Virtual Art and Non-Fungible Tokens: Bstract

VIRTUAL ART AND NON-FUNGIBLE TOKENS
Lawrence J. Trautman*
ABSTRACT
Fueled in part by the wealth recently created from digital

currencies, major art dealers such as Christie’s and Sotheby’s have
embraced the sale of non-fungible tokens attached to unique digital
works of art. What are non-fungible tokens, how is this related to the
blockchain, and what do we know about this rapidly evolving market for
digital art? It appears that digital art can be added to the growing list of
uses for blockchain technology now becoming a part of modern life.
This Article proceeds in seven Parts. First is a discussion about the
new and explosive market for digital art. Second, I explore the evolution
of the digital world and virtual property. Third is an explanation and
historical account of the blockchain and virtual currencies. Fourth is
coverage about non-fungible tokens. Fifth is a brief look at unresolved
issues impacting the law of non-fungible tokens and potential solutions
are provided. Sixth is a few thoughts about the future of digital property.
And last, I conclude.
This dramatic extension of blockchain and other digital technology
to the world of art and music represents a new and exciting platform for
creative expression. This Article offers a valuable addition to the
literature by providing a readable introduction and overview of what is
now known about the likely impact of blockchain technology and non-
fungible tokens to music and art. This important development should
have a significant impact on the future of innovation and property law.
* B.A., The American University; M.B.A., The George Washington University; J.D.,
Oklahoma City University School of Law. Mr. Trautman is an Associate Professor of Business Law
and Ethics at Prairie View A&M University. He may be contacted at
Lawrence.J.Trautman@gmail.com. My profound thanks to Professor Joshua A.T. Fairfield for his
wonderful body of work on this subject and kind suggestions for improving this manuscript. I
consider him a national treasure on this topic and will go so far as to suggest that if you read
something impressive in this Article, it is probably his thought. On the other hand, all mistakes are
mine.
361
Electronic copy available at: https://ssrn.com/abstract=3814087

362 HOFSTRA LAW REVIEW [Vol. 50:361
I. OVERVIEW ............................................................................................. 363

II. MARKET FOR DIGITAL ART EMERGES ................................................. 365
A. The NFT Gold Rush ................................................................ 365
B. History of Digital Art .............................................................. 370
C. CryptoPunks ........................................................................... 373
D. Nifty Gateway ......................................................................... 380
E. Impact of Bitcoin Price Volatility ........................................... 381
F. NFTs and Energy Consumption.............................................. 383
G. Eden Fine Art Gallery ............................................................ 383
H. Crypto Art in Sports ............................................................... 386
I. Topps Ventures Into NFTs ....................................................... 388
III. EVOLUTION OF THE VIRTUAL WORLD ............................................... 391
A. Genesis of Virtual Worlds....................................................... 393
B. Virtual World Characteristics ................................................ 394
C. How Large Is the Virtual World? ........................................... 397
D. Stickiness: The Virtual World is Addictive............................. 398
IV. THE BLOCKCHAIN AND VIRTUAL CURRENCIES ................................. 400
A. The Blockchain ....................................................................... 401
B. The Mechanics of Blockchain ................................................. 402
C. Virtual Currencies .................................................................. 403
D. Bitcoin .................................................................................... 405
E. Threat of Data Breach ............................................................ 405
V. HOW NON-FUNGIBLE TOKENS MAY SOLVE ART WORLD
PROBLEMS ................................................................................................ 407
A. Mechanism of Action .............................................................. 407
B. NFT Revenue Source for Musicians ....................................... 409
C. The Business of NFTs ............................................................. 409
D. Nascent Artists Emerge .......................................................... 411
VI. LAW OF DIGITAL PROPERTY .............................................................. 412
A. Virtual Property and "Bundle of Rights" ................................ 414
B. Problems With the Existing Legal Framework....................... 416
C. Proposed Framework for Digital Property ............................ 418
VII. THE FUTURE OF DIGITAL PROPERTY ................................................ 421
A. Artificial Intelligence (AI)....................................................... 421
B. Payments for Artistic Endeavors ............................................ 421
C. Future Regulatory Compliance Issues ................................... 422
D. The Future of Digital Property .............................................. 422
VIII. CONCLUSION.................................................................................... 424

2022] VIRTUAL ART AND NON-FUNGIBLE TOKENS 363
I. OVERVIEW
On March 11, 2021, Metakovan, a pseudonym, paid $69 million for
a piece of unique digital art titled “Everydays - The First 5000 Days,”
and paid for it with Ether, a cryptocurrency.1 With this landmark
purchase, fueled in part by the wealth recently created from digital
currencies, art buyers, creatives, and investors became suddenly aware
of the exploding market for unique digital art. In the art world, major
traditional art dealers, such as Christie’s and Sotheby’s, have embraced
this new development. The underlying strange brew of cryptography,
game theory, interest in art collection, need for the creation of true
unique digital ownership interests, and a solid dose of speculative hype
has now fermented into a term that has become one of the driving law
and technology stories of the year: non-fungible tokens (“NFTs”). Also
during 2021, $2.9 million was paid “for the NFT of Twitter founder Jack
Dorsey’s first tweet, which you can easily see on-line: ‘just setting up
my twttr.’”2
What then are NFTs, how is this related to the blockchain, and what
do we know about this rapidly evolving market for digital art? It appears
that digital art can be added to the growing list of uses for blockchain
technology now becoming a part of modern life, such as: accounting and
auditing;3 agriculture;4 artificial intelligence (“AI”);5 business supply
chains;6 carbon markets;7 commercial real estate;8 commodity
platforms;9 copyrights;10 creative and artistic endeavors;11 economic
planning;12 elections;13 fiat money;14 financial services and capital
1. Scott Reyburn, The $69 Million Beeple NFT Was Bought With Cryptocurrency, N.Y.
TIMES, https://www.nytimes.com/2021/03/12/arts/beeple-nft-buyer-ether.html (Mar. 16, 2021).
2. Andy Kessler, Op-Ed, Mark Cuban Knows Crypto, WALL ST. J., (May 23, 2021, 12:04
PM), https://www.wsj.com/articles/mark-cuban-knows-crypto-11621785848.
3. See Lawrence J. Trautman & Mason J. Molesky, A Primer for Blockchain, 88 UMKC L.
REV. 239, 267 & n.107 (2019).
4. Id. at 267-68; see also Emily R. Lyons et al., What Blockchain Means for the Agriculture
and Food Industries, LEXOCOLOGY (Dec. 26, 2018),
https://www.michaelbest.com/Newsroom/192905/What-Blockchain-Means-for-the-Agriculture-
and-Food-Industries.
5. See, e.g., Trautman & Molesky, supra note 3, at 268 & n.114.
6. See, e.g., id. at 269 & n.117.
7. See, e.g., id. at 269 & n.118.
8. See, e.g., id. at 269 & n.119.
9. See, e.g., id. at 270 & n.120.
10. See, e.g., id. at 270 & n.121.
11. See, e.g., id. at 270 & n.124.
12. See, e.g., id. at 271 & n.126.
13. See, e.g., id. at 271 & n.128.
14. See, e.g., id. at 272 & n.131.

markets;15 and the Internet of Things (“IoT”),16 just to name a few. But
the application of NFTs to art is a central application in a new direction.
After all, one Bitcoin is much like another. But an NFT equivalent of the
Mona Lisa is very different from the NFT equivalent of Action Comics
#1. NFT technology leverages digital uniqueness in a way that makes a
new social phenomenon possible. There is only one Mona Lisa in the
Louvre: owning a copy doesn’t provide the same thrill.
This Article proposes that pent-up demand for true digital
uniqueness—collectability—will drive the online market for NFTs to
survive the current crypto-crash.17 Values for digital art will be down in
the short term, certainly, as people absorb paper losses from paper gains.
But if we mean to say—as we do mean to say—that the technology will
be more than a flash in the pan, it is worth delving into the roots of the
demand for online uniqueness. The demand for one-of-a-kind art has
roots as firmly planted online as off and showing that the demand for
digital collectibles has long driven economies in online environments
and virtual worlds will help ground the inevitable discussion over
whether NFTs are merely a fad or a phenomenon.
The thesis is simple: founded in the belief that humans value rarity
and uniqueness particularly in a social context. When it comes to art, the
value that humans attribute to uniqueness is tied to the strength and
breadth of communities that gather around the art, that admire it, value
it, and provide social value to those who collect, support, and enjoy it.
Collecting art is social. This Article will establish that where strong
social bonds form online communities around items, whether a
community of admirers of Banksy, or the players of an online
role-playing game, markets for unique items and arts will arise.18 Thus,
it is argued that the NFT phenomenon is largely independent of
valuation of cryptocurrencies, except to the extent that those who are
excited about cryptographic token technologies are more likely to
understand and value unique tokens, and in a crypto boom, are more
likely to pay eye-grabbing sums.
This Article proceeds in seven Parts. First is a discussion about the
new and explosive market for digital art. Second, I explore the evolution
of the digital world and virtual property. Third is an explanation and
historical account of the blockchain and virtual currencies. Fourth is
coverage about NFTs. Fifth is a brief look at unresolved issues
15. See, e.g., id. at 272 & n.132.

16. See, e.g., id. at 275 & n.138; see also Lawrence J. Trautman et al., Governance of the
Internet of Things (IoT), 60 JURIMETRICS 315, 318, 320-21 (2020).
17. See infra Part V–VI.
18. See infra Part III.

impacting the law of NFTs and potential solutions are provided. Sixth is
a few thoughts about the future of digital property. And last, I conclude.
This dramatic extension of blockchain and other digital technology
to the world of art and music represents a new and exciting platform for
creative expression. This Article offers a valuable addition to the
literature by providing a readable introduction and overview of what is
now known about the likely impact of blockchain technology and NFTs
to music and art. This important development should have a significant
impact on the future of innovation and property law.
II. MARKET FOR DIGITAL ART EMERGES

On March 13, 2021, The Wall Street Journal reported a first sale of
an entirely digital work by auction house Christie’s, creating “a frenzy in
crypto asset markets by paying a record sum for . . . artwork that exists
only digitally. Its authenticity is verified primarily because it carries an
NFT, or digital proof of purchase that is recorded on a digital ledger
known as a blockchain.”19
A. The NFT Gold Rush

According to Christie’s, “A cryptocurrency investor based in
Singapore called Metakovan won Beeple’s $69 million digital collage at
auction—a sale that smashed records in markets for both art and
non-fungible tokens, or NFTs.”20 As reported:
Metakovan is the founder of Metapurse, a crypto-based investment
firm. [A spokesman for Metakovan known as] Twobadour said that
their fund outbid dozens of rivals over the course of the 15-day online
contest to win Beeple’s pixilated amalgamation of irreverent drawings
and fantastical landscapes that the artist combined into a single collage
called “Everydays: The First 5000 Days” . . . .
NFTs are all the rage now, but Twobadour, who spoke on Metakovan’s
behalf as the fund’s steward, said he and his partner have spent the past
several years focused on amassing what might be the world’s biggest
collection of tokenized collectibles and art, worth nearly $120 million
combined, with Beeple serving as its star. Four months ago, the fund
paid $2.2 million for a different set of 20 Beeple works on the online
marketplace Nifty Gateway. . . .
The artist [Beeple], whose real name is Mike Winkelmann, is known
for completing a new work each day for the past 13 years and
19. Kelly Crow & Caitlin Ostroff, EXCHANGE --- Crypto Investor Won Record Auction of
Beeple Digital Art, WALL ST. J., Mar. 13, 2021, at B12.
20. Id.

counting . . . . Metapurse has been able to scoop up Beeple’s works at

such high prices because Metakovan was an early investor in
cryptocurrencies, starting around 2013. . . . After buying that previous
set of 20 Beeple works in December [2020], they bought land in digital
gaming spaces and built museums to display the images before minting
tokens off the virtual experience they created. An initial 1.6 million
tokens of B.20 were sold at 36 cents apiece. By [March 12, 2021] the
cost of one token had risen to $16.35, giving the tokens a collective
worth of 163.5 million, according to Coinmarketcap.com.21
Reports document that just a month before, digital art depicting “Donald
Trump facedown in the grass, covered in words like ‘loser,’ sold for $6.6
million, a record for a nonfungible token, or NFT. . . . Fittingly, the
image was paid for in Ethereum, a form of cryptocurrency that, among
millennials, is almost as well known as Bitcoin.” 22 Although United
States-centric, The New York Times provides a potential explanation for
this phenomenon by observing “[r]ather than elbowing past one another
for reservations at the latest restaurants . . . or getting into bidding wars
for apartments at 740 Park Avenue, they are one-upping each other in
online auctions for jewelry, watches, furniture, sports cards, vintage cars,
limited-edition Nikes and crypto art.”23 A Christie’s spokesperson
indicates their shift in strategy “ahead of the NFT boom, but the sudden
popularity of the digital medium indicated that the art world was primed
for an overhaul. ‘People are collecting art differently now, and it’s time
for some radical changes.’”24 Exhibit 1 depicts an image of Beeple’s
EVERYDAYS: THE FIRST 5000 DAYS, 2021.25
21. Id.
22. Jacob Bernstein, Here’s How Bored Rich People Are Spending Their Extra Cash, N.Y.
TIMES (Mar. 20, 2021), https://www.nytimes.com/2021/03/20/style/spending-rich-people.html.
23. Id.
24. Kelly Crow, Art World Gets Crash Course in NFTs; a Frenzy Ensues, WALL ST. J. (Mar.
17, 2021, 11:59 PM), https://www.wsj.com/articles/art-world-gets-crash-course-in-nfts-a-frenzy-
ensues-11616039940.
25. EVERYDAYS: THE FIRST 5000 DAYS (illustration), in Beeple’s Opus, CHRISTIE’S
https://www.christies.com/features/Monumental-collage-by-Beeple-is-first-purely-digital-artwork-
NFT-to-come-to-auction-11510-7.aspx.

