Introduction
The digital economy has created new ways of producing, sharing and trading creative works. Music, photographs, paintings, videos, books and computer-generated art can now move across the world in seconds. Among the technologies that have attracted significant attention in recent years are non-fungible tokens, commonly known as NFTs. Artists, musicians, sports organisations, game developers and large brands have used NFTs to create new markets for digital content. Some NFT collections have been sold for millions of dollars, while others have become part of online communities, games and virtual environments.
The rise of NFTs has also raised important legal questions. What exactly does a person acquire when purchasing an NFT? Does ownership of an NFT mean ownership of the underlying artwork, photograph or music? Is a person legally allowed to create an NFT using another person’s work? These questions lie at the intersection of technology and intellectual property law.
Copyright is particularly important in this discussion because many assets associated with NFTs are works protected by copyright. The law distinguishes between ownership of a digital token and ownership of the rights in the creative work linked to that token. This distinction is simple in principle but often misunderstood in practice. An understanding of NFTs therefore requires an understanding of copyright and the role it continues to play in the digital environment.
Understanding Non-Fungible Tokens
To understand NFTs, it is necessary to begin with the idea of fungibility. The word “fungible” describes something that can be replaced by another item of the same kind without making a meaningful difference. A fungible asset is one that can be exchanged for another asset of the same value. A Kenyan one-thousand-shilling note can be exchanged for another note of the same value without changing its economic worth. A unit of fungible cryptocurrencies such as Bitcoin operates in a similar way because one unit can generally be substituted for another. The individual unit does not have a unique identity that gives it a different legal or economic character from another identical unit.
An NFT works differently because it is designed to be unique and identifiable. It is a unique digital token recorded on a blockchain. A blockchain is a digital ledger maintained across many computers, where information is stored in blocks connected in chronological order. Once information is recorded, it becomes difficult to alter. An NFT contains a unique identifier that distinguishes it from every other token. On a blockchain such as Ethereum, an NFT can be identified through information including its token identification number and the address of the smart contract under which it was created. The combination creates a unique token that can be tracked as it moves between blockchain addresses.
An NFT may be linked to a painting, photograph, music recording, video, digital collectible, game item or even a physical object. The token usually contains metadata, which is information describing the asset and pointing to its location on the internet or another storage system. In many cases, the NFT itself is not the artwork or music file. Rather, it is a digital certificate recorded on a blockchain that establishes a connection with the underlying asset. Anything capable of being digitised can, in principle, be associated with an NFT.
NFTs are created through a process known as minting. During minting, information relating to a digital asset is recorded on a blockchain through a smart contract. A smart contract is a computer program that automatically executes agreed instructions when certain conditions are met. Smart contracts can govern transfers, payments and, in some cases, royalty arrangements for creators. Once minted, the NFT can be placed on a marketplace and offered for sale. A seller may set a fixed price or offer the NFT through an auction. When a buyer completes the transaction, the smart contract records the transfer of the token to the buyer’s blockchain wallet. The transaction is then recorded on the blockchain and can generally be verified publicly. Recent research describes this process as a transfer of the NFT from the seller’s blockchain account to the purchaser’s wallet following payment. What the buyer receives at this point is the NFT. The buyer does not automatically receive copyright in the work connected to it. The buyer may also receive a contractual licence allowing certain uses of the work. The scope of that licence depends on the terms governing the particular NFT. Some transactions can expressly transfer copyright or other rights, but that must be established from the applicable agreement rather than assumed from the purchase of the token.
Ownership of an NFT therefore means ownership of the token itself. Whether that ownership also includes copyright depends entirely on the terms of the transaction. Purchasing an NFT does not automatically transfer copyright, just as buying a book does not transfer the author’s copyright in that book. The buyer may acquire a limited licence to display or use the work, but the copyright remains with the creator unless there is an express assignment or licence. This is perhaps the most important legal principle in understanding NFTs. Below is a breakdown of what copyright is.
