Non-fungible tokens (“NFTs”) have revolutionized how
artists sell their art; now, artists are hoping that NFTs
can revolutionize how they fund their art. Recently, the
sale of collectible NFTs has funded the production of two
television projects: Stoner Cats and The
Gimmicks. Stoner Cats raised around $8 million in NFT
sales on the premise that only those that purchase Stoner
CatNFTs will be able to watch the show. The Gimmicks,
on the other hand, has promised that NFT holders will be
able to determine how the show’s story progresses from episode
to episode. While this new way of funding is exciting for artists
and fans alike, it is important to consider the securities law
implications that may arise.
What is an NFT?
First, we’ll start with the basics. An NFT is an intangible
digital token that represents an item. That token is composed of
unique data stored on a ledger using blockchain technology. Being
“non-fungible” means that each token is one-of-a-kind.
For instance, cryptocurrencies like Bitcoin are considered
“fungible” tokens because they function like money; a
loonie is the same as every other loonie and can be substituted for
similar tokens of equal value, such as 20 nickels1. NFTs are unique in that they are not
replicable or interchangeable in such a way. Simply put, NFTs are
digital collectibles.
NFTs and ownership
When someone buys an NFT of a work of art, they purchase a token
that represents ownership of the art – not necessarily a portion of
or an interest in the art itself. The common misconception
surrounding ownership is that buyers own the real-life version of
the asset. The reality is that owning an NFT is like buying a
limited-edition print of a painting: the buyer does not typically
own the copyright to it, nor does the buyer have the right to
reproduce the painting for resale or other commercial purposes.
They do, however, own that unique individual copy and that
certificate of authenticity to match….