Exhibit 1
EVERYDAYS: THE FIRST 5000 DAYS, 202126
It is now evident that “[t]he art market, coming off a pandemic year
marked by sluggish sales, also sees an opportunity to cozy up to a
largely untapped audience of crypto-millionaires.”27 The Wall Street
Journal reports:
Christie’s is aiming to capitalize on the momentum by reorganizing its
sales in May in part to appeal to millennials and cryptocurrency
investors who want more emerging art and NFTs in the big-league
action mix, the house said. Instead of labeling its two biggest sales by
their artistic styles—like impressionist-modern and
26. Id.
27. Crow, supra note 24.

postwar-contemporary—Christie’s will slot its offerings by time

frame, specifically the 20th century and 21st century.28
Bids from more than thirty were received, resulting in a winning

offer of “350 Ether, or about $560,000.”29 Accordingly, Mr. Roose
writes, “I listed it on Wednesday morning, and before I went to bed that
night, the top bid had risen to more than $30,000. When I woke up the
next morning, it was $43,000. In the final hour of the auction . . . [a]
bidding war broke out.”30 Bids from more than thirty were received,
resulting in a winning offer of “350 Ether, or about $560,000. A few
minutes later, after the auction platform had taken its cut, nearly
$500,000 in cryptocurrency landed in my digital wallet.” 31 Exhibit 2 is
an image of Mr. Roose’s winning art. Mr. Roose reflects:
Some NFT collectors believe that owning early, prominent
crypto-tokens, will eventually be like owning rare, first-edition books
or priceless paintings. [NFT collector] Mr. Ouyang admitted that the
value of my NFT was “still highly speculative and subjective.” But he
said he believed that NFTs and other blockchain-based technologies
would ultimately reshape the entire media landscape, allowing creators
to reimagine how they create and monetize their works. “This
particular NFT from The New York Times is one of the answers and
will become a historical landmark in this inevitable movement,” he
said. “That’s why I think it is valuable.”32
28. Id.
29. Kevin Roose, Why Did Someone Pay $560,000 for a Picture of My Column?, N.Y. TIMES,
https://www.nytimes.com/2021/03/26/technology/nft-sale.html (Aug. 12, 2021).
30. Id.
31. Id.
32. Id.

Exhibit 2
A Picture of My Words Was Worth $560,000 in the NFT
Market33
On May 28, 2021, we read about historical documents of interest

being monetized by the University of California at Berkeley (“UC
Berkeley”).34 According to The New York Times, UC Berkeley’s plan is
to “auction the first of two digital art . . . NFTs. . . . The object being
offered is based on a document called an invention and technology
33. Id.
34. Kenneth Chang, You Can Buy a Piece of a Nobel Prize-Winning Discovery, N.Y. TIMES,
https://www.nytimes.com/2021/05/27/science/nobel-prize-nft-berkeley.html (Oct. 2, 2021).

disclosure. That’s the form that researchers at Berkeley fill out to alert
the University about discoveries that have the potential to be turned into
lucrative patents.”35 Originating in 1996:
The title of the invention . . . is “Blockade of T-Lymphocyte
Down-Regulation Associated with CTLA-4 Signaling.” The University
hopes that potential bidders will be attracted to an early description of
a revolutionary approach to treating cancer developed by James P.
Allison, then a professor at Berkeley. He found a way to turn off the
immune system’s aversion to attacking tumors and he showed that it
worked in mice.
That advance eventually led to the creation of Yervoy, a drug for the
treatment of metastatic melanoma, and Dr. Allison, who is now at the
MD Anderson Cancer Center, shared the Nobel Prize in Medicine in
2018. Thus, the Berkeley disclosure form could be thought of as the
scientific equivalent of Mickey Mantle’s rookie baseball card - a
memento of the beginnings of greatness. “I think of it almost as a
history of science artifact,” said Richard K. Lyons, the chief innovation
and entrepreneurship officer at Berkeley. “Imagine somebody saying,
‘I want to own the NFTs for the 10 most important scientific
discoveries of my lifetime.’” A 24-hour auction of the NFT of Dr.
Allison’s invention disclosure will take place as early as June 2 [2021]
using Foundation, an NFT auction marketplace that uses Ethereum, the
cryptocurrency network of choice for NFT collectors.
Eighty-five percent of the proceeds will go to Berkeley to finance
research, the remainder to Foundation. If the piece is later resold,
Berkeley will receive 10 percent of the sale and Foundation 5 percent.
Because the making of an NFT requires a lot of computing power, part
of the money the university earns from the NFT sale will be used for
carbon offsets to compensate for the energy consumed, Berkeley
officials said. The second NFT that Berkeley plans to auction in the
coming weeks will be the disclosure form describing the
CRISPR-Cas9 gene editing invention by Jennifer A. Doudna, a
professor of molecular and cell biology at Berkeley. She shared the
2020 Nobel Prize in Chemistry with Emmanuelle Charpentier of the
Max Planck Unit for the Science of Pathogens for their work on
technique.36
B. History of Digital Art

Christie’s provides a history of digital art “dating back to the 1960s.
But the ease of duplication traditionally made it near-impossible to
35. Id.
36. Id.

assign provenance and value to the medium.”37 During November 2018,

Christie’s first transaction of this type took place, “when it registered the
entire 42-lot Barney A. Ebsworth Collection of 20th-century American
Art on the Artory blockchain. The collection totaled more than $322
million and marked the first time an art auction at this price level had
been digitally recorded.”38 Robert Alice’s Block 21 was offered by
Christie’s during October 2020 “as part of its Post War & Contemporary
Art Day sale . . . . The first work of art with an embedded NFT to be
offered at a traditional auction house, the lot attracted non-traditional
bidders and crypto enthusiasts alike ̶ and sold for almost 11 times its low
estimate.”39 Christie’s states:
The recent introduction of Non-fungible tokens (NFTs) and blockchain
technology has enabled collectors and artists alike to verify the rightful
owner and authenticity of digital artworks. EVERYDAYS: THE FIRST
5000 DAYS will be delivered directly from Beeple to the buyer,
accompanied by a unique NFT encrypted with the artist’s unforgeable
signature and uniquely identified on the blockchain.40
Additional transactions taking place before the Christie’s $69
million Beeple’s sale are reported by financial journalist Jason Zweig
who notes, “In February [2021], an NFT representing the Nyan Cat
video meme, which looks like a feline Pop-Tart dragging a rainbow
through outer space, sold for more than $500,000. A video NFT of
LeBron James dunking a basketball sold for $208,000.”41
Rapid technological changes brought about by significant product
developments, such as the Gutenberg Press, often help facilitate
Renaissance-like artistic creativity. The Gutenberg “formation of the
printing press in the fifteenth century pave[d] the way of mass
production of texts and images. With new communication capacity being
enabled by this technological advancement, the widespread of material
and intellectual exchange becomes possible.”42 In modern times, “many
of the working approaches used by digital artists can be traced back to
the early days . . . of the computer development. Since the emergence of
37. Beeple’s Opus, CHRISTIE’S, https://www.christies.com/features/Monumental-collage-by-

Beeple-is-first-purely-digital-artwork-NFT-to-come-to-auction-11510-7.aspx (last visited Jan. 15,
2022).
38. Id.
39. Id.
40. Id.
41. Jason Zweig, NFTs: The Method to the Madness of a $69 Million Art Sale, WALL ST. J.
(Mar. 19, 2021), https://www.wsj.com/articles/nfts-the-method-to-the-madness-of-a-69-million-art-
sale-11616164200.
42. Bo Xing, Creativity and Artificial Intelligence: A Digital Art Perspective (Aug. 4, 2018)
(unpublished manuscript), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3225323.

the World Wide Web in the 1990s, a diverse variety of opportunities

were further opened for visual arts with seemingly infinite permutable
dimensions.”43 Bo Xing attributes the emergence of digital art to three
primary factors:
[F]irstly, it is such a common practice for artists, in particular young
professionals, to use a wide range of media arts for creative purposes,
producing static/dynamic images, as well as manipulating sound tracks
and text scripts;
[S]econdly, digital art is not an isolated practice, divided from other
forms of arts. It is essentially a methodology that incorporates all types
of interconnections with other art exercises together with other manner
of presentations and enquiries, illustrating that we are witnessing and
experiencing a new wave of creative revolution; [and]
[L]ast but not the least, it is worth noticing that an army of digital
artists are now working in numerous industries shoulder to shoulder
with hardware and software practitioners at the forefront of
innovation.44
Just as in the physical world, the advent and growth of the
electronic social spaces, from games like World of Warcraft to
blockchain-based environments like Decentraland, to the social bubbles
of Twitter, have fostered a need for online value, both in terms of
currency and payment, and in terms of unique digital assets to hold that
value. Paying fungible currency—dollars—for a unique creation—art—
is a loop we have not yet experienced in the present economy. Our
economies remain half online, half off. While current laws and the scope
of regulations struggle to keep up with rapid technological change,
policy makers and criminal enforcement officials face significant new
challenges.
According to Harvard professor Jonathan Zittrain and researcher
Will Marks, in sum, an NFT’s “first buyer is getting three things: the
warm feeling that may accompany financing an artist; the pride that
comes with claiming a relationship to a digital artifact and its creator;
and perhaps most tangibly, an asset that can be traded . . . .”45 Consider:
43. Id.
44. Id.; see Julian Sefton-Green & Vivienne Reiss, Multimedia Literacies: Developing the
Creative Uses of New Technology with Young People, in YOUNG PEOPLE, CREATIVITY AND NEW
TECHNOLOGIES: THE CHALLENGE OF DIGITAL ARTS 12, 13-14 (Routledge ed., 1999); see also
William Vaughn, Introduction: Digital Art History, in 1 COMPUTERS AND THE HISTORY OF ART:
DIGITAL ART HISTORY 1, 2 (Anna Bentkowska-Kafel et al. eds., 2005).
45. Jonathan Zittrain & Will Marks, What Critics Don’t Understand About NFTs, ATLANTIC
(Apr. 7, 2021), https://www.theatlantic.com/ideas/archive/2021/04/nfts-show-value-owning-
unownable/618525.

The buyer is not, however, acquiring anything that they alone can use.
In the physical world, if you purchase a candy bar, you can’t give
someone a piece of it without losing a few bites of your own. That
makes your freedom to take a bite valuable, because the bar has only
so much chocolate.
By contrast, an NFT buyer is not purchasing a work, but rather a
publicly available token that links to a work. For example, for a digital
picture, the token may be a unique number and a link to a copy of the
picture, hosted on a service such as IPFS. The token itself is visible to
all, as is the work to which it points, so anyone else can look at the
work and download it. And most NFT transactions don’t purport to
convey copyright or other intellectual-property interests regarding the
work in question, so owning an NFT tied to an animation of, say, a
flying Pop-Tart cat doesn’t put you in a position to use that animation
any differently than someone who hadn’t bought it. You have only a
token that is hosted publicly online, “registered” as assigned to your
digital wallet rather than someone else’s. If you orchestrate your wallet
through an app, the app might present you with a handsome visual
trophy case listing the NFTs that you’ve purchased. (As you can see,
we’re having to reach to describe unique value.)46
Christie’s announced the sale of works made during the mid-1980s
by Andy Warhol that were recovered from obsolete floppy disks during
2014.47 These five original Andy Warhol works, existing previously only
as digital files “will be brought to life again in the form of 1/1
NFT . . . . They will be offered for sale individually by Christie’s on
behalf of The Andy Warhol Foundation for the Visual
Arts . . . established by Warhol.”48 The online sale ran on Christie’s
website from May 19, 2021 to May 27, 2021.49
C. CryptoPunks
Noah Davis, Post-War and Contemporary art specialist at
Christie’s, New York states, “The CryptoPunks are the alpha and omega
of the CryptoArt movement . . . . This is a historic sale.”50 Accordingly,
46. Id.; see also Caroline Anders, Finally Impressed? NFT of Side-Eying Toddler Meme
Fetches Over $74,000 In Cryptocurrency., WASH. POST, (Sept. 25, 2021, 7:26 PM),
https://www.washingtonpost.com/technology/2021/09/25/chloe-side-eye-meme-nft-sale.
47. Press Release, Christie’s, Christie’s Presents Proof of Sovereignty: A Curated NFT Sale
by Lady PheOnix (May 25, 2021), https://www.christies.com/about-us/press-
archive/details?PressReleaseID=10079&lid=1.
48. Press Release, Christie’s, Christie’s Presents Andy Warhol: Machine Made (May 19,
2021), https://www.christies.com/about-us/press-archive/details?PressReleaseID=10076&lid=1.
49. Id.
50. See 10 Things to Know About CryptoPunks the Original NFTs, CHRISTIE’S (Apr. 8, 2021),
https://www.christies.com/features/10-things-to-know-about-CryptoPunks-11569-1.aspx.

during Christie’s 21st Century Evening sale on May 13, 2021, a single
lot of nine Punks, courtesy of LarvaLabs were brought to market.51
About three years earlier “two software developers created a quirky art
project called CryptoPunks that posed a serious and provocative
question: Could a few lines of code translate to a feeling of meaningful
ownership? It was a crazy idea that would require, in their words, ‘a
conceptual leap.’”52 Christie’s contends that CryptoPunks is now
regarded as the genesis of the CryptoArt movement of today.53 The
experiment begins, when, according to Christies:
In 2017, Matt Hall and John Watkinson, founders of New York-based
software company Larva Labs, created a software program that would
generate thousands of different, strange-looking characters. At first,
they thought they might have had the makings of a smartphone app or
game. [However, as we have seen, their creation] was a
paradigm-altering model for the digital art market and a challenge to
the concept of ‘ownership’ itself.
Larva Labs launched CryptoPunks on June 23, 2017. The CryptoPunks
are a collection of 24x24, 8-bit-style pixel art images of misfits and
eccentrics. There are exactly 10,000 of them, each with their own
ostensible personality and unique combination of distinctive, randomly
generated features. Each Punk has its own personality, thanks to
distinct, randomly generated features, from glasses to caps to
hoodies . . . . CryptoPunks 58, 603 and 768, three of the nine works
featured in Larva Labs’ single lot [were] offered in 21st Century
Evening Sale on 11 May at Christie’s in New York.54
In sum, “[t]here are 6,039 male Punks and 3,840 female Punks. A
total of 696 wear hot lipstick, while 303 have muttonchops. There are
286 Punks with 3-D glasses, 128 rosy-cheeked Punks, 94 Punks with
pigtails, 78 Punks with buck teeth and 44 beanie-wearing Punks.”55 In
addition, “eight Punks with no distinctive features at all—sometimes
referred to as Genesis Punks—and only one with seven attributes:
CryptoPunk 8348 a big bearded, bucktoothed, cigarette-smoking Punk
with an earring and a mole, wearing classic shades and a top hat.”56 The
London punk scene is attributed as the grand inspiration for this project:
To Hall and Watkinson, there was a raucous, anti-establishment spirit
to the early days of the blockchain movement. It was a vibe they
51. Id.
52. Id.
53. Id.
54. Id.
55. Id.
56. Id. (emphasis omitted).

