When you “buy” an “NFT”, what do you have?

NFTs, “Non-Fungible Tokens“, are a Thing. Many people are very enthusiastic about this thing. Others, not so much (I recommend pretty much everything Diehl has written in and around this subject).

Everyone knows that you can “buy” and “sell” them, and that it’s been breathlessly announced that huge amounts of money has changed hands due to people doing that (even if some of it has been just people buying from themselves to pump up prices, hem hem).

But as far as I can tell, very few people know what they actually are aside from that, and the information can be both hard to find, and significantly variable between NFTs.

Some background

They’re called non-fungible to contrast with fungible things that also live on blockchains, the most obvious being units of bitcoin and other cryptocurrencies. These are fungible, in that any bitcoin is identical to any other bitcoin, and what they are is relatively simple: they are a number that gets associated with a public / private keypair, and if you know the private half of the keypair, you can move the numbers around, transfer some of them to someone else who agrees to give you US dollars or movie tickets or illegal drugs in exchange, and so on.

(This is not 100% accurate, because in some/many situations, someone else actually knows the private keys involved, and you delegate the usage of it to them, because you trust them and you don’t want to have to fiddle around with keypairs and crypto yourself, because you’d do it wrong. But it’s the general idea. The same caveat applies to the descriptions below concerning NFTs.)

NFTs are non-fungible, in that every NFT is different in some sense from every other one. If a particular NFT is currently associated with a certain public / private keypair, that NFT is associated with only that keypair, and only the holder of the private key can transfer the association to someone else (i.e. some other keypair), again with complications that we may or may not consider below.

So far, so good. I can pay someone some money (in the form of, say, US dollars, bitcoins, etc.) and in exchange they will transfer the association of a particular NFT from their keypair to mine. Which is to say, roughly, that they will give ownership of the NFT to me.

Aside from this association, what other properties does an NFT have? Why would I want to pay money to associate one with me (with a keypair whose private key I know)?

Inside an NFT

It turns out that this depends on the exact NFT, which NFT-supporting system it’s on, which fields the creator of the NFT filled in, and some other things. But in general, the only other property that an NFT has, is that it’s associated with some string of letters and numbers. That string of letters and numbers can be just about anything, from an address on a blockchain (for digital goods that are tiny enough that storing them entirely on the blockchain isn’t too expensive) to a URL or other URI (i.e. that a thing like a web-browser might be able to use to find some digital data) to a description of some real-world item like “the property situated to the north of McLellan Road, designated as Parcel Number 47A on the Flint County Assessor’s Map of June 15th, 1987”.

So an NFT is an association between a public/private keypair, and an alphanumeric string. In common speech, if that alphanumeric string is the URI of a funny picture of a kitten, and I know the private key of the keypair (with caveats as above) I am said to “own” the picture (or “the NFT of the picture”, although the distinction is seldom observed).

Ownership is, in general, a legal concept, and transfer of ownership is generally done via a contract, either implicit or explicit. Does me knowing the private key of a keypair associated via NFT to a URI pointing at a funny picture of a kitten, actually give me any legal rights vis-à-vis that picture?

I wondered about that, and poked into it a little, originally in this Twitter thread. It turns out that the answer is complicated, and that it depends on which NFT we’re looking at.

(There are lots of other interesting issues, like what keeps the entity that controls the URI that an NFT points to from changing the data there, or just vanishing softly into the night, what powers a marketplace has over the NFTs that are sold there (“lmao nice decentralization“), how smart “smart contracts” really are, and so on, but this entry is already going to be too long, so here we’ll only wonder about what legal rights “owning” an NFT gives someone.)

NFTs that don’t grant much at all

In at least some cases that I found randomly web searching, the only right that I have to the “Art” associated with the NFT, is something like:

a worldwide, non-exclusive, non-transferable (except as specifically provided below in section 3 (b), royalty-free license to display the Art for your Licensed NFTs, solely for your own personal, non-commercial use

which is really a Whole Lot o’ Nothing. It’s roughly the same rights that you get to a video game or a music track, when you “buy” a copy online. And it’s a non-exclusive license, which means that they can sell the same thing to a whole bunch of different people.

(Although, given how NFTs work, I think they will have to create a whole bunch of NFTs pointing at the same digital data to do that; unless there’s an NFT protocol that allows a list of owners rather than a single one; EIP-721 doesn’t appear to, but who knows?)

