People create, collect and trade NFTs for millions of dollars, with the hope of making profit in the future. But what are the laws and protections surrounding NFTs? How are artists and buyers safeguarded against theft, forgery, or being swindled out of large amounts of money?
In this episode, host Susan Carland speaks to experts Dr Ben Hayward, a senior lecturer in the Department of Business Law and Taxation at Monash Business School; Alana Kushnir, who works in the international business and law space; and New Zealand artist and writer Joshua Drummond, who explains how he started the world's first anti-NFT project.
“We have this technology, these kinds of art transactions are one application for it at the minute that might persist, but maybe we might find that there's something different that we can use this technology for.”Dr Ben Hayward
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Read more: The paradox of NFTs: What are people actually paying for?
The matters discussed in this podcast are intended to be of a general nature only. They are not legal advice, and should not be relied on as such. You should seek independent legal or other professional advice in relation to any particular matters that you or your organisation may have.
Transcript
[Music]
Dr Susan Carland: Welcome back to What Happens Next?, the podcast that examines some of the biggest challenges facing our world and asks the experts, what will happen if we don't change? And what can we do to create a better future?
I'm Dr Susan Carland. Keep listening to find out what happens next.
[Music]
Man: Matters discussed in this podcast are intended to be of a general nature only. They are not legal advice and should not be relied on as such. You should seek independent legal or other professional advice in relation to any particular matters that you or your organisation may have.
[Music]
Dr Susan Carland: In March 2021, Twitter founder Jack Dorsey sold his first tweet for US $2.6 million. The next time it was auctioned, the highest bid was for under $10,000.
People create, collect, and trade NFTs with the hope of making profit in the future. Are NFTs a worthwhile investment? How are artists and buyers safeguarded against theft, forgery, or being swindled out of large amounts of money?
In this episode, we speak to experts working in the business and international law space. What is a smart contract? What are the legal issues surrounding new technologies? How can artists be protected against copyright issues and forgery?
Stay tuned as we investigate the tricky business and legal issues surrounding NFTs.
But first, let's hear from an artist who claims to have made the world's first anti-NFT project.
Josh Drummond: So my name is Josh Drummond. I am a, I suppose at least some of the time, an artist, and would-be grifter, and would-be NFT enthusiast who created the world's first anti-NFT NFT scheme called the Bird Hat Grift Club.
Dr Susan Carland: Josh, thank you for joining us.
Josh Drummond: No worries. Thanks for having me.
Dr Susan Carland: You started the Bird Hat Grift Club as an anti-NFT project. Tell us about that.
Josh Drummond: So it's what I think is the world's first anti-NFT NFT project, and I did it basically because NFTs are, or were, so hot right now. And I just wanted to... First, I was interested in NFTs because I thought they might have potential for artists to make a living out of art in the digital age, which has proven difficult for all sorts of reasons.
The more I looked into them, the more I didn't really love what I saw. I saw some artists doing well, but mostly I saw artists being ripped off. And so I decided…
I wrote about it for my friend David Farrier, who's got a newsletter called Webworm, which is fantastic. It's sort of a mix of weird internet stuff and really quite full-on investigative journalism, so it's a really fantastic mix and I'm lucky to be able to write for it.
I wrote a piece about NFTs and I kind of jokingly said at the end that I'd like to create an NFT project and use it to pay off my mortgage. And then I actually did do that. Part... Well, no, I didn't pay off my mortgage. That'd be a great punchline, but I'm still hoping for that.
What I have done is I've created an NFT project. It uses the most popular format or the most well-known format of NFT projects, which is, they call them PFPs, which is a profile picture project I suppose. I don't actually know if that's what the acronym stands for.
And the idea is you create, with a whole bunch of elements that you draw individually or layers, you can create entirely unique artworks.
So the way I described it for the articles, it's a little bit like paper dolls. If anyone here ever played with paper dolls, you've got your basic doll. You can dress it up in a whole bunch of different clothes, and that's pretty much it. You create the art, use a program which are available open source online to mix up all the different layers, and with relatively few elements, you can have basically infinite combinations. So that in itself I think is quite fun. That was fun.
Dr Susan Carland: Yeah. So you made this art and then you sold it?
Josh Drummond: Yeah, so the idea of the project is basically, I wanted to create an NFT scheme and kind of put it up against other more traditional or less resource-intensive methods of artist support that you can do online. So things like selling prints, or selling digital images, or setting up a Patreon, selling merchandise. I went and got some T-shirts made because a bunch of friends said they'd buy T-shirts, and I was surprised they actually did.
So I thought, “I'll pitch buying NFTs”, which is the new thing that for a while there was trending in every piece of media there was. “I'll pitch that up against these sort of more traditional and, I think, more accessible methods of artist support and let it run, see what happens.”
So far the traditional methods are giving NFTs an absolute hiding.