wanted to reflect in the look of their Punks. ‘They needed to be a

collection of misfits and non-conformists,’ they explain. ‘The London
punk movement of the 1970s felt like the right aesthetic.’ The
dystopian grit of cyberpunk as typified by the film Blade Runner and
William Gibson’s novel Neuromancer, was also an influence. Inspired
by the ‘70s London punk scene, many Punks have mohawks and wild
hair, like CryptoPunks 532 and 602, two of the nine works featured in
Larva Labs’ single lot offered in 21st Century Evening Sale on 11 May
at Christie’s in New York. Anyone and everyone can view any one of
the CryptoPunks. There’s a composite image of all 10,000
CryptoPunks on Larva Labs’ website. Anyone can save a copy of the
image file to their memory stick or hard drive. Each Punk also has its
own page, detailing its special features and complete transaction
history. But only one person can officially own a CryptoPunk. Official
ownership of each work is outlined, in code described by one fan as
elegant and beautifully written, in a contract on the publicly accessible
Ethereum blockchain. The record, as Larva Labs explained to
Christie’s, ‘is incorruptible and promises to be extraordinarily
long-lived.’ The ownership history of every artwork is tracked and
documented in the blockchain, too. The system Hall and Watkinson
came up with is sometimes compared to owning a work of physical art
that’s permanently on loan to a public museum. It also inspired the
now widely accepted ERC-721 standard for NFTs, laying the
groundwork for today’s NFT market.57
To be expected, some CryptoPunks are rarer than others.58 In an

homage to popular culture archetypes, by tweaking software algorithms,
Hall and Watkinson created both human CryptoPunks and
[A] scarcer number of fantastical, non-human works, adding 88
green-skinned zombie Punks, 24 hirsute ape Punks and nine
light-blue-skinned alien Punks to the series. Like their human
counterparts, the non-human Punks have different combinations of
accessories: one alien is smoking a pipe . . . and has been dubbed the
‘wise alien.’59
Christie’s writes:
CryptoPunk 635, one of only nine alien Punks and the only one with a
sub-1,000 series number, is the highlight of the nine works featured in
Larva Labs’ single lot offered . . . 11 May at Christie’s in New York.
57. Id.
58. Id.
59. Id.

“The core of the idea was that every character should be unique,” says
Larva Labs. “The advantage of generative art is that the process, once
set in motion, can produce results that are even surprising to us. We
ran the generator hundreds of times, reviewed the results, and made
adjustments. Then, with little fanfare, we ran it one last time, linked it
to the Ethereum smart contract that we deployed, after which
the CryptoPunks were completely set in stone.” The collection of
10,000 Cryptopunks is definitive and unalterable. In accordance with
the nature of blockchain, once the project went live, Larva Labs
couldn’t alter the existing series, even if they wanted to. “It’s odd to
think of what might have been different if we had run the generator
just one more time, or used the penultimate run’s output.” The creators
regard each work as individual pieces of generative art, while allowing
that the entire project itself might be thought of as a larger conceptual
piece. “It’s possibly the first work of art with a self-contained
mechanism for recording and transacting its ownership.” CryptoPunks
inspired a community of collectors and connoisseurs. Once minted,
Hall and Watkinson offered the CryptoPunks for free, not forgetting to
claim 1,000 for themselves, “just in case it becomes a thing,’ as Hall
put it. At first, there was very little interest. ‘We were starting to think,
ah no, this doesn’t really have it,” Watkinson has recalled. But before
too long, Punks were selling for thousands of dollars. “For fans of
collectibles, it’s clearly a version of trading cards or something similar.
However, generative art fans see it as an interesting example in that
category. We like that its perception is flexible and brings together
several of these worlds into a single project.”60
Christie’s describes the CryptoPunks market as “extremely active,”

observing that “[a]s of early April 2021, over 8,000 sales had been
recorded in the previous 12 months, with an average sale price of 15.45
ether ($30,412.40). The total value of all sales is 127,360 ether
($251,620,000)—and that value grows daily.”61 Other noteworthy sales
include, “[i]n February, CryptoPunk 6965, a fedora-wearing ape Punk,
sold for 800 ether—equivalent to $1.5 million . . . on 11 March 2021,
CryptoPunk 7804, the previously mentioned pipe-smoking ‘wise alien,’
was sold for the equivalent of $7.5 million—the highest amount ever
paid for a Punk at the time.”62 Exhibit 3 depicts the CyberPunk work:
60. Id.
61. Id.
62. Id.

Exhibit 3
CyberPunk work63
According to The Wall Street Journal, Sarah Meyohas’s art “places

her at the vanguard of this art-world revolution. She will be relaunching
an early project, Bitchcoin, on the Ethereum network, with a public
presale at Phillips auction house on May 25 [2021]. Her 2015 project
sold tokens entitling investors to portions of her photographic prints.”64
Ms. Meyohas reports, “The new Bitchcoins will be backed by flower
petals from a previous work called ‘Cloud of Petals’ . . . many of the
artists who have been doing well financially tend to release ‘drops’ of
hundreds of the same image.”65
63. Larva Labs, CryptoPunk (illustration), in 10 Things to Know About CryptoPunks, the
Original NFTs, CHRISTIE’S (Apr. 8, 2021), https://www.christies.com/features/10-things-to-know-
about-CryptoPunks-11569-1.aspx.
64. Bourree Lam, Finance Meets Crypto Art—Sarah Meyohas’s Work Places Her at
Vangaurd as She Prepares Items for Ethereum Network, WALL ST. J. (May 24, 2021),
https://www.wsj.com/articles/meet-wall-streets-crypto-artist-11621675805.
65. Id.

Exhibit 4
Total Amount Spent on CryptoPunks Daily.66
In retrospect, “Bitchcoin functioned as a sort of proto-NFT, and the

boom in digital tokens has brought a niche of tech-focused artists into
the mainstream . . . Ms. Meyohas revived Bitchcoin to mark her place in
the NFT boom.”67 According to proponents, “NFTs empower artists to
sell their own work online, bypassing traditional auction
houses . . . solv[ing] a key problem in the digital age: how to verify the
authenticity of an infinitely replicable artifact that exists as computer
code.”68 The Wall Street Journal writes, “Sales of CryptoPunks—early
66. For statistical information, see 10 Things to Know About CryptoPunks, the Original NFTs,
supra note 50.
67. Lam, supra note 64.
68. Id. (alteration in original).

NFTs of pixilated digital images of humans, aliens and other creatures—

peaked in mid-March at about $21 million in one day, according to
data-tracking site NonFungible.com.”69 Exhibit 4 illustrates total daily
spending on CryptoPunks.70
Between May 25 and June 3, 2021, Christie’s hosted a
collaboration with media landscape influential voice Lady PheOnix to
present an expertly curated “sale of both unique legacy and newly
created artwork sold with NFTs. The online auction, PROOF OF
SOVEREIGNTY . . . brings together 19 new media artists utilizing
blockchain technology, but also employs metadata, storage and legal
standards that have been virtually absent from millions of artworks
associated with [NFTs].”71 Featured as “[l]eading the auction is a
historic NFT from the Estate of Nam June Paik - considered the
grandfather of video art – that both memorializes and revitalizes the
artist’s seminal work, Global Groove, originally aired on
WNET-Channel 13 in 1974.”72 The point here is that “NFT technology
is repurposing and giving strength to a digital art movement that has
been building strength for fifty years, supporting the hypothesis that
NFT art markets stand independently from cryptocurrency.”73 Christie’s
states:
Paik’s famous piece heralds the age of global connectivity through a
hypnotic visual and sonic rhythm - creating an endless loop of
ecstatically groovy energy. The subsequent works, introduced by Lady
PheOnix, highlight a broad selection of new media artists, whose
collective practice spans more than 30 years. Marguerite deCourcelle,
also known as “Coin Artist”, creates visually compelling puzzles
coded directly into the Polygon blockchain. Joshua Davis, known as
‘Praystation’, has created colorful, generative, audio reactive artwork.
Claudia Hart implements the still life motif, inverting Matisse and
Picasso references into a stimulated, uncanny composition. Lethabo
Huma of Pretoria, South Africa, captures the warmth of human
connection through soft color and vulnerability. Internationally
renowned artist KESH creates an intimate dialogue between
experimental music, photography, film, fashion and sculpture.
Pioneering new media artist Tamiko Thiel will be minting her work on
69. Id.
70. For statistical information, see 10 Things to Know About CryptoPunks, the Original NFTs,
supra note 50.
71. See Press Release, Christie’s, supra note 47 (alteration in original).
72. Id.
73. E-mail from Joshua A.T. Fairfield, William Donald Bain Family Professor of L. at
Washington and Lee Sch. of L. (Aug. 3, 2021, 11:09 CST) (on file with author).

a proof-of-stake blockchain to retain the very values of her

environmentally conscious art practice.
While most of these names may be new to the traditional Blue-Chip
collectors, Jenny Holzer, Urs Fischer and Gerald Laing Estate will
hold lots, recognizing the importance of the emergent NFT market.
Ultimately, PROOF OF SOVEREIGNTY is at once a celebration of
both 20th and 21st century digital works and new media artists,
providing a tantalizing glimpse of the future of art itself. 74
D. Nifty Gateway
Twins Griffin and Duncan Cock Foster “started Nifty Gateway to
mainstream what had been a highly technical subculture by, among other
things, allowing civilians to buy nifties (on the Nifty Gateway website)
with credit cards.”75 During 2019 they sold the less-than-a-year-old
company to another set of twins, the Winklevosses (of Facebook start-up
fame).76 Now, the Winklevoss-led company called Gemini has big plans
for Nifties:
The brothers’ stated mission is to have 1 billion people collecting
them. They talk about how nifties could one day be paired with
physical assets, so you could use a digital token to prove your
ownership of, say, real estate. But in these early days, the use cases can
seem generationally exclusionary. The first nifty to go viral was
CryptoKitties, a game featuring a digital feline you can collect and
breed. A single CryptoKitty has sold for a record $170,000, and
venture capitalists including Union Square Ventures and Andressen
Horowitz have put money into the company behind the game.
“CryptoKitties was the thing that got my attention,” Duncan said. “The
amount of money people were spending on CryptoKitties was
remarkable.”77
More recently, journalist Benjamin Wallace writes that Nifty
Gateway 2.0 provides “a marketplace to buy and sell nifties along with
several nifties by noted artists with whom they’ve partnered. The
brothers sketch a vision of a fully niftified world: ‘We want Supreme
74. See Press Release, Christie’s, supra note 47 (alteration in original).

75. See Benjamin Wallace, The Twin Blockchain Entrepreneurs Who Dream of “Digital Air
Jordans” Forecasting the Future of Art Collecting With Duncan and Griffin Cock Foster, N.Y.
MAG. (Mar. 4, 2020), https://nymag.com/intelligencer/2020/03/duncan-and-griffin-cock-foster-
nifty-gatewaygemini.html.
75. Id.
76. Id.
77. Id.

making nifties,’ Duncan said. ‘We want some CryptoPunks in the

permanent collection of MoMA.’”78
E. Impact of Bitcoin Price Volatility

During May 2021 China’s ban on financial service crypto services,
along with Elon Musk’s comments about massive energy consumption
from the process of mining Bitcoin, resulted in a massive several-day
decline in the value of Bitcoin, resulting in greater uncertainty about
“[t]he nascent use of Ethereum to buy digital artworks as non-fungible
tokens.”79 Only now, “[c]ompounding the battering by China’s move,
Ethereum has been forced into remodeling its underlying infrastructure
to slash carbon emissions by a hundredfold. Proof-of-work
cryptocurrencies have been widely condemned for being obscenely
harmful to the environment, because each transaction or recording of an
artwork requires massive computing power.”80
The Wall Street Journal reports, “China’s efforts to restrain
cryptocurrency trading and mining are adding to the wild moves in
bitcoin and other markets. Already down hard . . . bitcoin and other
digital currencies sold off sharply last week after Chinese authorities
reviewed pressure on the country’s banks and payment companies to
curb cryptocurrency-related transactions.”81 The impact was swift and
severe:
Markets stumbled again after a powerful superregulator chaired by
Vice Premier Liu He pledged to crack down on bitcoin mining and
trading . . . . China is trying to rein in cryptocurrency activities even as
the country has embraced the technology underlying bitcoin and has
plans to roll out its own digital yuan that will be controlled by its
central bank. Beijing also wants to shut down cryptocurrency-mining
activities because they consume massive amounts of electricity, often
from coal-fired power plants, while the country pledged to manage its
carbon emissions. “The Chinese government does not like the highly
volatile, speculative nature of the cryptocurrency market,” said Fan
Long, a co-founder of Conflux, a government-backed public
blockchain network in China. He said the authorities could take further
78. Id.
79. See Natasha Gural, How The Cryptocurrency Crash Could Impact NFT Art Sales With
Ethereum, FORBES (May 19, 2021, 8:33 PM), https://www.christies.com/features/10-things-to-
know-about-CryptoPunks-11569-1.aspx.
80. Id.
81. Elaine Yu & Chong Koh Ping, China’s Latest Crackdown on Bitcoin, Other
Cryptocurrencies Shakes Market, WALL ST. J. (May 25, 2021, 11:36 AM),
https://www.wsj.com/articles/chinas-latest-crackdown-on-bitcoin-other-cryptocurrencies-shakes-
market-11621853002.