In any case, this seems like a far cry from “ownership” in any significant and exclusive sense.

Apes with bafflingly contradictory terms

One of the more famous NFTs, the utterly-cringe “ape” pictures from the Bored Ape Yacht Club, has a different (and extremely confusing) set of terms. Those terms first say:

i. You Own the NFT. Each Bored Ape is an NFT on the Ethereum blockchain. When you purchase an NFT, you own the underlying Bored Ape, the Art, completely. Ownership of the NFT is mediated entirely by the Smart Contract and the Ethereum Network: at no point may we seize, freeze, or otherwise modify the ownership of any Bored Ape.

The bit about the Smart Contract and the Ethereum Network is essentially just talking about how the possessor of a relevant private key can transfer the association of the NFT to someone else; the important part at the moment is “you own… the Art, completely”.

The very next section then pretty much contradicts this entirely, saying (and apologies for the length):

ii. Personal Use. Subject to your continued compliance with these Terms, Yuga Labs LLC grants you a worldwide, royalty-free license to use, copy, and display the purchased Art, along with any extensions that you choose to create or use, solely for the following purposes: (i) for your own personal, non-commercial use; (ii) as part of a marketplace that permits the purchase and sale of your Bored Ape / NFT, provided that the marketplace cryptographically verifies each Bored Ape owner’s rights to display the Art for their Bored Ape to ensure that only the actual owner can display the Art; or (iii) as part of a third party website or application that permits the inclusion, involvement, or participation of your Bored Ape, provided that the website/application cryptographically verifies each Bored Ape owner’s rights to display the Art for their Bored Ape to ensure that only the actual owner can display the Art, and provided that the Art is no longer visible once the owner ofthe Bored Ape leaves the website/application.

This seems to my simple mind to be completely at odds with the part where they said “you own the Art, completely”. If I own the Art, how are they in any position to grant me a license? It’s my Art, how are they granting anyone a license to anything? If I own it “completely”, what does it mean that they are granting me a conditional license, to use it “as part of a marketplace” only provided that the marketplace does certain specified things?

If I violate the terms of this license, what happens? Do I cease to “own” it “completely”? Do I continue to own it, but they reserve the right to sue me under some theory that they have some residual rights to it, despite my complete ownership? It’s not at all clear.

The third section, and the only other section in these terms, purports to grant me a similar conditional license to do certain commercial things with the Art (which I “own” “completely”), and is similarly baffling.

I have asked the “Bored Ape Yacht Club” on Twitter what this all means; we’ll see if I get a reply.

(It may also be noteworthy that this doesn’t say whether it’s granting an exclusive or non-exclusive license to use the Art in these ways. Is there some default? Are they in fact reserving the right to sell multiple NFTs associated with the same Art? Or is there some other reason they didn’t say “exclusive”?)

The CryptoKitties and WWW Dot NFT License Dot Org

Another famous, and earlier I believe, NFT sort of thing is “Cryptokitties”, another big set of tiny images, of (wait for it) kitties rather than apes, and described as a “game”, but otherwise the same sort of thing. (Well, you can make new ones by “breeding” them, in a process I haven’t looked into, and no doubt some other stuff, but still.)

The main Cryptokitties page says, familiarly, “Each cat is one-of-a-kind and 100% owned by you; it cannot be replicated, taken away, or destroyed.” And then there is a set of terms and conditions, which pretty much completely contradicts this statement, in a similar way to the Ape one.

It doesn’t fall as blatantly into contradiction as the Ape one, as it first says, in a section called “Ownership”:

i. You Own the NFT. Each CryptoKitty is a non-fungible token (an “NFT”) on the Ethereum blockchain. When you purchase a CryptoKitty, you own the underlying NFT completely. This means that you have the right to trade your NFT, sell it, or give it away. Ownership of the NFT is mediated entirely by the Smart Contract and the Ethereum Network: at no point will we seize, freeze, or otherwise modify the ownership of any CryptoKitty.