Copyright and Its Relationship with NFTs
Copyright is a branch of intellectual property law that protects original literary and artistic works. It covers books, music, films, paintings, photographs, computer programs, databases and many other forms of creative expression. Copyright does not protect ideas, concepts or methods. It protects the way in which ideas are expressed. A person may have an idea for a story, but copyright protects the written text rather than the idea itself.
Copyright grants creators economic rights and moral rights. Economic rights allow creators to control activities such as reproduction, distribution, public communication, adaptation and commercial exploitation of their works. Moral rights protect the personal connection between the author and the work, including the right to be identified as the creator and the right to object to derogatory treatment of the work.
The relationship between copyright and NFTs arises because many NFTs are linked to copyright-protected works. When an artist creates an NFT using their own artwork, the process is usually straightforward because the creator owns both the work and the copyright. Difficulties arise when a person creates an NFT using another person’s photograph, music, illustration or video without permission.
Minting an NFT may involve copying, storing or communicating a work in digital form. International copyright principles recognise that storing protected content in electronic form can amount to reproduction, which requires authorisation from the copyright owner. A person who creates an NFT from another person’s work without permission may therefore infringe copyright, even if they claim ownership of the token.
Contracts play an important role in NFT transactions. Creators may grant purchasers limited rights, such as the right to display an image for personal use. Others may permit commercial use, reproduction or adaptation. The scope of these rights depends on the licence agreement. Clear contractual language is therefore essential because technology alone cannot determine the legal rights of the parties.
NFTs have also revived interest in digital royalty systems. Smart contracts can be designed to allocate a percentage of future resale value to creators. This offers an attractive possibility for artists whose works may appreciate over time. Yet these arrangements remain dependent on the design of platforms, the enforceability of contracts and the legal systems governing transactions.
Copyright Protection and the Challenges Presented by NFTs
Copyright remains important because blockchain technology records transactions but does not verify legal ownership. A blockchain can show that a token was created and transferred from one digital wallet to another. It cannot determine whether the person who created the NFT had permission to use the underlying work.
This has led to several problems. Artists have discovered NFTs based on their works being sold without consent. Photographs, paintings and music have been minted and traded by individuals who did not own the copyright. Removing infringing NFTs can also be difficult because blockchains are designed to preserve records rather than erase them.
The global nature of NFT markets creates additional challenges. A creator may live in one country, the buyer in another and the blockchain network may operate across several jurisdictions. Questions arise concerning applicable law, jurisdiction and enforcement. Anonymous wallet addresses may also make it difficult to identify infringers.
Another challenge concerns consumer understanding. Many purchasers believe that buying an NFT gives them complete ownership of the associated work. This misunderstanding can lead to disputes over commercial use, reproduction and licensing. Greater transparency in NFT marketplaces is therefore necessary so that buyers understand the rights they are acquiring.
These challenges are also relevant for Africa. The continent has a growing creative economy, a young population and increasing digital participation. NFTs may offer new opportunities for artists, musicians and innovators to reach global markets. At the same time, creators require legal protection against unauthorised exploitation of their works. Strong copyright systems, effective licensing practices and public awareness will remain important as African participation in digital markets expands.
Conclusion
NFTs represent an important development in the digital economy. They provide a new method of recording ownership and transferring digital assets through blockchain technology. They also create new opportunities for creators to engage with audiences and develop innovative business models.
Copyright remains the legal foundation upon which many NFT transactions depend. The owner of an NFT may own a unique token, but ownership of copyright depends on the agreement between the seller and the buyer. The distinction between a token and the rights attached to a creative work is therefore central to understanding NFTs.
As technology continues to evolve, the principles of copyright remain remarkably resilient in dealing with the emerging technologies. The law has long distinguished between ownership of an object and ownership of the intellectual creation embodied in that object. That distinction applies with equal force in the digital world.
