The divisibility of NFTs brings new value potential: An analysis of scarcity and legal rights ownership

This article was published by VEGA Ventures, author: Danielson.

The discussion around the value of crypto art NFTs is intensifying, with "scarcity" becoming a central term in various discussions. If scarcity truly determines the value of artworks, then breaking down this value may help us better understand the sources of NFT value.

This article provides a structured analysis of the value of crypto artworks from the perspectives of value and rights, exploring the value extraction potential brought by the divisibility of NFTs.

The Process of Value Formation in Artworks

When people talk about value, they often cannot avoid "goods," and this value is merely economic in nature. For artworks, their value needs to be considered from a philosophical perspective, including aesthetic, logical, ethical, and even theological values, often starting from the author themselves to explore the relationship between individuals and society. The formation of value involves a process of construction and verification, both of which continuously endow things with new value over time. The trading of artworks has never been an equivalent exchange; it is merely a part of the value verification process.

In this process, NFTs serve merely as a medium for value storage, providing a safer and more transparent way for transactions. They record all information throughout the value formation process, including author information, creative background, transaction history, and more. In the real world, only when an artist's works are exhibited can they enjoy such treatment; moreover, in many cases, even the exhibitors cannot guarantee that all artworks in the exhibition are genuine.

Scarcity is Not Just Physical and Does Not Determine All Value

Whether it is physical art or crypto art, as goods, they are merely carriers of content. In the real world, the scarcity of physical works is defined by both the carrier and the content, where the scarcity of the carrier has spatial uniqueness, while the scarcity of the content has temporal uniqueness, determined by history. In the virtual world, scarcity only includes the latter, as the scarcity of the carrier is entirely controlled by humans. Especially when discussing the scarcity of NFTs, it is meaningless to talk solely about numerical scarcity. Only when the authenticity of the work is guaranteed should we focus on the scarcity of the content.

Of course, the scarcity of content does not determine all value. It still needs to undergo the verification process mentioned earlier to achieve value accumulation. The thoughts and viewpoints conveyed by some works are not necessarily accepted in the current era; this process requires the test of time.

Take Van Gogh, for example. His works belong to Post-Impressionism, while the mainstream art movement of his time was Academicism. Therefore, his artistic form faced strong opposition from traditionalists. The stronger this opposition, the more it inspired young artists to think, leading to a group of Van Gogh followers who began to emulate his painting style. It can be said that Van Gogh's artistic ideas were ahead of their time, and the value of his works has been continuously refreshed in this process.

Van Gogh's Work "Wheat Field"

The Divisibility of NFT Scarcity Value

The proportion of the scarcity value of physical works in the overall value of artworks is usually difficult to quantify. The emergence of NFTs can precisely separate the scarcity value of artworks, guiding people to focus on the content and ideas of the artworks, shifting the value carrier towards content rather than remaining on paint and canvas.

Legal Aspects of Rights Division

There has long been a deep misunderstanding among the public regarding the transfer of copyright, believing that purchasing a physical work equates to obtaining the copyright of the work's content. In reality, for artworks in the form of paintings, they are often a combination of property rights and intellectual property rights, and the transfer of property rights does not represent the transfer of intellectual property rights. Article 18 of China's Copyright Law states: "The transfer of ownership of the original works of fine arts does not constitute a transfer of the copyright of the work, but the exhibition rights of the original works are enjoyed by the owner of the original."

For natural persons, the copyright protection period lasts for the duration of the individual's life and 50 years after their death. If the work is created by a legal person or other organization, the protection period is 50 years from the date of publication, after which the work enters the public domain. The protection of the economic rights of copyright is time-limited; once the period expires, it enters the public domain and is no longer legally protected, allowing anyone to use one or more of the economic rights of the work without permission.

Thus, it is evident that copyright is not bound to the physical entity; whether in the real world or on the blockchain, creators need not worry about copyright risks arising from selling their works. NFTs, as freely definable carriers of works, can restrict the ownership of copyright by writing data on-chain. For example, creators can authorize the owner of the NFT to use the work's content for creating peripheral products. However, in most cases, purchasing an NFT and purchasing a physical work are essentially no different, aside from the content carrier.

Value Extraction After Rights Division

Dividing the rights of artworks often uncovers more value. A more traditional approach is to divide the sale of artworks into three aspects: the sale of physical originals, the sale of reproductions, and the sale of derivatives. For a piece of artwork, its original may already be quite valuable, but the market for reproductions and derivatives often creates value several times that of the original. The gift shops of major museums around the world are the best examples, where cultural and creative products have become a major source of income for world-class museums like the British Museum and the Palace Museum.

British Museum Shop

NFTs can simultaneously achieve all three aspects by customizing the issuance method to facilitate the sale of originals, reproductions, and derivatives, while also enjoying the various premium capabilities brought by blockchain.

Copyright Transfer of NFTs

In a sense, NFTs can indeed be regarded as digital copyright certificates, but it is important to note that they are merely a "certificate" and do not represent the copyright itself. Purchasing an NFT does not equate to purchasing copyright. Currently, the legal transfer of copyright still requires permission or transfer contracts, and in some countries, registration with intellectual property authorities is necessary to counteract good-faith third parties.

Although we can divide the rights associated with NFTs, such as granting the NFT owner commercial rights to use the NFT content, whether the transfer of rights within the NFT has legal effect still needs to be explored, which is an unavoidable topic on the path to compliance.

Copyright Infringement Issues Remain Unresolved

Additionally, NFTs currently lack proactive defense mechanisms against copyright infringement, especially for unknown artists. If their works are minted as NFTs and sold for profit on platforms without their knowledge, the infringing party cannot be passively stopped from infringing until the artist discovers it.

Platform Protection Regarding Copyright Issues

Platforms like Foundation and Makersplace have clauses that limit the rights of collectors, stating that the sale of NFTs does not transfer the relevant intellectual property rights of the artworks.

Foundation Collector Terms

Makersplace Buyer Terms

However, why do different platforms still exhibit price differences? The main reason lies in the standards for reviewing artists and the entry barriers. For platforms like Makersplace or Superrare, works by approved artists often sell for higher prices than on other platforms, as the artworks sold on these platforms generally have higher overall quality, and approved artists often possess certain operational capabilities. Platforms will authenticate the works provided by artists as original works through various means, and this certification process also incurs certain costs.

In summary, whether analyzed from the perspective of value or rights, NFTs not only bring the potential for divisibility but also do not change the traditional transfer methods of artwork copyrights. Like Van Gogh's works, NFTs are also products that transcend their time, and history will likewise provide answers regarding the value of this technology itself.