action to restrict or eliminate ways for Chinese citizens to exchange

yuan into cryptocurrencies in the over-the-counter market.
On [May 23, 2021], Huobi, a major cryptocurrency exchange, said it
would stop selling mining machines and related services to new users
in mainland China. It will also suspend futures contracts,
exchange-traded products and leveraged investment products to new
users in a few countries and regions. OKEx, another popular
digital-currency exchange, on [May 24, 2021] said its own token,
OKB, can no longer be traded with the Chinese yuan.82
With a population of 1.41 billion and important global economy

and trading-partner to other countries,83 Chinese policy regarding
cryptocurrencies and NFTs is important. The Wall Street Journal
reports, “‘Crypto-related activities have posed two serious issues in
China,’ namely financial stability and energy consumption, said Shen
Wenhao, a Beijing based partner at JunZeJun Law Offices.”84 However,
“[c]racking down on Chinese bitcoin miners won’t affect the supply of
bitcoin - as cracking down on miners of, say, metals might affect . . . the
price of metals . . . because the bitcoin algorithm releases new bitcoins to
miners at a predetermined rate, regardless of how many miners are
competing for them.”85 In addition:
Cryptocurrency exchanges that operate offshore can be accessed by
people in China by using virtual private networks that help them
bypass the country’s internet restrictions. Some of the exchanges have
been facilitating bitcoin and other digital currency trades with China’s
domestic currency, the yuan. Such transactions typically take place
over the counter in what is known as the peer-to-peer market. They
have proved challenging for Chinese regulators, banks and payment
companies to track and curb, because they involve direct fund transfers
between individuals . . . .
As far back as 2013, a consortium of Chinese government agencies
and regulators issued warnings about the anonymity, borderless and
unregulated nature of bitcoin and told domestic financial and payment
institutions not to carry out bitcoin-related activities. The authorities
said they wanted to protect the legal currency status of the yuan,
prevent money laundering and maintain financial stability.86
82. Id.
83. Sui-Lee Wee, China’s ‘Long-Term Time Bomb’: Falling Births Stunt Population Growth,
N.Y. TIMES (May 10, 2021), https://www.nytimes.com/2021/05/10/china-census-births-fall.html;
Daniel Workman, China’s Top Trading Partners, WORLD’S TOP EXPORTS,
https://www.worldstopexports.com/chinas-top-import-partners (last visited Jan. 15, 2022).
84. Yu & Ping, supra note 81.
85. Id.
86. Id.

F. NFTs and Energy Consumption

In their compelling article about NFT energy consumption, WIRED
magazine reports, “Two years ago, Joanie Lemercier, a French artist
known for his perception-bending light sculptures, took on a new role as
climate activist. He attended protests against coal mining . . . and began
a campaign demanding Autodesk stop selling its design software to
fossil fuel operations.”87 Artist Lemercier “also took a closer look at his
own energy use, which included a hefty heating bill for his studio in
Brussels, electricity for the high-end computers to render his creations,
and dozens of flights each year to exhibitions around the world.”88 And:
Then, a few months ago, in the course of a few minutes, his progress
was erased. The culprit was Lemercier’s first blockchain “drop.” The
event involved the sale of six . . . NFTs, which took the form of short
videos inspired by the concept of platonic solids. In the clips, dark
metallic polyhedrons rotate on loop and glisten - a reference to
Lemercier’s installations in the physical world. The works were placed
for auction on a website called Nifty Gateway, where they sold out in
10 seconds for thousands of dollars. The sale also consumed 8.7
megawatt-hours of energy, as he later learned from a website called
Cryptoart.WTF. That figure was equivalent to two years of energy use
in Lemercier’s studio. Since then, the art has been resold, requiring
another year’s worth of energy. The tally was still climbing. The
problem, as Lemercier saw it, went well beyond himself. His fellow
artists were becoming millionaires overnight as the cryptoart world
exploded. But so was their role in emitting carbon. Artists didn’t seem
to understand the scope of this problem—Lemercier himself hadn’t—
and the platforms making the sales didn’t seem interested in
clarifying.89
G. Eden Fine Art Gallery

A particularly thoughtful and informative source of NFT
information, Eden Gallery writes, “Crypto art can take many forms,
from digital graphics to music, VR dreamscapes, or programmable art.
These digital assets can have a collector’s value and can represent items,
including still graphic images, photography, GIFs, videos, music, and
much more.”90 In sum, “[t]he crypto art concept revolves around the idea
87. Gregory Barber, NFTs Are Hot. So Is Their Effect on the Earth’s Climate, WIRED (Mar.
6, 2021), https://www.wired.com/story/nfts-hot-effect-earth-climate.
88. Id.
89. Id.
90. What Is Crypto Art?, EDEN GALLERY (May 19, 2021), https://www.eden-
gallery.com/news/what-is-crypto-art.

of digital scarcity . . . you treat digital art like physical goods and buy,
sell, trade, and collect it. Like traditional art, crypto art exists in limited
quantities, and in some cases, buyers can purchase the rights to partial
royalties and reproduction . . . .”91
While discussing the art of Alec Monopoly, Eden Fine Art Gallery
observes that his work “draws the viewer in with its vibrant color
schemes and iconic characters, that he uses to portray the lifestyles of
the rich and famous. Apropos to the Miami scene Monopoly sets his
painted characters atop yachts, flying helicopters, or coming out of the
bank with overflowing bags of money.”92 Exhibit 5 displays one of the
works by the artist known as Alec Monopoly.93 Further:
Alec Monopoly entertains his audience with his brightly colored
embodiments of the wealthy one percent in his graffiti-styled art.
Represented by the “Monopoly Gang,” embodying the wealthy elite,
epitomize the lifestyle of the rich and famous. As detached from our
own world as they may be, these characters still remain relatable as
they are the ones that we grew up watching on television and read
about in our comic strips. Richie Rich, the world’s richest kid, Scrooge
McDuck, a duck that enjoys swimming in his fortune, and everyone’s
favorite family, The Simpsons, are some of Monopoly’s favorite
characters to illustrate the story of luxury living.94
91. Id.
92. Monop$ in Miami, EDEN GALLERY (Nov. 28, 2019), https://www.eden-
gallery.com/news/monops-in-miami.
93. Contemporary Comics: How American Comic Art Stays Relevant in 2020, EDEN
GALLERY, (Apr. 20, 2020), https://www.eden-gallery.com/news/contemporary-comics-how-
american-comic-art-stays-relevant-in-2020.
94. Id.

Exhibit 5
Work by Alec Monopoly95
Eden Gallery writes, “It can be difficult to wrap your head around
the idea of buying digital art that can be copied. You can certainly copy
a digital file, including art sold with an NFT. In some cases, the owner
can buy the rights to reproduction, although artists usually retain this.”96
While the original version of any artwork can only have one owner,
“[a]n NFT grants ownership of the work, but it can be copied with
permission or illegally. This is not actually that different from the
reproductions we see all the time of traditional artwork. Just as the Mona
Lisa has been reproduced countless times in print and digital . . . .”97
Regarding crypto art platforms, “[w]ith no less than 20+ individual
marketplaces available on Ethereum, it is currently the most extensive
network for crypto art.”98 Consider:
Each marketplace on Ethereum caters to its own specific artistic style,
so you can find something that suits your niche or style. Some
marketplaces like Raible and Mintable offer a complete range of digital
art. Others like Ephemera cater mainly to photographers. The digital
95. Id.
96. What Is Crypto Art?, supra note 90.
97. Id.
98. Id.

art marketplace is a constantly changing world, with new entries

popping up almost weekly. Most, but not all, crypto art marketplaces
require a portfolio review to gain entry. The ones who do are quite
obvious upon inspection of the site. So, make sure you are working
with the most reputable and focused marketplace for each artistic
medium.
Sites like the aforementioned Raible, Mintable, and Ephemera are
older and more established in the crypto marketplace world, so they
are highly regarded. But don’t let that stop you from searching out
other marketplaces like . . . ArtOlin; Crypto.com NFT; Ethereum;
EOSIO; Flow; Hive; Near; Phantasm; Tezos; Waves; Zilliqa; [and]
VeChain Thor. It’s always a good idea to look around and do some
research before making a big purchase or investment. Just as you
would when buying art from galleries, do your due diligence before
purchasing an artwork, be it analog or digital! . . . Just as they say
about classical artwork, you may not know much about crypto art, but
you know what you like. There are many different genres of crypto art
available, so if you go looking, you’re likely to find something that
suits your taste. If you like the work of a digital crypto artist, then
crypto art could be a good investment.99
H. Crypto Art in Sports

Worldwide, in just a short period of time NFTs have become wildly
popular and a significant revenue source for sports teams.100 In just one
recent example, journalist Patrick Murray writes, “[t]he Golden State
Warriors today launched a new NFT . . . collection, becoming the first
team in U.S. professional sports to release their own officially licensed
NFTs.”101 Forbes reports:
NFTs have exploded onto the scene over the past few months, and
nowhere has that explosion been more visible than on NBA Top Shot,
the marketplace where basketball fans and collectors can buy, sell and
trade NFTs . . . . NBA Top Shot alone was responsible for a third of
the $1.5 billion NFT trading volume seen in the first quarter.
So what’s the appeal of NFTs, and why have they emerged so
suddenly? “If you compare a basketball card to a Top Shot moment,
you start to realize why people like NFT’s.” Schneider, a long-time
baseball business executive, explained. “Baseball cards – you have to
99. Id.
100. Patrick Murray, Golden State Warriors Launch NFT Collection, Becoming First U.S.
Sports Team to Release Own NFTs, FORBES (Apr. 27, 2021, 9:00 AM),
https://www.forbes.com/sites/patrickmurray/2021/04/27/golden-state-warriors-launch-nft-
collection-become-1st-sports-team-to-create-own-nfts/?sh=626a00921d94.
101. Id.

send them somewhere to get graded, that takes six months to a year,
you’ve got to store them somewhere, then you’ve got to figure out
where to sell them. You don’t know how many of them are created,
you don’t know what the card has sold for before, who’s owned it.
Then compare that to an NFT, or in this case, NBA Top Shot moment.
You know everyone that’s owned it and what price it sold for, storing
it is obviously not an issue at all. You don’t have to worry about
getting anything graded. There’s full transparency.” . . .
As for the Warriors jumping in first, Schneider believes that there is
real value in the legitimacy of something created by an NBA franchise
in a marketplace where anyone can create and sell an NFT. Then
there’s the product itself. “There’s a lot more you can do with an NFT
than a static sports card,” Schneider added.102
The global sports market for NFTs is well-represented by the
world’s most popular sport, football (known as soccer in the United
States). To better understand the relationship between avid soccer
sport-fans and the market for NFTs, we offer the following courtesy of
Coinbase. For background, consider the following event taking place on
the evening of December 5, 2020: “[I]n a soccer stadium just north of
Moscow, a football club called Spartak, of the Russian Premier League,
played FC Tambov. It was a cold night. The few fans in attendance,
bundled in heavy jackets, cheered as the home team routed Tambov
5-1.”103 In brief, “[t]he hero of the match was Ezequiel Ponce, a
24-year-old Spaniard who scored two goals. It was a forgettable game.
Most of the world ignored this random match, one of hundreds played
around the globe every day.”104 Here is where the example of connection
to NFTs takes place. We learn that:
Grant Anderson, an IT business analyst who lives in
Edinburgh . . . tracked the match on his phone. He followed the score
obsessively. Anderson owned a non-fungible token card pegged to
Ezequiel Ponce, and this NFT card, from the blockchain project called
Sorare, is not just a collectible. It’s a radically new way to play fantasy
football, with the word “football,” of course, meaning what it does
basically everywhere on the planet besides the U.S. With Sorare, you
create fantasy football (soccer) lineups using NFT cards that you
actually own. When the players score on the field, you win real money.
The match in Russia notched Anderson a prize of 0.25 ETH (now
worth about $500) and additional NFTs—more player cards—now
102. Id.
103. See Jeff Wilser, In Europe, Football NFTs and Tokens Are No Fantasy, COINDESK,
https://www.coindesk.com/europe-football-nfts-tokens-fantasy-socios-sorare (Sept. 14, 2021, 8:36
AM EDT).
104. Id.

worth over $2,000. Sorare doles out these prizes constantly. “I saw the
potential right away,” says Anderson. “This is fun and engaging, and I
can win NFTs and [ETH] using my passing for football and sports.”
Anderson is part of a rabid group of soccer fans (120,000 active
monthly users) obsessing over Sorare – an addictive blend of fantasy
football, collecting and the wheeling and dealing of crypto trading. He
loves it so much he started The Sorare Podcast, where guests join him
to geek out over strategy.105
In another example we learn “[w]ith traditional NFL fantasy
football, you plunk down some money at the beginning of the year and
then you hope to win a small weekly purse or a bigger payout in the
playoffs.”106 Of the niche crypto sports platforms, “Sorare and Socios
are both blockchain projects involving soccer” and are “‘crossover’ use
cases, bringing non-crypto people into the world of blockchain” and
“[b]lue-chip teams like Manchester City, AC Milan and Juventus now
use Socios tokens as a way to engage their fans.”107 In terms of rapid
growth “Nonfungible.com ranks Sorare as the third-most active NFT
project, trailing only CryptoPunks and SuperRare. Twenty thousand
soccer fans played it in February and this exploded to 120,000 in March.
When Sorare launched in January 2020, it had $70,000 in trading
volume. [During March 2021] it topped $27 million.” 108
I. Topps Ventures Into NFTs

The Topps Company announced on April 12, 2021 “the release of
2021 Topps Series 1 Baseball NFT . . . collectibles, ushering in a new
era of baseball card collecting in partnership with Major League
Baseball [(“MLB”)] and MLB Players, Inc.”109 Topps says, “Launching
Tuesday, April 20 . . . Topps will build on its legacy as an innovator of
digital collectibles by releasing its flagship yearly baseball card
collection for the first time as NFTs.”110 Evan Kaplan, the Managing
Director of MLB Players, Inc., states, “As collectibles enjoy a breakout
moment with NFTs and blockchain technology, we can’t think of a
better way to honor the legendary players from years past[,] . . . today’s
stars and breakout rookies . . . [other than by] offer[ing] a new
105. Id.
106. Id.
107. Id.
108. Id.
109. Topps Debuts Its First MLB Baseball Card NFT Collection With Topps Series 1 Baseball
Launch, TOPPS NEWS (Apr. 12, 2021), https://www.topps.com/blog/topps-debuts-its-first-mlb-
baseball-card-nft-collection-with-topps-series-1-baseball-launch-.html.
110. Id.