Dr Susan Carland: Really?
Josh Drummond: Yeah. So –
Dr Susan Carland: Can I ask how many NFTs you sold?
Josh Drummond: One.
Dr Susan Carland: And was that your mum?
Josh Drummond: No, no! I would never sell one of these things to my mum.
For starters, they cost too much. The base price of an NFT at the moment is sort of sitting at around the... I haven't actually checked lately, but last I looked, it was sitting around like $2,500 to mint one. So it's much cheaper than a Bored Ape, but I set the price intentionally high, I wanted one NFT to cost about what I would do a commissioned painting for.
Dr Susan Carland: And you sold one?
Josh Drummond: Yeah, yeah. So I sold one, which was in the product of a Twitter argument with a guy who was a real big NFT fan who was telling me that my NFTs were much too expensive.
And I said, “Well, that's kind of the point.”
He said, “No, they're too expensive”, and I'm like, “Alright, fine, I'll lower the price of one of them.”
And I progressively lowered the price in a reverse Twitter auction against someone who really didn't want to buy it until someone else swooped in and grabbed it.
Dr Susan Carland: Okay. Wow. So it was an anti-NFT project in that you were trying to show how, I guess, dumb and NFTs were, but in the end it kind of operated as a regular NFT in that you sold one to someone who wanted one.
Josh Drummond: Yeah. Yeah, I did. And I think it turned out they were a member of the little community Discord that I've set up, that followed my Twitter argument as a joke, and then bought it as a joke. We'd gotten down to $150.
So yeah, we've sold one NFT and enough traditional support to, I think as I told someone, it would be enough to keep me in therapy for a year.
[Laughter]
Josh Drummond: So it won't pay the mortgage, but it's nice to have.
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Dr Susan Carland: How does it work when we have new technology that needs laws around it?
Ben Hayward: Hi, my name's Ben Haywood. I'm a senior lecturer in the Department of Business Law and Taxation at the Monash Business School.
I help teach our undergraduate business students about the legal risks they'll encounter in their future business careers. And my research work looks at how the law can support international trade in various forms in particular.
Dr Susan Carland: Is the law often a bit sort of slow in chasing its tail to catch up with issues that arise when new technology emerges?
Ben Hayward: It's kind of an observation that's made regularly that the law is always catching up to technology.
I did read one interesting note about that, though – that new technologies don't always need changes in the law. And while we always say the law's catching up with technology, we don't, for example, rip up the roads every time we have a new model of car or anything like that. So a lot of the time the existing laws we have can do the trick.
When the law does need to change, it's the same process with change to the law in any other aspect of our lives. The courts can develop the law when they hear individual cases. The law develops in a piecemeal fashion, and it requires a case to come before the courts, which may or may not happen. Otherwise Parliament can get involved and we can have more comprehensive law reform there, but it depends on the political will there.
Dr Susan Carland: What I've noticed when people talk about NFTs is it's very much people are either in one of two camps: “NFTs are amazing, everyone buy this picture of my gorilla, it's the way of the future, what's wrong with you idiots?” And the other side is like, “I can't understand this. This seems like nothing, you're asking me to buy nothing and invest in nothing and I can't wrap my brain around this.”
Is there a third way or are we just permanently in these two camps?
Ben Hayward: Well, it's interesting, and you can see those two camps as well in relation to cryptocurrencies as well. “Cryptocurrency's the future, this is everything”, or, “I don't understand it and it's not really going to be useful in my everyday life.”
Dr Susan Carland: Where are you? Which camp are you in?
Ben Hayward: I think I am somewhere in between. Because it may not necessarily be using an NFT to buy something that doesn't exist. You could use an NFT to obtain some kind of investment interest in gold bars, or an actual real painting, or a share of an investment property or something that exists in the real world.
Dr Susan Carland: How is that different though to just buying a share? How is that NFT of the actual house, that really does exist, different to buying a share of the house?
Ben Hayward: Yeah, I guess if you're trading your interest in a different way, so you trade that interest by trading the token rather than having to trade your interest in the actual property. But the ownership arrangement's different as well. You're a bit less secure at the same time, so you own the token, but you don't actually have ownership over that property. I wonder, and I'm thinking back to when, I don't want to date myself, but when computers with the web first hit the primary school I was attending and –
Dr Susan Carland: I was in high school, if that makes you feel better.
[Laughter]
Ben Hayward: We knew the internet was a thing –
Dr Susan Carland: Yeah.
Ben Hayward: – but we didn't really know –
Dr Susan Carland: Where is the internet?
[Laughter]
Ben Hayward: Well, we didn't really know what it was useful for, either. So what we would do is, we all got a turn on the computer and myself and my friends would sit there and look up clues about the Who Shot Mr. Burns mystery on The Simpsons, which was the big thing at the time.
