What Impact May NFTs Bring to Digital Works in China?

The artwork, “The Merge “, sold for USD 91.8 million in December 2021, becoming the most expensive NFT ever sold as of the Chinese New Year.

NFTs, known fully as “Non-fungible tokens”, was undeniably one of the most popular topics of 2021 globally. More and more people have become interested in NFTs, as many new creators, artists, and celebrities enter this ecosystem. NFTs cover a large range of topics, i.e., digital assets, the metaverse, a new type of brand marketing, etc. Therefore, within this article, we will delve into what impact NFTs may bring to digital works in China.

What is NFT Art?

NFT art is the product of the combination of digital art and blockchain technology, that is, digital art secured and protected via blockchain and minted into a unique crypto token. In short, NFT refers to a kind of unique digital work whose ownership is transferred via blockchain. NFT art associated with blockchain has the following characteristics: irreplaceable, indivisible and tamper-proof.

Possible Impacts

1. Simplification of the Identification of IP Rights

Before the invention of NFTs, digital works/files can be easily and endlessly copied and pasted as much as the owner/contact wants. As every copy is identical, it causes an issue in ensuring the actual owner of the work. Not so with NFTs, as each NFT has a unique serial number, and every change of hands will be automatically written into the blockchain. Once written, it cannot be modified. NFT marks the ownership of the creator’s unique virtual or physical assets from the date of emergence and supports the recourse of the obligee from the date of emergence.

Unfortunately, NFTs can only show the circulation process of digital works, but it cannot guarantee that the source has legal rights; In other words, an unauthorized person other than the copyright owner can also cast an NFT for a copy of the work.

2. Assisting Anti-Counterfeiting and Eliminating Piracy

In the traditional digital works market, copyright protection always faces the dilemma of the low cost of infringement and the high cost of safeguarding such rights, in other words, the high cost of verifying the copyright owner’s rights and barely any cost for the infringers. With NFTs, the situation will be reversed, due to each NFT’s uniqueness. The clear presentation of the circulation process makes it easy for the seller to trace back to the source, but whether this can meet the requirements of a legitimate defense of the legal source of an NFT may still need case analysis – as for NFT transactions implemented through the network, the opposite party is likely to be anonymous and/or in a foreign country.

3. Viable Future Resale Royalties

Non-Fungible Tokens, or NFTs, are becoming a much more viable solution for artists to create financial value from the digital work they produce. The creator has a high degree of control over the circulation of works and could enjoy every future resale royalty. NFTs incorporating smart contracts can ensure that in subsequent sales resale royalties can be paid to the original author in each transfer process.

Nature

Under Chinese law, NFTs should be understood as a virtual digital commodity rather than a virtual token. China adheres to the policy principle that blockchains should serve the real economy. Chinese regulators have severely cracked down on the risk of virtual currency, and the business activities related to virtual currency are defined as illegal financial activities.

Conclusion

This article discusses the possible impact of NFTs on digital works because of its characteristics of “specialization, sealing and traceability”. However, there are still no certain regulations that dictate the legal rules for NFTs and its representatives. We will continue to pay attention to the legal application of NFTs in China moving forward.

We at D’Andrea & Partners Legal Counsel constantly monitor the latest legal developments in the Chinese market. Please feel free to contact us at info@dandreapartners.com for more information.