Have you heard the news?! The intellectual property family had a baby, and her name is “NFTs.” She has a big future ahead, but she speaks a language known to only a select group of people. Friends and relations of the IP family are going to want to learn a bit about NFTs and we’re here to help!
Step 1: Blockchain. To understand NFTs, you will need to know what blockchain technology is. Blockchain is a relatively new way to store data. It is comprised of batches of information about a given topic stored in “blocks” that are linked chronologically to form a continuous line – a chain, if you will, of information. As new or changed information on a given topic arises, new, independent blocks in the chain are added.
Step 2: Decentralization. Most methods of collecting and storing data hold information on a given topic at one source point, like a computer hard drive. With a single source as the holder of the data, a third-party has traditionally been needed to verify that the information has been stored accurately and is reliable. Blockchain technology, however, dispenses with the need for third-party verification because the blocks of information are distributed among many computers/clouds/servers and the only way to use the blockchain is for all these sources to work jointly to put the information back together in a specified way, like a puzzle. The fact that the data is stored in a network of multiple sources that each verify the blocks separately arguably makes blockchain technology more reliable and trusted than other data storage methods. This multi-source storage technique dispenses with the need for third-party verification of authenticity of digitally stored information.
Blockchain is used in many ways, one of which is to authenticate NFTs.
NFT stands for “non-fungible token.” Non-fungible means “unique and not capable of being exchanged for like value” and “token” is just a word for the thing being stored digitally. An example of something fungible is currency – exchanging one dollar bill for another gives you the same value. But a baseball card is non-fungible. The card is unique to the player pictured, date printed, condition of the card, and a host of other factors.
So then, NFTs are unique digital occurrences – a tweet, a GIF, a digital artwork – that are stored using blockchain technology so that their authenticity, and thereby their unique value, can be preserved and verified, thus allowing the occurrence to be held as an asset.
NFTs are complicated and we can only scratch the surface of understanding them here, but the potential breadth of NFTs and their implications on intellectual property law is far-reaching. We at Wright Beamer continue to monitor the development of IP law as it relates to NFTs and beyond.