But now, interacting with government, social media, commerce, business, education, as we know through the pandemic – using the internet for all of those things, it's just an everyday part of our lives. And it seems obvious now, but it wasn't really obvious back then.
And I kind of wonder whether it might be the same with NFTs. We have this technology, these kind of art transactions are one application for it at the minute. That might persist, but maybe we might find that there's something different that we can use this technology for. And I guess I don't have a crystal ball there, and time will tell whether that's the case.
Dr Susan Carland: Why did NFTs first peg themselves to artwork as opposed to something else? Why is that the area that it seems we're all sort of learning about NFTs? Ben Hayward: I wonder if there's a bit of a cultural aspect to the way art works online? There were some pretty high profile examples of kind of internet artefacts being turned into NFTs, and that captures a lot of people's attention. You might remember the YouTube video with Charlie Bit My Finger.
Dr Susan Carland: Yes.
[Laughter]
Ben Hayward: And that went viral, and then that got turned into an NFT. And that, I guess, captures the imagination of the media and the general population as well. There's no shortage of weird things that happen on the internet, and turning these videos and other artworks into something that's tradable, I guess, is another interesting example of how this technology can be used.
Dr Susan Carland: Alright, let's use that video as a case study for people who don't understand NFTs, i.e, me. Question number one: Who turned that video into an NFT? And who has the right to turn a piece of digital content into an NFT?
Ben Hayward: Well, I guess in principle anyone could do it, but the person that has the right to do that is the person who owns the intellectual property rights.
Dr Susan Carland: So was it Charlie who then turned it into...
Ben Hayward: I'm guessing it will probably be Charlie's parents, who took the video.
Dr Susan Carland: Okay.
Ben Hayward: And the interesting thing here is that there's a role for intellectual property law to play as well. So I mentioned before that you don't own the thing that's linked to the NFT in the same way that you own the actual token. But at the end of the day, it all depends on what the contract says. And one of the real strengths of our law is that it allows people to enter into any kind of transaction they want, and usually the law will respect that.
So when you buy a book, you don't buy the intellectual property in the actual original manuscript –
Dr Susan Carland: Mm.
Ben Hayward: You buy the physical thing that's got a copy of it in there.
Dr Susan Carland: Yeah.
Ben Hayward: If you buy a Nintendo Switch game, you're buying the cartridge, but you're not buying the rights to the code. Similarly, you buy an NFT, you might not be getting the copyright in the artwork or the intellectual property rights. You might just be getting a licence to use it and display it, or you might actually get the full intellectual property rights if that's what the contract actually says.
Dr Susan Carland: Right.
Ben Hayward: So I guess the devil's in the detail there a bit, and that's maybe one of the risks as well with trading in these kind of things. If you don't really read what you're signing up to, you might not actually not know what you're purchasing.
Dr Susan Carland: I get it. So it'd be like I buy a book and someone could go, “But I could get that book anytime I want to for free in the library.” But I'll say, “Yes, you can. And go and enjoy that book from the library, but I get to keep this copy for myself.”
Ben Hayward: Yeah, “This copy's mine”. And just like a book can be photocopied, a digital artwork might be reproduced, but I guess the NFT is recognised by the market as the authoritative copy of that particular artwork. You can go to an art gallery and take a photo of a famous Renaissance painting and it reproduces it in a way, but it's not the same as having the actual thing.
Dr Susan Carland: I guess the difference though is, if I own the Mona Lisa, I own the physical Mona Lisa. Whereas if I own an NFT, it really isn't any different to someone just sharing the Charlie video again themselves. There is no actual difference, is there?
Ben Hayward: Well, if –
Dr Susan Carland: Other than me saying, “Well, I own it.”
Ben Hayward: And that'd be a pretty great thing to be able to say.
Dr Susan Carland: Yeah.
Ben Hayward: Maybe even purchasing a physical painting, you might not still be buying the intellectual property rights. You might be buying the right to hang the painting or the right to display it, but you may not have the rights to the actual intellectual property there as well. And again, it'll all depend on what the contract says and what the two parties to the transaction have actually agreed to.
[Music]
Dr Susan Carland: Arts lawyer Alana Kushnir is an advisor to numerous art tech startups working in the NFT space. Here she is on the legal issues and risks associated with NFTs.
Alana Kushnir: Look, the law is slightly challenged by NFTs and blockchain technology.
Dr Susan Carland: Okay.
Alana Kushnir: There's quite a well-known case now that's come out of the UK where someone who owned these Boss Beauty NFTs, they were stolen out of their digital wallet. And so they've actually tried to pursue…
It's interesting because by nature or by virtue of the beauty of the blockchain –
Dr Susan Carland: Yeah.
Alana Kushnir: – they're able to track where these NFTs had ended up, because you can see every transaction. Dr Susan Carland: Right. Alana Kushnir: This ledger is public, you can see it. So it's a bit different to if someone went to your house –
Dr Susan Carland: Yeah.
