While we are all very excited about NFTs, there are several messy legal complications that we need to figure out as the industry grows. NFTs are a great way to record immutable digital ownership of assets on a blockchain, helping artists and creators of all types prove ownership and potentially increase the value of their work through verifiable rarity. But what if the NFTs are created by a thief?
In the world of Web 1.0/2.0, the 1998 Digital Millennium Copyright Act ensured that companies did not have complete liability for stolen content and material hosted on their platform. For example, YouTube is not liable for illegal content on their platform so long as they have ‘Notice-and-Takedown’ systems that can make sure the illegal content is taken down proactively by YouTube or in response to a complaint filed by a user.
In the world of Web 3.0, NFT marketplaces like OpenSea operate under the same legislation. They are not liable for stolen or illegal NFT projects that appear on their platform so long as they have some kind of ‘Notice-and-Takedown’ reporting mechanisms. You can find several fake or scammy projects currently listed on OpenSea. I personally know several friends who bought NFTs on OpenSea they mistakenly thought were created by major brands or NFT startups.
If someone mints an NFT of a piece of art that’s not actually theirs, it’s fairly easy for them to get away with the crime. They can create a copy of an NFT, list it on OpenSea and make money from the first sale of the NFT. Even if someone reports the project as a scam afterwards, the thief has already profited off the sale. That ability to profit immediately from an NFT sale is a very different situation than pirates putting illegal content on platforms like YouTube.
And even if the NFT project is taken down from OpenSea, someone could theoretically list that project on another NFT marketplace. Even more frustrating, if a thief has minted an NFT on the blockchain, that can serve as a permanent record of the NFT, whether the thief is the actual artist or not. We might find ourselves in a world of large numbers of both authentic NFTs and inauthentic NFTs.
This article from the National Law Review dives deeper into all of these topics and explores some potential solutions. As our society further embraces NFTs, Web3, and the Metaverse, we will soon find ourselves working through a variety of inevitable legal issues.