innovative way for today’s collectors and fans to connect with their
favorite stars.”111
Topps describes itself as “a global consumer products company that
entertains . . . consumers through a diversified, engaging, multi-platform
product portfolio that includes physical and digital collectibles, trading
cards, trading card games, sticker and album collections, memorabilia,
curated experiential events, gift cards and novelty confections.”112
Evolving from a family-owned Brooklyn, New York-based chewing
gum company founded in 1938, Topps is now “a global sports and
entertainment, digital/media and confections company.” 113 Topps
discloses that during fiscal year 2020 it:
[G]enerated $566.6 million in net sales, $83.7 million in net income
and $101.0 million in Adjusted EBITDA . . . . Our focus on product
and platform innovation has fueled expansion of our digital businesses
which has driven significant margin expansion alongside strong
revenue growth. Our net sales, net income and Adjusted EBITDA in
fiscal year 2020 reflect compound annual growth rates of 11.9%,
491.9% and 60.3%, respectively, since 2018 . . . . Our Sports &
Entertainment segment produces products in the form of physical and
digital collectibles including trading cards, trading card games and
sticker and album collections and curated experiential events featuring
sports and entertainment personalities, as well as manages the gift card
programs for widely recognized global digital companies . . . including
a 70-year relationship with Major League Baseball (“MLB”), a 43-year
relationship with Lucasfilm for Star Wars (The Walt Disney
Company), a 15-year relationship with World Wrestling
Entertainment, a 12-year relationship with the German Bundesliga
(“Bundesliga”), a 7-year relationship with Major League Soccer, a
6-year relationship with UEFA Champions League and a 4-year
relationship with the National Hockey League. Most recently, we
added Formula 1 and other UEFA tournaments . . . .
In addition to mobile digital applications, we are focused on
developing digital collectibles that utilize blockchain technology and
successfully released several products in 2020 with more planned in
the near-term . . . . Our Sports & Entertainment segment generated
$368.2 million in net sales and $88.4 million in Adjusted EBITDA (an
Adjusted EBITDA margin of 24.0%) for fiscal year 2020. Fiscal year
111. Id.
112. MUDRICK CAP. ACQUISITION CORP. II, PROXY STATEMENT TO SECTION 14A 167 (2021),
https://www.sec.gov/Archives/edgar/data/1820727/000119312521160680/d161477dprer14a.htm#ro
m161477_20.
113. Id.

2020 net sales and Adjusted EBITDA reflect compound annual growth
rates of 28.0% and 122.7%, respectively, since Fiscal year 2018.114
Topps describes its new technology (NFT) business model as
“undergoing significant innovation and continued transition to utilize
various digital ecosystems. In addition to mobile digital applications, we
are focused on developing digital collectibles that utilize blockchain
technology and non-fungible tokens (“NFT”), and we successfully
released several products in 2020, with more planned in the
near-term.”115 Accordingly, Topps, “successfully released Garbage Pail
Kids collections using a blockchain platform in 2020, and . . . see further
opportunity to expand into other properties with this and other digital
platforms that protect the authenticity of [their] consumers’ digital
product purchases while providing . . . incremental net sales generated
through . . . [asset] secondary trading.”116 Topps warns:
There are significant uncertainties with respect to our blockchain and
NFT expansion. The technologies supporting blockchain and NFTs are
new and rapidly evolving. To the extent these technologies become
more widely utilized in the industry, revenues from our mobile digital
applications could be negatively impacted. If we fail to explore these
new technologies and apply them innovatively to keep our products
and services competitive, we may not experience significant growth of
our business. Our business may also be adversely impacted if our
competitors obtain competing or additional blockchain rights that
make our products less desirable. In addition, we may be required to
pay significant fees to obtain certain blockchain rights, which may
prevent us from profiting from the monetization of these rights.
Furthermore, the regulatory environment surrounding these digital
technologies is evolving and any unfavorable developments may
adversely affect our business. As blockchain and NFT technologies
become more widely available, we expect the services and products
associated with them to evolve. As a result, to stay current with the
industry, our business model may need to evolve as well. While we
have devoted significant resources to the utilization of blockchain and
NFTs, we may not be able to realize our expected long-term goals.
Furthermore, we do not have blockchain rights for all of our licenses,
and there is no guarantee that we will be able to obtain blockchain
rights for these licenses or additional licenses that we enter into in the
114. Id. at 167-68.

115. Id. at 56.
116. Id.; see also Neal F. Newman & Lawrence J. Trautman, Special Purpose Acquisition
Companies (SPACs) and the SEC, U. PA. J. BUS. L. (forthcoming) (manuscript 51-53).

future. As a result, our business, financial condition and results of

operations may be adversely affected.117
III. EVOLUTION OF THE VIRTUAL WORLD

Part II explored the digital art market and showed how demand for
digital art emerged prior to blockchain technologies.118 It also showed
how artists, auction houses, and platforms developed blockchain
technology to create a value ecosystem distinct from fungible
cryptocurrencies, using blockchain technologies to innovate new forms
of art and new methods of selling and collecting art.119
This Part comes at the problem from a different direction. It shows
that just as digital art predated blockchain, so did demand for unique
digital assets.120 A developed literature of digital property, particularly
concerning ownership of virtual property in online games and virtual
worlds, shows that demand for true ownership of digital assets was both
strong and constrained by the inability of online property systems to
transcend centralized databases: the owner of a valuable virtual asset
cannot transport it out of the game for which it was created.121 Thus, this
Part concerns the development of demand for online assets, which tilled
the field for NFTs. It shows the components that go into creating value
in digital assets and demonstrate how NFT technology energized this
demand by solving some key problems of digital ownership.
To understand the components that go into the value of an NFT—
technological and social—a look back is provided to the virtual
environments in which markets for fully digital personal property first
evolved. The proposal is that value in digital art and collectible objects
stems from two components: a combination of digital uniqueness and a
socially engaged audience to admire and value the collector’s action.
After all, a digital asset is not worth much if anyone can have a copy at
the click of a button, nor is it worth anything if nobody knows or cares if
you have it.
As discussed below, the technology to make digital objects truly
decentralized, unique, and rivalrous simply did not exist at the beginning
of the internet. But there were approximations: imagine, for example, a
game creator who kept a database list of who owns what in the game. If
one player had a special or unique item—or, in non-game virtual worlds,
had a unique piece of digital property—the scarcity of the item was
117. MUDRICK CAP. ACQUISITION CORP. II, supra note 112, at 56.
118. See supra Part II.B.
119. See supra Parts II.A–C.
120. See infra Part III.A.
121. See infra Part IV.

created by the fact that no-one, no player, can unilaterally add more of
that item to their account. Virtual worlds and online games created early
testing grounds for the creation of markets in unique items and NFTs,
with sales regularly reaching into the tens of thousands of dollars nearly
two decades ago. The fact that the game creator kept a database
assigning items to accounts created an approximation of the digital
scarcity and rivalrousness that the world needed.
Virtual worlds also created the second half of value: sociality.
Virtual worlds provided a ready-made audience. If one player earns a
particularly coveted item, avatar, or digital clothing, there existed a
ready-made audience, a group of people invested in the collector’s
digital possession. Showing off is the root of value. Thus, closed
environments like virtual worlds were the birthplace of emergent
markets for fully digital assets. They were one of the places where
digital collecting first took off, because the world creator could create
scarcity through a centralized database, and there was an audience that
was invested in the assets and admired those who were able to collect
them.
For this reason, our attention turns here briefly to the history and
characteristics of virtual worlds. As we will see in the following Part,
blockchain technology decentralized databases, letting people take assets
from one environment to another.122 An original problem with virtual
worlds was that you could not take Excalibur with you when you left!
That changed with decentralized databases.
Yet the need for a context and an audience never changed. NFT
investors build virtual spaces to display their digital artworks. NFT
collecting sites are communities: their technological affordances are
aimed as much at making collections visible as they are at enabling
collection. And so, the characteristics discussed below are now emerging
yet again in new form as NFT art collectors seek to display their
collections to admiring audiences, maintain the social value of the
activity of collecting, and confirm the value of the collector’s individual
actions and collection.
Virtual worlds are powerful engines for online value because they
present a strong context and invested community. Virtual worlds are
“graphically-rich, three-dimensional (3D), electronic environments
where members assume an embodied persona (i.e., avatars) and engage
in socializing, competitive quests, and economic transactions with
globally distributed others.”123 Such worlds have millions of users
122. See infra note 133 and accompanying text.

123. Ulrike Schultze et al., Using Synthetic Worlds for Work and Learning, 22 COMMC’NS
ASS’N INFO. SYS. 351, 351 (2008).

interacting twenty-four hours a day, 365 days a year.124 They are

“immersive, simulated, persistent, and dynamic environments that
include rich graphical three dimensional spaces, high fidelity audio,
motion, viewpoint, and interactivity.”125 A panel of information systems
professionals observe, “[t]he term Virtual Worlds describes online
immersive ‘game like’ environments where participants engage in
socialization, entertainment, education, and commerce. As a genre, these
environments are classified as massively multiplayer online (i.e., MMO)
virtual environments.”126
A. Genesis of Virtual Worlds

Debuting in 1985, Habitat is acknowledged as an early example of
a virtual environment, using:
[T]wo-dimensional graphics to represent spaces such as home, hotel
and arcade, where cartoon-style characters controlled by users could
talk and interact. The landscape was scattered with vending machines
from which users could purchase virtual items ranging from weapons
to furniture. Purchases were paid with a currency called Tokens, which
was distributed to the users for free. The most desirable items were
spare heads that could be used to customize one’s character.127
Edward Castronova reports that while virtual worlds “can trace
their history back to on-line games on the ARPA-Net in the 1980s, the
game that started the recent explosion of VWs was Meridian 59, or M59
(Corker, 2100), begun in 1995 by Andrew and Chris Kirmse, two
Microsoft interns.”128 Making its debut during October 1996, M59
survived almost four years, “when competitive pressure from much
larger [virtual worlds] forced its closure.”129 The first of these much
larger virtual worlds was Ultima Online (owned by Electronic Arts) and
launched during Fall 1997; EverQuest launched in Spring 1999; and The
124. MARK W. BELL ET AL., SURVEYING THE VIRTUAL WORLD: A LARGE SCALE SURVEY IN
SECOND LIFE USING THE VIRTUAL DATA COLLECTION INTERFACE (VDCI) 1, 2 (2009).
125. Ulrike Schultze & Wanda J. Orlikowski, Virtual Worlds: A Performance Perspective on
Globally Distributed, Immersive Work 21 INFO. SYS. RSCH. 810, 810 (2010).
126. Brian Mennecke et al., Second Life and Other Virtual Worlds: A Roadmap for Research,
SSRN (Dec. 11, 2007), https://ssrn.com/abstract=1021441.
127. Vili Lehdonvirta et al., Virtual Consumerism: Case Habbo Hotel, 12 INFO. COMMN’C &
SOC’Y 1059, 1060-61 (2009) (citing JULIAN DIBBELL, MY TINY LIFE: CRIME AND PASSION IN A
VIRTUAL WORLD 171-72 (1998)).
128. Edward Castronova, Virtual Worlds: A First-Hand Account of Market and Society on the
Cyberian Frontier 6-7 (CESifo Working Paper, Paper No. 618, 2001),
http://ssrn.com/abstract=294828.
129. Id. at 7.

Sims Online (the first virtual world not based on killing and adventuring)
became a major title and became available during 2002.130
In these early environments, one of the game activities was buying
and selling, winning, collecting, and obtaining. This was called
“consumption play”: markets as simulation.131 But there was very little
time until this kind of consumption play formed the core of real markets
fueled by real money.132 Of course it did: what humans value, they are
willing to pay for:
In so-called massively-multiplayer online role-playing games
(MMORPGs) launched in the late 1990s, consumption play began to
be mixed up with real money . . . . In Ultima Online and EverQuest,
hundreds of thousands of players ‘traded’ with other players to
exchange game assets accumulated during months of play for other
game assets. As with the previous systems, the economy was intended
to be like Monopoly: no real money would change hands. But in 1999,
some players put their game assets on auction at eBay. Perhaps
surprisingly, they received bids from other players. When an auction
was completed, payment was carried out using ordinary means such as
cheque or money order. The two players then met up in the game and
the seller handed the auctioned object to the buyer. This way, an
exchange value measured in US dollars could soon be observed for
virtual goods ranging from castles to gold nuggets . . . . In 2002, a
massively multiplayer online version was created of The Sims, and
real-money trading followed. 133
B. Virtual World Characteristics

An excellent tour guide to a virtual world is provided by Edward
Castronova in his hugely influential seminal article titled Virtual
Worlds: A First-Hand Account of Market and Society on the Cyberian
Frontier.134 Accordingly:
To enter a VW, the user is first connected to the server via the Internet.
Once the connection is established, the user enters a program that
allows them to choose an avatar for themselves. In all of the major
VWs, one can spend an extraordinarily long time at this first stage,
choosing the appearance of the avatar as well as its abilities. Always
wondered what it is like to be tall? Choose a tall avatar. Want to be one
of the smart people in society? Make your avatar a brilliant wizard.
130. Id. at 8.
131. Lehdonvirta et al., supra note 127, at 1061.
132. Id.
133. Id.
134. See Castronova, supra note 128, at 11.

