Are NFTs the future of digital IP, or just a remix of DRM?

To be perfectly frank, I consider it an evolution of the same things. Intellectual property (IP), that most artificial enforceable economic right, is becoming somewhat sexified by so-called Web3 technologies and novel opportunities for decentralisation. So, what does that mean for the future of creative industries?

What are NFTs (and the non-fungibility superpower)?

As the name implies, an NFT is unique and non- interchangeable with any other. This may be considered a superpower in a world of digitally perfect copies, or otherwise fungible items, and clearly resonates with our real-world value systems and scarcity-based economics.

Under the covers, an NFT is just a piece of metadata that points to something, (e.g. an image fi le), usually stored on a server on the internet. Note: the stored items are not NFTs, just the metadata that links to them!

NFTs can be created (i.e. ‘minted’), transferred or sold, with each transaction recorded on the blockchain, thus enabling ‘minimal trust transactions’ whereby you don’t need to know or trust the counter-party with whom you are interacting. Finally, smart contracts provide a programmable mechanism which can be used to pay NFT creators or owners a royalty on their NFTs in perpetuity.

What has this got to do with IP?

Well, a little context and history might be in order: First, analogue content and copyright - The Statute of Anne (circa 1710) is widely regarded as the world’s first copyright law, and it helped protect the rights of authors versus traditional booksellers and the disruptive technology innovation of the day, i.e. the printing press.

Then, digital content and internet piracy - computers, internet, and fi le sharing applications/media streaming platforms made it progressively easier to mass create, copy and distribute digitalised content, with or without permission. This led to such content protection mechanisms as: digital watermarking, fingerprinting and digital rights management (DRM).

Now, trusted ledger and decentralisation - in addition to blockchain’s ability to track ownership, provenance and ‘trustless’ transactions - NFTs bring a certain uniqueness attribute, and programmable royalty, into a medium notorious for illegal replication and sharing of digital content.

You’ll find a link between intellectual property, trade and the evolution of sophisticated technologies to create, reproduce and distribute content. Of course, the use and output of such technologies are themselves subject to the same intellectual property rights which they sometimes challenge. Blockchain and NFTs will be no different, so buckle up for the ride!

Are NFTs just a remix of DRM?

Far from it. DRM and NFTs are very different things, with different roles, albeit in the same digital content ballpark. DRM is a technical protection mechanism introduced by content industry players to tackle the challenge of unprecedented and disruptive illegal fi le-sharing in their old world, scarcity-based, economic models.

In contrast, NFTs recreate a semblance of scarcity and uniqueness in a world now largely acclimatised to the power of sharing (over-sharing?) and remixed digital content. The deluge of content and NFTs can help engage, influence and monetise people’s attention via newer business models.

Furthermore, DRM modifies content to track, manage or otherwise control access to it, whereas NFTs only subsist in the metadata that links said item. However, this hasn’t affected the perception of some NFTs as items of tremendous value; I still struggle to get my head around that!

How will the creative industry fare?

From all indications, the train has already left the station and there’s no going back to how things used to be.

According to 3lau, musician and founder of Royal, (a music royalty start-up), NFTs and smart contracts are helping creatives in new ways by 'packaging entertainment, community and economics into a single thing', thus enabling direct ownership and control of their returns through decentralisation.

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This is huge for converged or multi-format digital publishing. According to the Creative Commons blog, there is nothing contradictory about offering a work under a CC license as well as a limited edition NFT.

Of course, NFTs extend far beyond mere images, music, or domain names and it can become a real force multiplier in conjunction with other technologies.

This is exemplified in the video games industry, where NFTs, blockchain, metaverse, AR/VR and cloud combine to power the fast-growing play-to-earn and esports markets.

Although the future might look promising for the creative industry, the current reality is somewhat less appealing with all its hype, #FOMO (fear of missing out) and #FUD (fear, uncertainty and doubt); it even reminds me of the ‘dot com bubble' - and we all know how that ended.

Observations and conclusions

1. Peak NFT hype cycle. Despite the noise and publicity, only a small percentage of the global population are actively involved in NFTs or crypto.
2. An NFT is not the same as its underlying asset. There is no guarantee that the underlying item may not be deleted, replaced, modified, or remain accessible in its recorded location.
3. UX woes. NFTs and other blockchain applications, are not intuitive. E.g. it is far too easy to mistakenly send your crypto to the wrong address or blockchain, resulting in irretrievable loss!
4. Freakish fees and climate challenges. A particularly vexing issue for NFTs on the Ethereum blockchain where unpredictable ‘gas’ fees can occasionally exceed the cost of the NFT!
5. Show me the money. The crypto/NFT space is still rife with crime, scams and skullduggery. Coupled with extreme volatility, users may experience #FOMO if they don’t check in regularly.
6. Centralisation vs decentralisation. I believe both will co-exist and co-evolve together. However, keep an eye on cross-chain compatibility initiatives, regulations and regional conflicts.
7. NFT vs copyright. To be a successful IP protection mechanism, NFTs will need to surmount the same issues that plagued the likes of DRM technology in the last century. Even back then, we could tell that technology was not necessarily the problem, rather human fuzziness and over-reliance on context make this too wicked a problem to solve with technology alone.

In conclusion, it is doubtful that NFTs can singularly transform or drive the future of creative industries, or become its main IP rights protection / enforcement mechanism. However, given their underlying blockchain capabilities for trust, provenance and smart-contract based programmability, NFTs are well-positioned to deliver on a major piece of this wicked puzzle - and that is exciting!

Disclaimer: The opinions expressed in this post are the author's alone, and do not reflect those of the employer or any professional affiliations. Secondly, it does not constitute legal, financial, spiritual or otherwise professional advice, and the author does not claim any specific expertise. Furthermore, the author believes, we’re still very early into these particular digital technologies and their fast-emerging use cases; therefore it is always advisable to proceed with caution.