violations, and to combat NFT “fragmentation” stakeholders Financing tendency, strengthen international regulatory cooperation, encourage domestic regulated blockchain companies to participate in the promotion of NFT products, and give play to China’s compliance demonstration, dominance and international influence in the NFT market. At present, the China Internet Finance Association, the Banking Association and the Securities Association have jointly issued the “Initiative on Preventing Financial Risks Related to NFTs”, which provides industry self-discipline guidelines for relevant institutions and individuals and promotes the development of industry compliance. In addition, the current high prices of some NFTs are mainly based on the novelty of the NFT concept and people’s imagination of potential profit opportunities, and transaction participants seem to be uninterested in the rights connotation of NFTs. Speculative psychology makes some investors eager to pursue new concepts and abandon the question of the value basis of NFTs. If buyers want to protect their own rights and interests, they should understand the rights attributes and types of specific NFTs, know what they have bought, do due diligence before purchasing, pay attention to the rules, authorization scope and rights restrictions of the project party and the trading platform, Fully understand the rights content of a specific NFT to avoid major losses. To this end, regulators should strengthen investor/consumer education, and remind buyers to pay attention to the seller’s agreement on the transfer of NFT when purchasing NFT. The restrictions on the transfer of the property rights of the digital artworks that are mapped avoid the purchaser from falling into pure speculation and speculation, and especially should stay away from the “fragmented” NFT transactions.

In short, the popularity of NFT in the digital art trading market has made people have a different understanding of the value of blockchain tokens, changing people’s vision from the homogeneous token represented by Bitcoin and the deep understanding of financial risks. Worried, in part turned to NFTs as proofs of digital artwork rights and authenticity. Out of concern about financial risks, the Chinese government has implemented an industrial policy of “coinless blockchain” in recent years to encourage the development of consortium chains. However, the alliance chain mainly applies the mature technology of distributed ledger, and its technical content is limited. How to promote blockchain technology to further serve the digital economy while avoiding financial risks should be the focus of the next policy. The development of NFT technology and digital artworks has provided a lot of experience in this regard, which will bring tremendous development momentum to the digitization of the cultural and creative field.

“Artistic Blue Ocean” or “Leek Scam”? The source of value, rights dilemma and countermeasures of NFT

The Palace Museum, National Museum, Hubei Provincial Museum, Hunan Provincial Museum, Henan Museum and other institutions have successively launched digital collection services for their collections, and digital museums have also become the trend of cultural digital infrastructure in the new era.

However, the current NFT market is still in the stage of conceptual hype. From a natural point of view, the value source of NFT includes both its own independent value as a carrier and the value of its mapped assets; the rights attributes and connotations of NFT include the value of NFT itself. Ownership also includes ownership and copyright of digital assets mapped by NFT, or using NFT as a proof of the authenticity of digital assets, so that holders have the right to access specific assets. From a practical point of view, there are still many rights dilemmas in NFTs – what NFT buyers obtain is not necessarily the mapped digital assets themselves, but a string of codes pointing to the digital assets. The meaning of purchasing this string of codes may only be to prove themselves. is the sole owner of this string of codes. Problems such as infringement, paradox of storage status, and fragmentation of NFTs caused by the unrestricted ” minting rights” will make it difficult to realize the promise of NFTs to reshape the ownership of the digital world.

Therefore, legal researchers should clarify the cornerstone of the rights attributes of NFTs and the current rights dilemmas, promote the integration of the should and the real, and design a preliminary plan to deal with the rights dilemma, which will help the future link between the virtual space and the real world. normative development.

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