Alana Kushnir: – and they stole something.
Dr Susan Carland: Yeah. And then it's gone.
Alana Kushnir: It's a bit harder to find out where it's actually gone. At least here you can find which digital wallet the NFT has ended up in.
Dr Susan Carland: So where did it go? Where was it?
Alana Kushnir: [Laughter] So it was in a digital wallet, let's say. So you've got this chain of letters and numbers that represents this wallet essentially. But what they applied for through the UK High Court was a freezing order.
Dr Susan Carland: Ah.
Alana Kushnir: So the same as you can apply it for any type of property, to have that property frozen so that it stops being moved after that. And they were actually successful.
Dr Susan Carland: Huh.
Alana Kushnir: And so that means that in the UK at least, they recognise NFTs as property that's capable of being frozen. So we are seeing those boundaries of the law being tested.
Dr Susan Carland: The law is trying to catch up with the events. And it makes sense! Why would they preemptively create laws for things that aren't happening?
Alana Kushnir: That's right.
Dr Susan Carland: Are we seeing much of that happen in Australia?
Alana Kushnir: We're seeing quite a few Senate commission inquiries take place. So there was one that was released last year, which didn't talk too much about NFTs, but it did talk about DAOs, which is sort of [laughter] another species really, but relevant to blockchain as well. Decentralised autonomous organisations, and looking at how we could potentially recognise these blockchain-based organisations in Australia as corporate entities. So that's really interesting, I think.
There's other consultations happening at the moment, which are also, when it comes to NFTs, they're really looking at, well, how do we treat NFTs? Should they be traded as securities? Should they be... How do we categorise them? How do we place them?
So that's very much happened at the moment, but we haven't had any court cases as such.
Dr Susan Carland: Do you think we will start seeing them?
Alana Kushnir: Yes.
Dr Susan Carland: It's inevitable.
Alana Kushnir: I have no doubt. It's inevitable. And there'll definitely be certain institutions and corporates out there that will want to test that in court.
Dr Susan Carland: While Alana believes there are legal risks associated with buying or selling NFTs, she says there's also a lot to be excited about due to the rise of blockchain-based technology, where purchases and vendors are playing with the concepts of personal property ownership and intellectual property rights.
Alana Kushnir: What do NFTs in Australia look like today? So what are Australian artists doing in the NFT space? And by artists, I really mean any type of creative practitioner, doesn't just have to be someone creating digital artworks. It could be someone who's a games developer, or a musician, anyone doing creative things with NFTs.
And I think this is going to be a really important moment in time where we can actually look back and think about how NFTs are working here in Australia locally. That hasn't really happened, we're often looking at what's happening elsewhere when it comes to NFTs, but actually there's some really exciting projects coming out here. We have numerous NFT platforms that are supporting artists that are creating work here as well.
So yeah, there's lots happening in the space. I co-authored the legal chapter for the report, of course. So looking at, well, what are the legal issues that are coming up? And also looked at resale royalties.
So something that is often touted when it comes to NFTs is, “Oh, I can earn a living from this one day because it'll get resold and the royalty will go back to me”. That's very much a marketing spin, and if you dig a little deeper, it's not actually so clear cut.
And it makes it particularly complicated in a jurisdiction like Australia where we already have legislation for resale royalties. And this resale royalties legislation in Australia actually covers digital artwork. So it doesn't mention NFTs because of course it predates NFTs, but we have resell royalty legislation as well, which says that if a work is resold, and it's sold for, I think, over a thousand dollars by an Australian artist, then 5 per cent has to go back to the artist. And you also have to report that resale as well.
So how does that work when it gets to NFTs? What happens if you're an Australian artist and you’re minting your NFTs using a platform that is actually based overseas? Do they actually report your NFT sell?
Dr Susan Carland: Mm.
Alana Kushnir: I don't think so, at least at this stage.
So there's all these questions around how do the resale royalties that NFT platforms provide, how does that actually work with existing legislation for resale royalties? It's just something that hasn't really been thought through and needs to be thought through. So that's really an interesting space to watch, too.
Dr Susan Carland: I think now I can at least get my head around what an actual NFT is. However, like most new technologies, it's still too early to tell if they're worth me investing my money into.
That concludes our final episode of NFTs. Thanks very much to all our guests, Dr Ben Hayward, Professor John McCormack, Alana Kushnir, and Josh Drummond. For more information about their work, visit our show notes.
We are currently halfway through this series and we are going to take a break for the summer holidays. But don't worry, we will be back, and you can catch the second half of season seven of What Happens Next?.
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[Music]
Man: Matters discussed in this podcast are intended to be of a general nature only. They are not legal advice and should not be relied on as such. You should seek independent legal or other professional advice in relation to any particular matters that you or your organisation may have.