Need to get out your aggressions? Give your avatar immense strength
and a high skill in wielding a mace. Think it would be fun to be a
beautiful dark-skinned woman? Go for it. These choices occur under a
budget constraint that ensures equality of opportunity in the world:
Your mace-wielding ogre will be dumb, and your brilliant wizard will
have a glass jaw. At the same time, the budget constraint ensures
equality among avatars along dimensions that most people think
should not matter for social achievement. In particular, male and
female avatars have the same initial budget of skills and attributes.
Avatars whose physical characteristics (i.e. skin tone, size) are
associated with any benefit in the game must accept some
compensating disadvantage. Any inequality in the VW can only be due
to one of two things: a) a person’s choices when creating the avatar, or
b) their subsequent actions in the [virtual world].
Once the avatar is created, it is deposited some place in the [virtual
world]. Because most of the laws of Earth science apply, most of the
time, it is quite easy to “become” the avatar as you perceive the world
through its eyes. You cannot run through walls; you can only see
where you are looking . . . . If you jump off a roof, you will fall and
hurt yourself. When the sun goes down, it gets darker and you will
need a light. If you do something over and over, you will get better at
it. You can give things to another avatar if you wish . . . . You can kill
them if you wish. And they can kill you.
Of course the natural laws of Earth need not apply in a world that
exists entirely as software, and much of what defines an avatar’s
uniqueness is its ability to bend or break some of these laws and not
others. Depending on the skills chosen, an avatar might be able to fly,
see for miles, hypnotize, heal wounds, teleport themselves, or shoot
great flaming fireballs at other avatar’s heads. Again a budget
constraint applies: those who can heal or hypnotize often have
difficulty summoning a fireball worthy of mention. As a result, avatars
come to view themselves as specialized agents, much as workers in a
developed economy do. The avatar’s skills will determine whether the
avatar will be a demander or supplier of various goods and services in
the VW. Each avatar develops a social role.135
As an example of some of the ways in which the virtual world
community is far different from just an electronic extension of the real
world, consider Piotr Czerski’s ‘We, the web kids’ manifesto, as it
appears on YouTube:
The Internet to us is not something external to reality but a part of it:
an invisible yet constantly present layer intertwined with the physical
environment. We do not use the Internet, we live on the Internet and
135. Id. at 11-12 (emphasis added).

along it . . . [there is] a natural Internet aspect to every single

experience that has shaped us: we made friends and enemies online,
we prepared cribs for tests online, we planned parties and studying
sessions online, we fell in love and broke up online.136
Often thought of as “technologies of play, synthetic worlds range

from massively multiplayer online games (MMOGs) such as World of
Warcraft, to virtual reality environments such as Second Life.”137
[V]irtual worlds have gained legitimacy in business and educational
settings for their application to organizational endeavors such as
distributed collaboration, virtual teamwork, multimedia meetings and
training, as well as real-time simulation . . . . [A]nd in organizations
such as hospitals, universities, and the military, virtual worlds are
being used for action learning and immersive training (through
simulations and rehearsals). Virtual worlds are also emerging as
interesting sites of innovation and experimentation among scientists,
educators, and software teams . . . .138
Professor Ulrike Schultze states, “[t]echnological advancement is
continuously changing the issues and questions [Information Systems]
researchers need and want to explore.”139 As we see in our daily lives,
“technological developments are fundamentally changing the nature of
work and institutions as the workforce is becoming more mobile, virtual
and global.”140 This trend was both accelerated and disrupted by the
2020–2021 global pandemic.141 Professor Schultze observes:
[T]echnology is becoming so entangled in individuals’ everyday lives,
that traditional dualisms of work-vs-play, actual-vs-virtual and
human-vs-machine are rendered less and less meaningful. Highly
personal uses of technology (e.g., wearables and ubiquitous
computing), where issues of multiple embodiments and the integration
of technology with the user as an embodied, sensory being, form part
of the research agenda Yoo (2010) outlines for experiential computing.
136. Ulrike Schultze, Performing Embodied Identity in Virtual Worlds, 23 EUR. J. INFO. SYS.
84, 85 (2014).
137. Schultze et al., supra note 123, at 351 (emphasis added).
138. See Schultze & Orlikowski, supra note 125, at 810; see generally Ulrike Schultze & Jo
Ann M. Brooks, An Interactional View of Social Presence: Making the Virtual Other “Real,” 29
INFO. SYS. J. 707 (2018) (discussing how social presence is accomplished in virtual environments).
139. Ulrike Schultze, What Kind of World Do We Want to Help Make With Our Theories?, 27
INFO. & ORG. 60, 65 (2017).
140. Id.; see also Lawrence J. Trautman, Rapid Technological Change and U.S.
Entrepreneurial Risk in International Markets: Focus on Data Security, Information Privacy,
Bribery and Corruption, 49 CAP. U. L. REV. 67, 83-86 (2021).
141. Eddie Bernice Johnson & Lawrence J. Trautman, The Demographics of Death: An Early
Look at COVID-19, Cultural and Racial Bias in America, 48 HASTINGS CONST. L.Q. 357, 438-41
(2021).

Experiential computing is contrasted with traditional computing that

occurs as a separate activity in organizations and that is driven by the
goal of improving organizational performance. Defined as “digitally
mediated embodied experiences in everyday activities through
everyday artifacts that have embedded computing capabilities” (Yoo,
2010: 213), experiential computing is moving the field of IS beyond
the organization.142
C. How Large Is the Virtual World?

The question of the size of the known universe of virtual worlds
can be on several different levels.143 From the standpoint of universes
known and postulated, physicist Brian Greene has written that the term
universe “has given way to other terms that capture the wider canvas on
which the totality of reality may be painted . . . . [many terms are]
among the words used to embrace not just our universe but a spectrum
of others that may be out there.”144 Among these possible realities,
depicted by physicist Greene as his eighth variety of possible multiverse
(the Simulated Multiverse),145 is the disturbing question, “[h]ow do you
know you’re not hooked into the Matrix?”146 Pursuit of his inquiry into
whether “a distant descendant, or an army of such descendants possibly
millennia down the road,”147 are responsible for the universe in which
you perceive yourself, your loved ones, pets, everything, is far beyond
the scope of this Article. However, let me just plant the intellectual seed
for those having an additional interest. As more fully demonstrated in
the pages to follow, many of us by the millions are engaged deeply in
simulated computer worlds. Professor Greene discusses the curious work
of Oxford philosopher Nick Bostrom, and observes the likelihood that
our descendants will continue to create simulated universes in large
numbers, “filled with a great many self-aware, conscious inhabitants.”148
As Greene observes, “if someone can come home at night, kick back,
and fire up the create-a-universe software, it’s easy to envision that
they’ll not only do so, but do so often.”149 Taken to its logical
conclusion, Bostrom reasons that, “if the ratio of simulated humans to
real humans were colossal, then brute statistics suggests we are not in a
real universe. The odds would overwhelmingly favor the conclusion that
142. See Schultze, supra note 139, at 65.

143. See BRIAN GREENE, THE HIDDEN REALITY 4 (2011).
144. Id.
145. Id. at 287.
146. Id. at 281.
147. Id. at 275.
148. Id. at 288.
149. Id.

you and I and everyone else are living within a simulation.”150 Enough
then about where all of this might lead according to the math and
conjecture from some of our leading physicists. Now, let us turn our
attention to contemporary virtual worlds, their markets, economies, and
what we might conclude about foundational property law for virtual
worlds. Consider:
In a society marked by globalization, virtual work and the use of social
media, individuals are increasingly experiencing their lives in a liminal
space that combines virtual and actual reality. By posting blogs,
images, tweets, profiles and films that materialize them in multiple
settings, technology users create digital bodies that extend their
physically embodied senses and turn them into cyborgs, that is, a
dialectic synthesis between physical and digital bodies. In light of
these multiple embodiments the production of self-identity, that is, “the
self as reflexively understood by the person,” becomes an increasingly
complex project that involves the ongoing negotiation of what identity
performances count as “real.”151
It appears that growth of entertainment oriented virtual
environments continues to be explosive worldwide. By 2004, more
South Koreans were reported to “play in virtual worlds than watch
television.”152 Castronova observes in 2001, that:
There is often very little public information about the subscriber base
of the different [virtual worlds]. EverQuest’s base was public
information until August 31, 2001, when Verant stopped publishing
the data. The official reasons for the decision were openly strategic:
why help competitors by releasing data on the customer base?153
Writing about virtual land NFTs in March of 2021, Professor Michael
M. Downing remarks about how “early 2021 has seen these markets
explode in popularity.”154
D. Stickiness: The Virtual World Is Addictive

Living in or visiting the virtual world for many seems to be a
highly addictive and “sticky” experience.155 Castronova observes as
150. Id.
151. ULRIKE SCHULTZE, Performing Cyborgian Identity: Enacting Agential Cuts in Second
Life, in BEYOND INTERPRETIVISM? NEW ENCOUNTERS WITH TECHNOLOGY AND ORGANIZATION
182, 182 (Lucas Introna et al., eds., 2016) (citations omitted).
152. Joshua A.T. Fairfield, Virtual Property, 85 B.U. L. REV. 1047, 1061 (2005) (citing Mimi
Luse, More than a Game, PEAK, July 19, 2004, at 10).
153. See Castronova, supra note 128 n.6.
154. Michael M. Dowling, Fertile LAND: Pricing Non-fungible Tokens, F IN. RSCH. LETTERS,
Jan. 2022, at 1 (2022).

early as 2001 that “as it turns out, VWs seem to be able to offer
entertainment that is attractive enough to many people that they sacrifice
major portions of their time to it. A survey of EverQuest
users . . . indicates that the typical user spends about 22 hours per week
in the game.”156 Another survey by Castronova, conducted about the
same time found that “the median user devotes 4 hours per day and more
than 20 hours per week.”157 During Nicholas Yee’s study, he found that:
[M]any people used the term ‘addiction’ to describe their own
behavior, perceiving their time in the VW as a source of serious
conflict with various Earth activities and relationships. If we take the
economist’s view, however, and see their behavior as rational choice,
we must conclude that VWs offer something that is perhaps a bit more
than a mere entertainment to which the players have become addicted.
Rather, they offer an alternative reality, a different country in which
one can live most of one’s life if one so chooses. And it so happens
that life in a VW is extremely attractive to many people. A competition
has arisen between Earth and the virtual worlds, and for many, Earth is
the lesser option.158
As to virtual world “stickiness,” it is significant to note that “the
tendency to network monopoly is enhanced by the fact that most people
seem to be willing to ‘live’ in at most one fantasy world at a time, and
switching is costly as it can take weeks to become familiar with a new
world.”159 Lehdonvirta and Virtanen ask the questions:
Why are so many people suddenly willing to spend money on such
seemingly frivolous objects? Is it a fad that will die away as suddenly
as it started? Lehdonvirta . . . suggests that the value attached to virtual
objects is a reflection of how important digital spaces have become in
our lives: how many aspects of life from hobbies, friendships, and
work are now played out in part through mobile phones, social
networking sites, console games, and online communities. Virtual
goods are built so as to have very tangible functions in these digital
spaces. Sociologists moreover note that goods are valued not only for
their functional and aesthetic attributes, but also for their symbolic uses
in demarcating identities and social relationships . . . . As a result,
consumers are now buying virtual goods for many of the same reasons
they buy material goods. As long as we live in a consumer society
155. See Castronova, supra note 128, at 10.

156. Id.
157. Id.
158. Id.
159. Id. at 8-9.

where digital spaces increasingly pervade into everyday life, the

present attraction to virtual goods is unlikely to die away.160
IV. THE BLOCKCHAIN AND VIRTUAL CURRENCIES

Virtual property remained a characteristic of closed environments
like virtual worlds for the first decade of the millennium because of two
problems, one technological, one legal.161 The technological problem
was a matter of databases.162 Virtual worlds creators maintained single
databases listing who owned what. Thus, if a person’s avatar earned the
Sword of Admiration, the game creator’s database reflected that she
owned that sword (and thus the avatar would display it, and the sword
appeared in the avatar’s inventory), but no one else would have such a
sword available. But the player could not take the item out of the game,
or into any other virtual environment. And this single database created a
single point of failure. If other players figured out how to hack or
otherwise fool the creator’s database into allowing them access to the
item (or, into giving them access to the original player’s account to steal
the item), then the player’s item was either no longer unique or rare
because others were able to duplicate it, or it was gone from her
inventory because someone stole it. (It is possible this problem will crop
up in some of the virtual museums that are displaying high-value
NFTs.)
The second problem was legal.163 Most virtual world creators ran
games and wanted to prevent players from having any legal interest in
game components.164 Imagine the legal difficulties involved in kicking a
player off of a game for cheating if that player could sue for their lost
items, worth tens of thousands of dollars. Thus, most virtual worlds
creators followed the standard path of intellectual property holders
generally: they reserved all rights in their creations to themselves, and
offered only limited legal licenses to players. In the example above, our
player who earns the Sword of Admiration does not in fact own it at all,
even if she paid the game creator for it. She owns a limited license to use
it within the context of the game. In the virtual environments where the
160. Vili Lehdonvirta & Perttu Virtanen, A New Frontier in Digital Content Policy: Case
Studies in the Regulation of Virtual Goods and Artificial Scarcity, 2 POL’Y & INTERNET 7, 12
(2010).
161. See Joshua Fairfield, Tokenized: The Law of Non-Fungible Tokens and Unique Digital
Property, IND. L.J. 3 (forthcoming).
162. See supra Part III; see also supra Part III.A.
163. See Fairfield, supra note 161, at 48.
164. See Frequently Asked Questions, GODS UNCHAINED, https://godsunchained.com/learn/faq
(last visited Jan. 15, 2022) (stating that players traditionally do not own items in virtual worlds and
thus have no legal interest in the game’s components).

game creator did not assert intellectual property license control over
creations—like Second Life, in which players could create their own
items—copyright infringement ran rampant. Once one person got a copy
of an item, they were able to duplicate it and give it to everyone else free
of charge. Caught between runaway copyright infringement in non-game
worlds, and game creators’ refusal to grant ownership interests in game
worlds, consumers had no way of satisfying pent up demand for owning
unique digital artifacts.
Both of these issues—the non-portability and hackability of digital
property, and the fact that users did not in fact own the assets they had
earned or purchased—constrained the market for unique items and art in
virtual worlds. Who would buy something that they don’t truly own?
Who would invest in art that they merely license? Who would invest in
something that ceases to exist if the game company turns off the servers?
Although the emergent markets in digital art and assets were robust in
the face of attempts to shut them down (for example, game companies
routinely tried to shut down the real-money markets operating in legal
grey areas around their games), the combination of creator-managed
centralized and controlled databases, and license restrictions on
ownership kept digital property from flourishing. Both of these obstacles
were significantly (although not entirely) reduced with the advent of
blockchain technology.
A. The Blockchain
Much has been written about the likely impact of blockchain
technology during its brief, approximate decade-long existence. As
shown by the recent gain in popularity of NFTs, “[r]apid introduction
and diffusion of technological changes throughout society, such as
the blockchain, continue to [challenge] the ability of law and regulation
to keep pace.”165 It appears that blockchain is proving as disruptive to
entrenched societal institutions and business models as: electricity, radio,
television, or the Internet.166
According to Aaron Wright and Primavera De Filippi, “[t]he
blockchain is a distributed, shared, encrypted-database that serves as an
irreversible and incorruptible public repository of information. It
enables, for the first time, unrelated people to reach consensus on the
occurrence of a particular transaction or event without the need for a
controlling authority.”167 In sum, “blockchain is simply a data structure
that leverages hash functions and encryption to provide the security of
165. See Trautman & Molesky, supra note 3, at 239.

166. Id. at 239.
167. Id.; see, e.g., id. at 239 n.1.

information like never seen before.”168 Valentina Gatteschi explains the

progression of blockchain technology:
Three different blockchain evolutions can be identified: Blockchain
1.0, 2.0, and 3.0 . . . . Blockchain 2.0 is about registering, confirming,
and transferring contracts or properties. Application fields range from
the use of blockchain as a decentralized copy of local databases
(especially for public records and attestations) to more sophisticated
applications. The most relevant feature of Blockchain 2.0 is the
integration with smart contracts . . . . In Blockchain 3.0, the application
field is no longer restricted to finance and goods transactions, but
embraces sectors like government, health, science, education, and
more.169
B. The Mechanics of Blockchain

For purposes of readability and our intended audience for this
Article, the technical aspects and mechanics of blockchain creation will
be minimized. However, Trautman and Molesky report elsewhere:
Blockchain is a modification and conglomeration of existing
technology and concepts. Michael Scott explains, “The blockchain is a
testament to the power of a single cryptographic primitive – the hash
function. Really nothing else is required, so if you can get your head
around the hash function, you can understand the basics of the
blockchain.” Mr. Scott describes a hash by stating:
A cryptographic hash function takes one input and calculates one
output. For example, for the input ‘We hold these truths to be
self-evident[,]’ the well known hash function SHA256 produces the
output:
84ba74b2661c87470665a1a5f5ab526afcf266f8c5effb795bef2d2514a8
afd3
For the slightly different input “we hold these truths to be self-evident”
(note the lower case w), the output is
246160c031a4ddd9d940e931721fdec7e72087c8eccf5ea5621bb15d229
59c19
The above examples provide information about hash functions. Mr.
Scott writes:
The output bears no obvious relationship to the input, indeed it looks
completely random. A tiny change to the input produces a completely
different output . . . given just the output it’s impossible to determine
the input. For this reason the hash function is often called a “one way”
168. See Trautman & Molesky, supra note 3, at 239-40.

169. See Valentina Gatteschi et al., To Blockchain or Not to Blockchain: That Is the Question,
20 IT PRO. 62, 64-65 (2018).

hash function. Also, it’s impossible to find two different inputs which
give the same output. For the function SHA256, the 256 refers to the
fact that the output is always the same length (actually 256 bits),
independent of the length of the input.170
Blockchain gets its name from the chaining of the hash. Mr. Scott
provides us with a diagram appearing here as Exhibit 6.171
Exhibit 6
A Simple Hash Chain172
Mr. Scott writes the following explanation:

Here the T are “transactions” of some sort. Examine this diagram for a
while, and appreciate the power of the chaining. The value H3 is
calculated by hashing the whole of block 3, which includes the hash of
block 2, which in turn includes the hash of block 1 etc. Note that
because of the one-wayness of the hash function, this chain can only be
calculated from left-to-right. So already we have some of the
properties we want. This hash chain can potentially be used as an
immutable record of transactions. Any attempt to tamper with it can be
detected, as the hashes will change.173
C. Virtual Currencies
The genesis of virtual currency appears to result from the massive
popularity of currencies in online games and the real-money grey
markets surrounding those currencies (think here of buying World of
170. See Trautman & Molesky, supra note 3, at 242-43 (citing Michael Scott, The Essence of
the Blockchain 1 (unpublished manuscript) (on file with author)).
171. Scott, supra note 170, at 2.
172. Id.
173. Id.

Warcraft gold for real dollars), described above.174 As of March 21,

2021, Coinmarketcap.com lists 8,905 different cryptocurrencies, having
a total market capitalization of approximately $1.782 trillion.175 This
contrasts with 1,935 cryptocurrencies and aggregate market
capitalization of about $191.54 billion reported by Professor Trautman
on September 11, 2018.176 And, just a little more than two years prior, as
of July 15, 2016, Professors Trautman and Harrell report that the market
capitalization of virtual currencies at that time approximates just $13.01
billion.177
Ranked by market capitalization on March 21, 2021, the top ten
cryptocurrencies are: Bitcoin ($1.073 trillion); Ethereum ($205.48
billion); Binance Coin ($41.351 billion); Tether ($39.616 billion);
Cardano ($38.288 billion); Polkadot ($34.199 billion); XRP ($23.489
billion); Uniswap ($17.416 billion); Litecoin ($13.016 billion); and
Chainlink ($12.075 billion). 178 Note that as of the relevant date, Bitcoin
(BTC) comprised 60.2 percent of all virtual currency market cap, while
Ethereum (ETH) approximated 11.5 percent.179
174. See Hiroshi Yamaguchi, An Analysis of Virtual Currencies in Online Games 3-5 (Sept. 1,
2004) (unpublished manuscript), http://ssrn.com/abstract=544422; Vili Lehdonvirta, Real-Money
Trade of Virtual Assets: New Strategies for Virtual World Operators, in VIRTUAL WORLDS 113-37
(Ipe, Mary ed., 2008); Levent V. Orman, Virtual Money in Electronic Markets and Communities,
(ICAST J. INST. COMMC’N SOC. INFORMATICS, & TECH., Paper Series No. 27-2010, 2010); see also
Sulin Ba & Dan Ke, Optimal Pricing and Permissions Strategy for Virtual Good Creators in
Second Life 3, 6 (Sept. 15, 2008) (unpublished manuscript), http://ssrn.com/abstract=1271684; Vili
Lehdonvirta, Virtual Item Sales as a Revenue Model: Identifying Attributes that Drive Purchase
Decisions, 9 ELECTRONIC COMMERCE RSCH. 97, 97-98, 105, 110 (2009); David A. Bray & Benn
Konsynski, Virtual Worlds: Opportunities for Multi-Disciplinary Research, DATABASE FOR
ADVANCES IN INFO. SYS., Nov. 2007, at 17, 18-20,
https://dl.acm.org/doi/pdf/10.1145/1314234.1314239; Sukwon Thomas Kim, Why Bitcoin?:
Structure and Efficiency of Markets for Online Game Currency (Dec. 18, 2013) (unpublished
manuscript), http://ssrn.com/abstract=2334000; Matthew Elias, Bitcoin: Tempering the Digital Ring
of Gyges or Implausible Pecuniary Privacy 10 (Oct. 3, 2011) (unpublished manuscript),
http://ssrn.com/abstract=1937769; Jun-Sok Huhh, An Economic Analysis on Online Game Service
(Aug. 28, 2009), http://ssrn.com/abstract=1335120.
175. Cryptocurrency Prices, Charts and Market Capitalizations, COINMARKETCAP,
https://coinmarketcap.com (last visited Jan. 15, 2022).
176. Lawrence J. Trautman, Bitcoin, Virtual Currencies and the Struggle of Law and
Regulation to Keep Pace, 102 MARQ. L. REV. 447, 453 (2018).
177. See Lawrence J. Trautman & Alvin Harrell, Bitcoin Versus Regulated Payment Systems:
What Gives?, 38 CARDOZO L. REV. 1041, 1053 (2017).
178. See Cryptocurrency Prices, Charts and Market Capitalizations, supra note 175.
179. Id.

D. Bitcoin
Influenced by ideas from b-money180 and Hashcash,181 “[b]itcoin is
a cryptographic object represented as a chain of digital signatures over
the transaction in which the coin was used.”182 Bitcoin “aims to be
completely distributed, free of central authorities or points of control,
and at least somewhat anonymous.”183 As shown in Exhibit 7, Bitcoin
has grown rapidly, from a mere idea during 2009 to a legitimate
currency by 2021, priced at over $52,000 each on March 24, 2021, and
market capitalization of Bitcoins in circulation, valued in excess of $1
trillion US during late March, 2021.184
Exhibit 7
Bitcoin Market Price 2009–2021185
E. Threat of Data Breach

Data breach negatively impacts many aspects of modern life and
remains a threat to individuals,186 business enterprises,187 and all nation
180. Joshua A. Kroll et al., The Economics of Bitcoin Mining or Bitcoin in the Presence of
Adversaries, TWELFTH WORKSHOP ON ECON. INFO. SEC. 3 (2013) (citing W. Dai, b-money,
http://www.weidai.com/bmoney.txt (last visited Jan. 15, 2022)).
181. Id. (citing Adam Back et al., Hashcash - A Denial of Service Counter-Measure 1 (Aug. 1,
2002) (unpublished manuscript), http://www.hashcash.org/papers/hashcash.pdf).
182. Id.
183. Kroll et al., supra note 180, at 3.
184. Market Capitalization (USD), BLOCKCHAIN, https://www.blockchain.com/charts/market-
cap (last visited Jan. 15, 2022); see generally Robin Teigland et al., Breaking Out of the Bank in
Europe - Exploring Collective Emergent Institutional Entrepreneurship Through Bitcoin (May 11,
2013) (unpublished manuscript), http://ssrn.com/abstract=2263707 (discussing the rise of Bitcoin
since its implementation in 2009).
185. See Market Capitalization (USD), supra note 184.
186. Lawrence J. Trautman et al., Posted: No Phishing, 8 EMORY CORP. GOVERNANCE &
ACCOUNTABILITY REV. 39, 46 (2021).
187. Kenneth A. Bamberger et al., Verification Dilemmas, Law, and the Promise of
Zero-Knowledge Proofs, 37 Berkeley Tech. L.J. (forthcoming 2022),
https://ssrn.com/abstract=3781082; Michael Mendelson, From Initial Coin Offerings to Security
Tokens: A U.S. Federal Securities Law Analysis, 22 STAN. TECH. L. REV. 52, 54 (2019); Lawrence
J. Trautman et al., Corporate Directors: Who They Are, What They Do, Cyber and Other

state actors.188 While the integrity of blockchain distributed ledger

technology seems to hold at this point, several entities actually holding
blockchain assets have been breached. One example of a “smart
contracts to steal money, as it recently happened on the Ethereum
network, where, in the most famous attack of this kind, around $60
million were ‘stolen’ in June 2016.”189 More recently, customers of
cryptocurrency company Coinbase suffered from a similar hack,
resulting in “drained accounts.”190 Accordingly, attorneys Cohen et al.,
warn, “Ensure you understand where the underlying work referenced by
your NFT is stored. In most cases, the work is not actually stored on the
blockchain and the NFT will ‘point’ to a traditional internet site where
the work is housed.”191
Theft of virtual currencies and other digital assets from data breach
takes place in several ways. As Andrew Balthazor describes,
“Crypto-theft occurs when a person dispossesses the rightful owner of
the address’s bitcoin without the true owner’s consent. This may happen
because the private key (which controls the bitcoin address) was
compromised, which is what occurred in the Mt. Gox hack.”192 Observe
that “[p]rivate keys are stored in any number of ways: digitally, online,
offline, encoded into devices, or written down on paper. 193
Crypto-thieves acquire an address’s private key by hacking, malware,
Contemporary Challenges, 70 BUFF. L. REV. (forthcoming); Lawrence J. Trautman & Neal

Newman, Securities Law: Overview and Contemporary Issues, 16 OHIO STATE BUS. L.J.
(forthcoming) (manuscript 75); Lawrence J. Trautman & Peter C. Ormerod, Corporate Directors’
and Officers’ Cybersecurity Standard of Care: The Yahoo Data Breach, 66 AM. U. L. REV. 1231,
1287 (2017).
188. Lawrence J. Trautman, Is Cyberattack The Next Pearl Harbor?, 18 N.C. J.L. & TECH.
232, 268 (2016).
189. See Valentina Gatteschi et al., Blockchain and Smart Contracts for Insurance: Is the
Technology Mature Enough?, 10 FUTURE INTERNET 1, 10 (2018); see also Adam J. Kolber,
Not-So-Smart Blockchain Contracts and Artificial Responsibility, 21 STAN. TECH. L. REV. 198, 214
(2018).
190. Kellen Browning, Coinbase Users Got Hacked, N.Y. TIMES (Mar. 27, 2021),
https://www.nytimes.com/2021/03/24/technology/coinbase-bitcoin-complaints.html.
191. Clifford C. Histed et al., The Coming Blockchain Revolution in Consumption of Digital
Art and Music: The Thinking Lawyer’s Guide to Non-Fungible Tokens (NFTS), NAT’L L. REV.
(Mar. 25, 2021), https://www.natlawreview.com/article/coming-blockchain-revolution-
consumption-digital-art-and-music-thinking-lawyer-s.
192. Andrew Balthazor, The Bona Fide Acquisition Rule Applied to Cryptocurrency, 3 GEO. L.
TECH. REV. 402, 407 (2019) (citing Robert McMillan, The Inside Story of Mt. Gox, Bitcoin’s $460
Million Disaster, WIRED (Mar. 3, 2014), https://www.wired.com/2014/03/bitcoin-exchange); see
also Lawrence J. Trautman, Virtual Currencies: Bitcoin & What Now After Liberty Reserve, Silk
Road, and Mt. Gox?, 20 RICH. J.L. & TECH. 1, 52 (2014).
193. Balthazor, supra note 192 (citing Max I. Raskin, Realm of the Coin: Bitcoin and Civil
Procedure, 20 FORDHAM J. CORP. & FIN. L. 969, 977 (2015)).

