The music and copyright industries are nothing but consistent.

Back in the ’90s, it was “Never again MTV”, in the ‘00s it was “Never again Napster”,  in the ‘10s, it was “Never again YouTube”.

Will the ‘20s be “Never again NFT’s”?

The market for NFTs is currently a wild west operation. Nobody semms to know where NFTs fit into existing regulatory frameworks.

Background.

As you have probably gathered by now,  NIM has used NFT (the standard ERC1155) as a basis for CopyrightID registration for nearly two years already. The main reason for NIM development to do the registration of Copyrights as an NFT is cost.

If you register 25 million Copyrights on Ethereum- it would have cost (ballpark) $1 250 million-plus the (gas) fee for transferring ownership (even temporary).

To register one copyright on the Ethereum blockchain cost on average $50 (depending on how busy the miners are, as they are the ones charging a (gas) fee to handle the request)

Energy consumption.

Estimates indicate that it takes 332 kWh to register a Copyright (produce a single NFT) on a proof of work network such as Ethereum. On CopyrightChain, it requires 0.0001 kWh.

Transactions costs

The NIM platform is using gas-free transactions, which means that any registration on CopyrightChains  costs nothing initially and is covered by NIM in the general ecosystem (or, more specifically, the partners or affiliates p.t. $0.01 per registration on-chain). There is no administration cost until the CopyrightID/NFT is transferred or purchased, at which point the buyer pays the fee.

For example, An investor is interested in “leasing/assigned” 50% of a Copyright Owners royalties flow for ten years PLUS investing in the unique  NFT that goes with the royalties investment.

No fee (gas) is paid before the transfer of right to receive royalties and/or transfer of ownership of the associated NFT.

In practical terms, this means that the Copyright Owner can (risk-free) register and offer CopyrightShares and NFTs for sale and/or temporary assignment/lease

The relationship between CopyrightShares and NFTs

When you buy the unique NFT that goes with a potential royalties investment, what you’re purchasing is not the underlying asset the NFT represents (the right to receive royalties) but a cryptographically signed “receipt” that proves you own that particular asset.

It can/will include other digital assets (e.g. the music file or artwork) plus metadata regarding transactions associated with that asset. In contrast to most NFTs, the Copyrights registration (represented by the CopyrightID) contains all relevant metadata to accurately identify the legal receiver(s) of royalties. The accompanied NFT is to be regarded as just a visual token of the right to receive royalties.

NFT as collector’s items.

NIM will also (if the copyright owners wish) create a unique NFT for speculative sale as with any other NFT on sale. This will be available on copyright Flows own site, Memorabilia Internet Media (www.memorabilia.im). This NFT will contain a different kind of metadata that is not stored on-chain but with an off-chain link to the memorabilia, a website where the asset will actually be stored.

Legal ramifications?

From a copyright perspective,  the copyright owner that registered the copyright will have certain exclusive rights to control the use of the work.

This includes the sale of NFT as collectors items

If you buy an NFT anywhere on the Internet at the moment, the only intellectual property right (IPR) you are getting is the right to display the NFT for personal use (as far as I can judge as a layman). The underlying IPR will continue to be owned by the copyright owner.

So, unless you contractually manage to acquire the IP rights, it’s not legally yours unless you have bought the NFT from a copyright owner who has registered the copyright with NIM or any of NIMs partners.

It’s YouTube all over again

In the early days, everyone uploaded whatever they wanted until copyright owners tried to protect their copyright. There are a lot of Disneys and other snippets out there as NFTs, so it will not be long before the lawyers go to work.

Are OpenSea or Nifty Gateway just a new forms  “safe harbour”, or can it be possible to protect their copyright owners under the EU’s Copyright directive? It is, after all, created on a blockchain with immutable technology.

Financial regulation

In Europe, NFT’s connected to copyrighted work should not be regarded as securities. An NFT  could be qualified as security only where it actually represents such security. Indeed the unique and non-fungible nature of an NFT permits to represent similarly unique security. This is not the case where it represents IPR. This analysis may differ in the USA, where the approach is different (the famous so-called Howey test that leads the SEC to qualify many utility tokens as securities).

In EU countries where there is a regulation on ICO’s (like France), NFT’s may be seen as digital assets. This approach is confirmed by the European Commission in its proposal for a Regulation on digital assets (MICA), which refers explicitly to NFTs as crypto-assets.

If the qualification of crypto-asset is retained, then the tax regime will be that of the country of residence of the NFT holder. For example, in Belgium, if the seller is professional or trades NFT’s on a regular basis, it will taxed as income. If the holder is a non-professional and trades on a non-regular basis, it will be tax-free (unlike in France).

If I don't ask, they can't say yes!