This is very similar to the Ape one above, with the perhaps-important difference that it doesn’t say anything about “the underlying Art”. It talks only about “the underlying NFT”. (This wording seems odd to me, in that it first says that a CryptoKitty just “is” an NFT, and then it talks as though a NFT is something that “underlies” a CryptoKitty. Puzzling.) It’s not clear what it means to “own an NFT” (underlying or otherwise); that’s what this whole weblog entry here is about, after all. So we continue reading the license.

Lower down, in a section called “License to Art”, we find words very (very!) similar to those in the Ape license, divided into “General Use” and “Commercial Use”, granting “worldwide, non-exclusive, non-transferable, royalty-free license” to do certain rather limited things with the Art. Note that they explicitly say that it’s non-exclusive! The Commercial Use license contains the rather amusing (to one who hasn’t spent any money on them) limitation:

provided that such Commercial Use does not result in you earning more than One Hundred Thousand Dollars ($100,000) in gross revenue each year

I mean, what? How is the license holder supposed to avoid earning more than $100K in gross revenue? What happens if they earn $100,001? Is the license revoked? Will they send Cease and Desist letters?

Also unlike the Ape one, this license contains a section called “Restrictions”, which forbids doing all sorts of fuzzily-defined things with the Art. This includes for instance “modifying the Art in any way”, which makes no sense to me. Am I not allowed to load it up into The GIMP to see how it would look in greyscale? Or is it just a prohibition on creating Derivative Works, and if so why didn’t they say that; that concept is at least slightly well-defined. The Restrictions also forbid using “the Art for your Purchased Kitty in connection with images, videos, or other forms of media that depict hatred, intolerance, violence, cruelty, or anything else that could reasonably be found to constitute hate speech or otherwise infringe upon the rights of others”, and a host of other things.

This is all really controlling, and is more like the license granted to users of a video game for what they can do in-game with their characters, then an actual license to use an image in the world as a whole. Given that CryptoKitties is (I guess?) mostly a game that is played inside an app, perhaps that’s really what is going on here: if you violate the license, they will terminate your account on the app, so you can’t play any more. I kind of doubt they really intend to go out and sue you for uses that you make of the Art (i.e. low-resolution cat cartoons) in the outside world. Maybe?

Oh, ah, wait! Here in the section called “Other terms of license”, they answer my question about what the user is supposed to do if they accidentally make more than $100,000. “If you exceed the $100,000 limitation on annual gross revenue set forth in Section 3.C(ii) above, you will be in breach of these Terms, and must send an email to Dapper at legal@dapperlabs.com within forty-five (45) days, with the phrase ‘CryptoKitty License – Commercial Use’ in the subject line, requesting a discussion with Dapper regarding entering into a broader license agreement or obtaining an exemption (which may be granted or withheld in Dapper’s sole and absolute discretion).”

To which my reaction is (A) lol omg, and (B) this is definitely an attempt to steer some middle path between “look, we just own all of this” as say Blizzard would no doubt do if you tried to use your WoW character commercially, and “you can take the adorable kitten picture that you buy, and do whatever you like, which is why it’s so valuable!” which they apparently decided very much against.

The CryptoKitties license is provided to other NFT-makers for re-use on www.nftlicense.org (note that the actual license is on the third tab of the main page there, and if you read the default “Intro” tab as containing the license you may end up saying silly things on Twitter due to your confusion; at least if you’re me you may).

It’s entirely possible that the Ape people at BAYC started with that license, and removed the “Restrictions” section and the bit about not making over $100K because they wanted to sell just the pictures, not the use of them within a game or app, and thought that the restrictions would make people not really want to spend money on them. And then they added the little bit about owning the Art “completely” similarly to make them more valuable, but without doing anything about the fact that the remaining two sections about license grants pretty much directly contradicted that.


Are there any NFTs that give actual ownership?

This is a question that interests me, but to which I don’t know the answer. It would seem sensible that there is some NFT out there somewhere where if you “own” the NFT, you actually own all rights in the underlying entity (digital data object, plot of land in Flint County, etc), rather than just being granted some very limited rights to do a few things with some Art that someone else still owns in every other sense.

If you know of any, let me know! I will attempt to notice your comment and respond to it and everything!

Other reading: Here’s someone else that looked into this kind of stuff for some other NFTs last year; they know more about it than I do, and basically came to the conclusion that it’s rather a mess, and no one really knows. :)

3 Trackbacks to “When you “buy” an “NFT”, what do you have?”


Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: