With all the excitement and hype surrounding NFT art experienced during the last several months, many people jumped on the NFT train without knowing exactly what they were getting when they purchased NFT art.
A lot of this was due to the fact that these details were still being communicated and flushed out by the community and NFT marketplaces, but now there is far more clarity regarding what you get when you own an NFT.
In order to understand the value of an NFT, it’s crucial to understand what a collector receives when they purchase NFT art.
This article will define what ownership of NFT art provides to its owner.
Proof of Digital Ownership
In the early conversations surrounding NFTs, many people asked why anyone in their right mind would pay good money for a digital object when they can just right-click it, save it to their hard drive, or view it on Instagram whenever they want.
But through the blockchain, NFTs allow artists to certify an “authentic” digital artwork, create scarcity and securely transfer ownership on the public blockchain.
When you purchase an NFT artwork, you receive proof of ownership and authenticity of an artwork on the blockchain. We could liken it to owning the vehicle title for a car, but not actually possessing the car.
It’s this ability to say, “This is mine. I own this 1/1 artwork. It’s authentic,” which makes NFTs so valuable.
The Value of Ownership
Throughout history, there have been many times where legal or structural changes have created a market for something that couldn’t be owned or traded previously.
Think of copyright law. In 1790, the US Congress passed its first copyright law, protecting the intellectual property of certain mapmakers, authors, and publishers.
Little did they realize that this would be the start of a massive industry fueled by intellectual property in the United States. These laws turned something intangible, intellectual property, into an asset that can be exploited by their owners for profit. Today, the estimated annual revenue generated by United States IP is in the hundreds of billions.
As a side note, this has also been the same case for private equity, life insurance settlements, foreign currencies, and consumer debt.
This same phenomenon is currently occurring for digital art, something that circulated on the internet freely, so freely that it was incredibly difficult to control ownership and ensure fair compensation.
Once you can determine that you own something (and can protect that ownership through legal courts or in the case of NFTs through secure blockchains with established governance protocols), that new “property” can become valuable.
In short, owning an NFT means that you are the indisputable, recognized owner of a unique digital artwork on the blockchain.
A Link to the Artwork Stored Off-Chain
In March 2021 in an interview about NFTs, renowned contemporary artist David Hockney asked in an interview, “What is it that they’re owning? I don’t really know...Things can get lost in the computer, can’t they? And they will be, in the future, lost in the computer, even when the cloud gets going. There’s going to be so much on it, how will you find it?”
And although his technical know-how behind how NFTs work seems a little muddled, he does bring up a good point about the security and accessibility of a digital artwork file.
When you purchase an NFT, you receive a certificate of ownership on the blockchain that is linked to a digital artwork file.
You do not receive the file itself on the blockchain, but merely recorded proof on the blockchain that you are the owner of this authenticated artwork.
Because storage on the blockchain is expensive (like ~$76,000 USD per GB of storage!!), only a link to the artwork is typically stored on the blockchain. The digital file is stored off-chain. If that link breaks, the owner redirects the URL to a different location, or the hosting account isn’t renewed, it’s possible that the NFT could no longer be connected to the digital artwork and could become more or less worthless.
How Digital Artworks Are Hosted
Oftentimes the artwork files are hosted by the marketplaces where the NFT was minted. If they were to go out of business and their servers shut down, potentially all those links could disappear with them, and the NFT you purchased would no longer link to any artwork.
However, fortunately, more and more NFTs are being hosted via IPFS instead of HTTP. IPFS is a “distributed system for storing and accessing files, websites, applications, and data. When you use IPFS, you don’t just download files from someone else — your computer also helps distribute them.” Think something similar to BitTorrent.
This basically means that users are pointed directly to a digital file that is hosted on many separate people’s servers through a decentralized web.
With HTTP, files are stored on one centralized server and users use web addresses to access the file. If the hosting server for the artwork goes down, the file would no longer be accessible.
With IPFS, you also need to ensure that your artwork is hosted on many people’s servers and not just the marketplace’s servers. Companies like Arweave, Filecoin, and Pinata are providing financial incentives for people to host IPFS files so that these files will remain available if certain servers were to go down at some point.
If you’re curious about how your NFT artwork files are stored and their permanence, check out checkmynft.com, to verify where your NFT artwork file is stored.
Usage Rights, but No Copyright
When you purchase an NFT, you also receive some basic usage rights. These include the ability to publicly display the work on social media, in a digital frame, or in virtual galleries.
Unless explicitly stated elsewhere, you do not receive the copyright to the artwork.
It’s the same thing if you buy a painting. You have ownership of the painting and can control its display and sell it, but you can’t reproduce it or sell copies of it for your own profit. The artist retains that right unless the sales contract states otherwise.
If the NFT sale comes with the copyrights to the work, the value of the NFT should be considerably higher since it means that you could now profit from reproducing the work through licensing and the sale of physical merchandise and prints.
The legal rights transferred with the NFT are often written in the minting marketplaces terms of sale.
Also, it’s important to add that if you purchase an NFT that was illegally minted by someone who did not have the copyright to the digital work, your NFT could be taken down for copyright violation.
Recently, the owner of a Basquiat drawing tried to sell a digital scan of the drawing as an NFT, but the Basquiat Estate demanded that they remove the NFT since the Estate, and not the owner of the drawing, retained the copyright to the image itself.
So in short, remember to do your due diligence to ensure that the authentic artist and/or copyright owner created the NFT, or you might find yourself with a valueless NFT or at worst mixed up in art fraud.
Any Additional Files or Rights As Specified in the NFT Description
Lastly, many artists list additional items that an NFT owner might be entitled to. This could include rights to reproduce a certain number of prints for personal use or access to behind-the-scenes exclusive materials.
For example, Felix Hernandez, a photographer, digital and miniature artist living in Mexico, decided to sell “Take Me There,” as a physical diorama, animated video artwork, a digital frame playing the animation, and a physical print on Foundation.
It was a very interesting combination of physical artwork sold alongside digital art.
In summary, this is what you typically receive when you purchase an NFT:
- A certificate of ownership of a digital file
- Basic usage rights, like posting the image online, setting it as your profile picture, or sharing it in your virtual gallery
- Ability to resell the artwork
- A link to the artwork
And here is what you usually don’t get:
- The copyright and rights to reproduce and profit off the work through reproduction
- The digital file stored on the blockchain
I hope this article has been helpful and provided some more clarity into what someone receives when purchasing an NFT.
Please feel free to ask any questions in the comments!
*Legal disclaimer: I am not a financial or legal advisor. The advice here is for educational purposes and is not financial or legal advice. Please do your own research before selling and purchasing NFTs.