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Nonfungible tokens: A new paradigm for intellectual property assets?

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Nonfungible tokens, or NFTs, are digital data of the possession of belongings. The asset sorts mostly related to NFTs are digital belongings, comparable to art work like memes, GIFs, or gaming characters or properties. Assets represented by NFTs, nevertheless, could also be digital, bodily, tangible or intangible. Examples of asset sorts which were transferred or which have had their possession recorded using NFTs embrace sports activities memorabilia, copyrights in music, art work and actual property. Intellectual property belongings and, particularly, the possession and switch of possession of patents can also be recorded and transferred as NFTs.

Related: Nonfungible tokens from a legal perspective

The possession of actual property could also be recorded in a registry of deeds, the possession of patents could also be recorded within the United States Patent and Trademark Office (USPTO), and the possession of written works or music could also be recorded within the Library of Congress by way of the copyright system. Because related programs for recording possession don’t exist for asset sorts comparable to collectibles, video clips, memes, digital avatars or innovations which might be deemed ineligible for patentability because of being too summary, there’s a big profit to using NFTs. However, even belongings which have present programs for recording possession, such because the USPTO for patents, should still profit from utilizing NFTs to help potential consumers, sellers or licensees in understanding the proprietor and worth of a specific patent.

NFTs and blockchain know-how

The possession of NFTs are recorded on a blockchain, a distributed digital ledger that gives for immutable data of transactions and for transfers of possession of belongings by way of software program code referred to as sensible contracts. Blockchain know-how is finest referred to as the know-how for recording transactions involving cryptocurrencies, comparable to Bitcoin (BTC).

Related: How the NFT market leveraged blockchain tech for explosive growth

The recording of NFTs on a blockchain gives a number of advantages. On a blockchain, info comparable to NFTs is recorded in a collection of blocks of knowledge of a sure dimension, relying on the blockchain implementation. When the quantity of knowledge to be recorded is adequate to fulfill the block dimension requirement of the blockchain, a new information block is created and appended to the top of the prevailing chain of blocks within the blockchain. The new information block features a cryptographic code, known as a cryptographic hash, generated from a mix of knowledge related to the data within the new block and the cryptographic hash of the previous block. This renders the data within the blocks of a blockchain safe. If a malicious occasion had been to aim to change info in a block of a blockchain — for instance, an possession file included in an NFT — this could lead to a change to the cryptographic hash of the related block. This change would lead to mismatches or modifications to the cryptographic hashes within the subsequent information blocks, offering a sign of the unauthorized change to the recorded info.

Further, the info blocks in a blockchain, collectively known as the blockchain ledger, will not be recorded in a centralized location. Rather, the blockchain ledger is recorded in a number of totally different pc programs, sometimes of customers who’ve carried out a transaction by way of the blockchain or who created a number of new blocks on the chain. The lack of a single centralized location for the blockchain ledger additional will increase the safety of the data recorded on the blockchain. A malicious occasion couldn’t hack a single pc system to change the data in a blockchain as a result of the ledger on that single pc system would then not match the ledgers recorded on different pc programs within the community. If there was a sign of a change in info beforehand recorded on the blockchain — for instance, because of a change in a cryptographic hash of a number of blocks — the ledgers of a number of or all the totally different programs wherein the ledger was recorded might be in comparison with decide which system had been compromised. Thus, recording possession, assignments, and prior gross sales or licenses of belongings, comparable to patents, as NFTs on a blockchain would profit potential consumers, sellers and potential licensees by offering an unalterable public file.

Patents and NFTs

Currently, there are not any necessities for recording assignments or gross sales of patents with the United States Patent and Trademark Office, so it’s typically tough to know the proprietor of a patent. It can be tough to judge the worth of a patent as a result of the phrases of gross sales or licenses of patents are not often made public. If a patent was bought or licensed by way of NFTs, a file of the sale and present proprietor or licensee of the patent can be immediately out there to the general public. To additional profit potential consumers, sellers or licensees, the gross sales or licensing of patents by way of an NFT might be automated by means of sensible contracts.

The first NFT was created in May 2014, however NFTs didn’t acquire a lot public consideration till 2017 when Larva Labs released a project dubbed CryptoPunks for the commerce of cartoon characters on the Ethereum blockchain and Dapper Labs launched the CryptoKitties gaming project, which allowed gamers to buy, commerce and “breed” digital cats.

The market related to the gross sales of NFTs grew considerably in 2021, with an estimated gross sales worth of greater than $250 million. Notable NFT gross sales embrace: an algorithm-generated pixel artwork picture of an alien from the CryptoPunks project in March 2021 for $7.57 million; Twitter CEO Jack Dorsey’s first-ever tweet from 2006 in March 2021 for $2.9 million; and lots of extra. In one of many highest-priced NFT gross sales to this point, the public sale home Christie’s bought a digital art work, “Everydays: The First 500 Days,” by the digital artist Mike Winkelman, also known as Beeple, for $69.3 million in March 2021. NFTs might now be created and bought on digital public sale websites or by conventional auctioneers, comparable to Christie’s.

Creating an NFT-based market for asset sorts, comparable to patents, will take time and would require patentees to undertake a new paradigm with respect to recording patent possession, transfers and licensing. A lot of preliminary work can be required to create the digital representations of possession of present patents as NFTs. Difficulties might come up if transfers or licenses had been made however not recorded on the blockchain, thus creating conflicting data of possession; nevertheless, work on such a market has begun. For occasion, IBM has introduced plans to work with the patent market IPwe to create a digital market to file and supply for the switch of possession of patents by way of NFTs. True Return Systems LLC has begun the primary public sale for a patent within the type of an NFT, appropriately for a patent directed to blockchain know-how.

This article doesn’t comprise funding recommendation or suggestions. Every funding and buying and selling transfer includes threat, and readers ought to conduct their very own analysis when making a call.

The views, ideas and opinions expressed listed below are the creator’s alone and don’t essentially mirror or signify the views and opinions of Cointelegraph.

Greg Gerstenzang is a companion at Boston intellectual property legislation agency Lando & Anastasi LLP. Greg works with purchasers of all sizes to leverage their intellectual belongings by way of strategic patent portfolio growth and administration primarily within the chemical and materials sciences, pc know-how and software program, shopper merchandise, electronics, and mechanical and industrial engineering industries. He prosecutes patent purposes domestically and overseas in a variety of applied sciences from water therapy to strong state physics. Greg’s intellectual property legislation follow focuses on patents, post-grant overview course of and strategic counseling. Greg is an energetic member of the MIT Club of Boston, the Cornell Club of Boston, the Boston Bar Association and the Boston Patent Law Association.