What is an NFT?

Non-fungible tokens (NFTs) are a type of digital token that are unique and cannot be replicated. They are stored on the blockchain and represent ownership of a digital asset. Non-fungible means each NFT is unique and cannot be replaced with something else. They are bought and sold with cryptocurrency, the majority of which are part of the Ethereum blockchain.

An NFT can be assigned to any digital file from an image to a piece of music or film, and represents ownership of the ‘original’ work. Much of the excitement around NFTs has been around use of the technology to sell digital art.

NFTs offer artists a way to sell work that may otherwise have been difficult to bring to market and can introduce their work to a growing audience of enthusiasts and collectors.

How do I mint an NFT?

For artists who are interested in exploring creating on the blockchain, you will need to mint an NFT.

In order to do so, you will need to be set up to spend and receive cryptocurrency, which you store in a crypto wallet. The vast majority of NFTs are part of the Ethereum blockchain. Ethereum, or ETH, is also the name of the cryptocurrency for that blockchain. You will then need to sign up with a marketplace for crypto-goods. The largest and most established of these is OpenSea.

Once you are set up with a crypto wallet and have linked this to your account on your chosen marketplace, you can then create your NFT by uploading a supported file from your computer and recording its title and any other details you may wish to add.

What fees can I expect to pay upfront to convert my digital image into an NFT?

Most NFT marketplaces won’t charge fees to convert your images into an NFT, but there are upfront costs in getting set up to create and sell your own NFTs. These will be dependent on a few factors such as which marketplace you are using and how your NFTs are available for sale.

For example, if you are selling your NFT for a fixed price, the buyer pays the transaction fees. However, if you list your NFTs for sale by auction, then the seller takes on this cost. You will also have to remember that the marketplace will charge a commission fee per sale. This will vary according to the marketplace you are using and can range from 2.5% - 15% and higher.

When you first come to sell an NFT, you will need to initialise your crypto wallet, which will incur a fee. This is a one-off charge for first time sellers and is calculated by the marketplace you are using.

What is a Smart Contract?

Smart contracts are now commonly being used in NFT transactions. They are written in embedded code, which are the terms of the contract within the NFT. This code is often programmed to execute automatically when a set of predefined conditions have been met. As smart contracts are stored on the blockchain, once triggered, details of the smart contract cannot be deleted or altered.

Smart contracts are self-executing contracts, meaning that no action is required by the parties once the contract has been triggered. A regularly used example is that of a vending machine that dispenses a snack once the correct sum of money has been inserted.

Many people view smart contracts as a way of increasing the speed and efficiency of transactions as the automated process provides certainty to the parties and avoids error in execution of the contract. There are however questions around the enforceability of these contracts, as there is very little case law or legislation that touches on the issue of smart contracts.

In theory there is no reason why smart contracts cannot be legally binding so long as the usual key elements are present: offer, acceptance, consideration and intention to create legal relations.
The Law Commission has recently concluded that ‘the current legal framework in England and Wales is clearly able to facilitate and support the use of smart legal contracts’.

You can read more about the Law Commission’s findings on smart legal contracts here. This document also provides a useful summary about the different types of smart contracts in use.

You can read more about Smart Contracts in our Copyright Uncovered article here.

What is the legal status of an NFT?

An NFT represents the ownership of a digital file. The ownership is made legally binding through the signing of a Smart contract by all relevant parties which outlines terms of ownership and future trading or resale of the works.

Does an NFT artwork act like a physical artwork – can the owner reproduce it if they want to?

Creating an NFT that is connected to one of your artworks would not prevent you from continuing to make and sell physical prints of the artwork so long as you are the copyright owner.

This position could change if your copyright in the artwork is transferred when the NFT is sold, so it is important to be aware of any terms in smart contracts or the standard terms and conditions of NFT marketplaces that may affect your copyright. 

Do IP, copyright and moral right laws apply to NFTs? How can I ensure my rights are protected?
Intellectual property laws such as copyright and moral rights apply to NFTs in the same way as for physical artworks.

For example, if a third party minted an NFT using one of your artworks, claiming the work as their own, then this would infringe both your copyright and moral rights in the original work used by that third party. If you come across this situation then it can be dealt with in the same way as any other copyright infringement. 

Can someone make an NFT of my work without my permission if they have copyright in it?

Yes, they would be permitted to create an NFT connected to the work, if they owned copyright in the work and there was no agreement preventing them from doing so.

However, your moral rights may still need to be considered by that person - for example, the right of attribution. You can read more about moral rights here