Crypto Taxes and Accounting

Introduction to Creative Commons Licenses for NFTs

Published
October 27, 2022
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    Cryptocurrencies face mounting legal challenges, from the tax treatment of decentralized finance (DeFi) rewards to whether the tokens minted during an initial coin offering (ICO) constitute securities. For non-fungible tokens (NFTs), copyright issues have become the most significant legal battleground as artists stake their rights.

    For example, the popular Creative Commons (CC) licenses permit an artist's work to be shared with attribution. But suppose someone mints and sells a limited-edition NFT of that work without the original artist's permission. As long as they provide attribution, they would comply with the CC license, but it's easy to see why it could cause problems.

    Let's look at how Creative Commons licenses function and how they might work in the world of NFTs.

    The Creative Commons licenses permit anyone to build upon and share creative works, but what does that mean for minting NFTs?

    A Brief Introduction

    Non-fungible tokens, or NFTs, are unique tokens minted on a blockchain. In particular, nearly all NFTs are ERC721 tokens minted on the Ethereum blockchain. These tokens contain metadata that points to a digital object and becomes a permanent part of the blockchain. They power everything from simple digital art to complex play-to-earn games.

    Creative Commons NFTs
    OpenSea Monthly NFTs Sold on Ethereum via Dune

    Creative Commons is a non-profit organization and international network that aims to expand the range of creative works for others to build upon and share. In particular, the organization creates and maintains free-to-use licenses, enabling authors to communicate which rights they reserve and waive for the benefit of recipients and other creators.

    Of course, Creative Commons isn't the only license that creative folks use to protect their work. Creators own the copyright to any work they produce, and many opt to utilize other public domain or commercial licenses to monetize and defend their work. For example, many digital artists use GNU or Copyleft licenses instead of CC licenses.

    Creative Commons & NFTs

    Many artists choose to offer their work to the public under a Creative Commons license while minting limited-edition NFTs. Since the original artist is issuing the NFT, there's little controversy in monetizing their work through the use of limited-edition NFTs. Creative Commons sees nothing contradictory with an artist doing so.

    However, problems start when someone other than the original artist mints an NFT of their work. For example, an entity called Global Art Museum launched a publicity stunt claiming to tokenize public domain works and sell them on OpenSea. The move sparked a quick and furious backlash from the art community before being revealed as a prank.

    Many legal experts agree that minting an NFT of a public domain work is distasteful – but not copyfraud. After all, the entity creating an NFT simply uses a public domain image to mint some metadata and write it into the Ethereum blockchain. There are no claims of ownership, and the "unique" token isn't even a copy of the work itself.

    What About Other Licenses?

    The argument that NFTs are only minting metadata without copying any work of art on its own could have much broader implications. For example, while Creative Commons licenses overtly permit reuse, those minting NFTs of copyright works could similarly argue that they merely add metadata to the blockchain without copying artwork.

    Of course, those minting NFTs could run into problems when making false ownership claims. For example, if someone encoded metadata claiming ownership of the NFT's contents, it could infringe upon the moral right of attribution. And these violations could open the door to potential legal challenges by an artist against the NFT minter.

    These challenges may lead to even thornier problems. For instance, suppose that NFTs appear claiming to be from Banksy – an anonymous artist. There would be no way to verify the work's validity nor recourse for the true artist without revealing their identity. These kinds of dynamics create a tricky problem for creative communities.

    Other Challenges & Opportunities

    The sale of NFTs also introduces its own copyright challenges. For instance, Bored Apes' terms and conditions state that NFT purchasers completely own the underlying Bored Ape, the Art. However, secondary sales that don't involve written and signed consents to transfer may not legally transfer the copyright to the new owner.

    These problems could become worse in projects that don't spell out copyrights. For instance, CryptoPunks didn't have explicitly written copyright terms, creating legal risks for everyone. While Larva Labs attempted to add a copyright license retroactively, legal experts have mixed feelings on the validity of such a move after the fact.

    NFTs introduce numerous challenges to copyright law, but they simultaneously offer some unique opportunities to artists. In addition to monetizing their work through one-off sales, the smart contracts embedded within NFTs can enable unique capabilities, such as artist royalties on secondary sales – allowing them to capture more value.

    The Bottom Line

    Non-fungible tokens open the door to various legal challenges surrounding copyright laws. While Creative Commons licenses and public domain works have become an area of focus, these problems are spilling over into commercial rights and copyright law. Ultimately, they may not have a clean solution until the courts weigh in on the issues.

    Of course, copyright issues are just scratching the surface of the nascent crypto industry's legal challenges. The IRS, SEC, and other government agencies continue to struggle to regulate new digital innovations, putting developers, collectors, investors, and users in a tough spot when it comes to protecting their investments or paying taxes.

    If you trade crypto assets, ZenLedger can help you aggregate transactions across exchanges, compute capital gains or losses, and generate the tax forms you need every year. In addition, the platform can help you track your holdings and identify opportunities to harvest tax losses and reduce your year-end tax liabilities.

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