social engineering, coercion, or any other manner of taking the private

key from a person.”194 Consider:
The thief then uses the stolen private key to send the address’ bitcoin
to another address under the thief’s control, stealing the bitcoin from
the true owner. Alternatively, an owner may be extorted or forced to
transfer cryptocurrency to a thief’s address without necessarily
surrendering private keys. For example, criminals may infect a system
with ransomware (a form of malicious computer code), which infects a
system and denies access to user files until a bitcoin payment is made
to a specific address.195
V. HOW NON-FUNGIBLE TOKENS MAY SOLVE ART WORLD

PROBLEMS
A. Mechanism of Action
Alan Majer observes, “Most items in the world are non-fungible;
they each have characteristics and properties that uniquely distinguish
them . . . In short, non-fungible items are not all the same - one item is
not necessarily a substitute for another.”196
Financial journalist Jason Zweig, writing for The Wall Street
Journal observes that while previously discussed “prices are baffling ̶
and may, in fact, be crazy ̶ NFTs could solve problems that have dogged
the art world and other markets for centuries. Think of a non-fungible
token as a unique serial number that certifies the authenticity and
ownership history of an associated object.”197 The value of an NFT rests
in its ability “to transform a digital good that can be endlessly copied
into something one of a kind. When someone buys an NFT, what they’re
effectively getting is the knowledge of owning an official version of a
cat with a Pop-Tart body,”198 among other examples. Mr. Zweig writes,
“Think of a non-fungible token as a unique digital serial number that
194. Id. at 407 (citing Mariella Moon, Cryptocurrency Expert Kidnapped for $1 Million
Bitcoin Ransom, ENGADGET (Dec. 30, 2017), https://www.engadget.com/2017-12-30-
cryptocurrency-expert-kidnap-1-million-bitcoin.html).
195. Id. (citing Kate O’Flaherty, How to Survive a Ransomware Attack -- And Not Get Hit
Again, FORBES (Aug. 17, 2018), https://www.forbes.com/sites/kateoflahertyuk/2018/08/17/how-to-
survive-a-ransomware-attack-and-not-get-hit-again/?sh=757cb06f6cd3); see also Lawrence J.
Trautman & Peter C. Ormerod, WannaCry, Ransomware, and the Emerging Threat to
Corporations, 86 TENN. L. REV. 503, 508-09 (2019).
196. Alan Majer, Non-Fungible Tokens: Transforming the Worlds of Assets, Gaming, and
Collectibles, BLOCKCHAIN RSCH. INST., Aug. 2019, at 5, 5.
197. See Zweig, supra note 41.
198. Shira Ovide, NFTs Are Neither Miracles Nor Scams, N.Y. TIMES,
https://www.nytimes.com/2021/03/26/technology/nfts-hype.html (Apr. 13, 2021).

certifies the authenticity and ownership history of an associated

object.”199 Consider:
By connecting the blockchain to art and other creative work, NFTs
bring the objectivity of computer code to fields that are notorious for
subjectivity. Artists, writers and musicians struggle to find audiences
and make a living. Curators, dealers, collectors and art historians
bicker nonstop about the quality and value ̶ and the authenticity—of
major works.
Consider the French artist Jean-Baptiste-Camille Corot, who was
jokingly said to have painted 3,000 canvases, 10,000 of which were
bought in the U.S. Is a particular Corot genuine or a forgery? Who
were its previous owners? Has it ever been exhibited at a museum or
previously sold at auction? Was it ever seriously damaged and
extensively restored?
Until now, buyers often had to take the answers to such questions on
faith. An NFT, however, can integrate reams of information about an
artwork into an authoritative, permanent digital record. 200
The Wall Street Journal explains, “NFTs act as virtual deeds,
conveying ownership of a digital asset. Each one gets uploaded to a
digital ledger where it tracks information such as the date it was created,
when it was sold, for how much and to whom.”201 Attorneys Cohn,
West, and Parker write:
Smart contracts are most efficient for contracts that can be reduced to
simple “if-then” statements, as their terms are easy to convert to
computer code and can be executed automatically . . . . [A]
blockchain-based smart contract is a contract between two or more
parties that is stored and digitally executed on the blockchain using
code. While human involvement is needed to define the contract and
input the code, the actual execution of the contract is automated based
on a defined parameter, such as an event or price.202
This smart contract allows the original creator to establish “the
terms of this digital certificate of authenticity . . . and it allows the
creator to take a cut—in music, usually 10% to 30%—of any resales.”203
Of great significance to song writers and musicians, “[o]wning an NFT
199. Zweig, supra note 41.

200. Id.
201. Anne Steele, Musicians Turn to NFTs to Make Up for Lost Revenue, WALL ST. J. (Mar.
23, 2021, 5:30 AM), https://www.wsj.com/articles/nfts-are-music-industrys-latest-big-hit-
11616491801 (emphasis omitted).
202. Alan Cohn et al., Smart After All: Blockchain, Smart Contracts, Parametric Insurance,
and Smart Energy Grids, 1 GEO. L. TECH. REV. 273, 281 (2017) (alteration in original).
203. Steele, supra note 201.

doesn’t equate to owning the copyright to a given asset, music or

otherwise, but scarcity helps push up valuations.”204
A common question posed from readers on the topic of the
mechanics of blockchain technology relates to the infrastructure
necessary for a successful sale of NFT artwork. Christie’s, for example,
has partnered with Monegraph, which is described by Christie’s as “the
premier provider of rights management technology for NFTs and other
crypto assets.”205 Monegraph duties include providing support for “the
artists and associated galleries in registering their copyrights and
managing their rights on the blockchain . . . . Based on global patents for
media copyrighting and licensing, the company provides infrastructure
to support the seamless sales and transfer of media rights on the
Ethereum, Bitcoin and various other blockchains.”206
B. NFT Revenue Source for Musicians

The Wall Street Journal reports, “[a]fter a year with no live
performances, musicians hope to connect with their fans on the
blockchain and make up for lost revenue by selling them non[-]fungible
tokens.”207 For example, “[e]lectronic-music artist Justin Blau, known as
3LAU, fetched $17 million . . . from NFTs, helped in part by a tokenized
release of his three-year-old album ‘Ultraviolet,’ which grossed $11.6
million and briefly held the record for the highest price paid for a single
NFT, $3.6 million.”208 Musician Justin Blau observes, “It’s a way to
monetize your fan base in a way that’s never been possible . . . I think
this technology will definitely change the world, but I’m cautiously
optimistic because no one really knows how to value this stuff.”209
C. The Business of NFTs

The business environment of NFTs is an amalgam of various areas
of law and enterprise and may encompass issues involving: art,
copyright, cybersecurity, entertainment, intellectual property, music,
performance, technology, and video editing, just to name a few.210 In just
a matter of months, “[i]n new online marketplaces such as Nifty
Gateway, SuperRare, and Foundation, artists can upload, or ‘mint,’ their
204. Id.
205. Press Release, Christie’s, supra note 47.
206. Id.
207. Steele, supra note 201.
208. Id.
209. Id.
210. Lawrence J. Trautman et al., Some Key Things U.S. Entrepreneurs Need to Know About
the Law and Lawyers, 46 TEX. J. BUS. L. 155, 161-73 (2016).

works as unique N.F.T.s, then sell them.”211 As an informative case

study of just one example, journalist Kyle Chayka writes:
On October 30th [2020], Winkelmann[, Beeple,] launched his first
“drop” of three art works on the [NFT] marketplace Nifty Gateway, to
test his salability. One was a piece called “Politics Is Bullshit,”
featuring a diarrheic bull half-daubed in an American flag pattern amid
a rain of dollar bills. The work came in an edition of a hundred, at a
cost of one dollar each. A core feature of blockchain technology is
“immutability”: all transactions recorded are permanent and
transparent, which means that any [NFT] purchase or sale is visible to
the public. As of March 2021, the editions had resold for as much as
six hundred thousand dollars. (In [NFT] marketplaces, artists receive a
percentage of resale prices, typically around ten percent.)212
Attorneys Histed, McLaughlin, Miner, and Nolan write, “If you are
an artist or musician who is interested in issuing NFTs as a way to
monetize your creative content, you need to be careful on how you
proceed.”213 The authors list the following considerations:
• Ensure that the piece of art/image, digital music or other
creative work associated with the NFT is unique and
authenticated. Ensure that you have all of the rights necessary
to reproduce and distribute the work.
• Work only with a reputable technology company that will
issue the token on your behalf in a manner that is transparent
and secure.
• Inquire about the technology company’s position on payment
of royalties. While certain token standards prohibit royalties
(because they are viewed as stifling the ability to freely
transfer tokens) there have been discussions in the Ethereum
community about the creation of a royalty standard. At
present, artists generally receive a payment when their NFTs
are initially sold, but often not if they are resold in the future.
• Work only with a reputable marketplace that does not
over-promise or hype the NFTs, and that does not require you
to make significant up-front payments in order to issue and
sell your NFTs. Find out which blockchain platform the
technology company is using . . . .
• Make sure disclosures are clear regarding the purpose of the
NFTs as a royalty vehicle, whether there is expected to be an
established trading market for them, risk factors or other
211. Kyle Chayka, How Beeple Crashed the Art World, NEWYORKER (Mar. 22, 2021),
https://www.newyorker.com/tech/annals-of-technology/how-beeple-crashed-the-art-world.
212. Id.
213. Histed et al., supra note 191.

special considerations, and whether they are or are not

investment contracts or other types of securities.214
In sum, “NFTs and the related concept of the blockchain hold the
promise to, in part, give people ways to make their work more valuable
by creating scarcity. There is promise in letting creators rely less on
middlemen including social media companies, art dealers and streaming
music companies.”215 For example, on March 31, 2021, we learn,
“Michael Jordan and Kevin Durant are among those betting that the
company behind NBA Top Shot is poised to build on the craze over
digital collectibles. Dabber Labs Inc. said . . . it raised $305 million from
investors . . . [valuing] the company at $2.6 billion.”216 The Wall Street
Journal reports:
The sums reflect an exploding interest in non-fungible tokens, or
NFTs, which use the blockchain technology behind cryptocurrencies to
authenticate unique digital assets such as art, music or video of
basketball highlights. The market for NFTs grew to at least $338
million in 2020, according to a report from NonFungible.com and
research firm L’Atelier, from around $41 million in 2018. 217
D. Nascent Artists Emerge

During August 2021, several teenage artists are reported to have
had great success with their NFT art. For example, two such artists,
“jstngraphics, a 17-year old from Washington State, and Solace, an
18-year old from Soledad, Calif[ornia]. . . . have been making NFT art
for less than a year, and first drew attention by selling through the online
auction site SuperRare . . . [receiving prices] from about $1,000 to
$7,250, [selling] out.”218 Also presenting recently are “Community
NFTs,” that are “released in sets of unique but thematically linked
images that can be bought and sold individually.”219
214. Id.
215. See Ovide, supra note 198.
216. Sebastian Pellejero, Stars Help Raise $305 Million for Basketball NFT Site, WALL ST. J.
(Mar. 31, 2021), https://www.wsj.com/articles/maker-of-nba-top-shot-scores-305-million-in-new-
funding- 11617109275.
217. Id.
218. Steven Kurutz, Teens Cash in on the NFT Art Boom, N.Y. TIMES,
https://www.nytimes.com/2021/08/14/style/teens-nft-art.html?searchResultPosition=1 (Oct. 4,
2021).
219. Kevin Roose, ‘Metaverse’ is Overrun By a Huddle Of Penguins, N.Y. TIMES (Aug. 14,
2021), https://www.nytimes.com/2021/08/12/technology/penguin-nft-club.html.

VI. LAW OF DIGITAL PROPERTY

Professor Joshua Fairfield provides an excellent discussion about
the law of digital property, its history, technology, current deficiencies,
and proposes a detailed schematic for the future.220 I will not attempt to
recreate that here. The center of my argument is this: markets in
art-linked NFTs depend on technology that creates uniqueness,221 an
environment and context that provides an audience for the purchase,222
and law that supports ownership rights in fully digital assets.223 As
discussed above, the technology by and large works. The questions of
audience and market are important for us to understand in order to
understand the value of NFTs, and they are critical for sellers to craft224
(for example, websites like Rarible and SuperRare that create a viewing
experience for others’ collections to spur demand, or the creation of
museums in Decentraland to display NFTs) and buyers to seek out. 225
Failing to do so will result in purchasing something no one cares about,
a sure way to lose money.
The last component, however, has gone deeply under-theorized in
the law and literature. The centralized ownership and licensing model
laid out in the discussion of virtual worlds, above, in fact governs
ownership disputes of almost all digital assets.226 You do not own your
iTunes music.227 You do not own your Amazon e-books.228 And unless
the law evolves significantly, you will not truly own much for your $69
million purchase of NFT-linked digital art.229
As scholars, we have tended to keep an eye on the practical above
the theoretical. The practical truth is that while police may refuse to
220. See generally Fairfield, supra note 152 (discussing virtual and digital property, among
other topics).
221. See Fairfield, supra note 161, at 3 (noting that digital items “derive value from their
scarcity”).
222. See id. (“Property both physical and digital, derives value from the context of which it is a
part.”).
223. See id. (noting that establishing clear “principles surrounding digital personal
property . . . is necessary for NFTs to succeed”).
224. See id. (stating that cryptocurrency initial coin offerings seek to “create value by creating
demand”).
225. See id. (“A buyer of a piece of art, or a trading card, or a unique digital pet expects to be
able to profit from its rise in value.”).
226. JOSHUA A.T. FAIRFIELD, OWNED: PROPERTY, PRIVACY, AND THE NEW DIGITAL SERFDOM
74 (2017).
227. Id. (stating user only has a license to hear music).
228. See Fairfield, supra note 161, at 12 (“Amazon Kindle denies that Kindle e-book
purchasers truly own their purchases.”).
229. See id. (“[T]he legal framework surrounding NFTs is not conducive to ownership,
because the intellectual property regime that currently governs the internet is hostile to digital
personal property ownership, imposing the contract-and-licensing regime of intellectual property
instead.”).

prosecute the theft of swords from players in virtual worlds,230 law

enforcement agencies will likely not refuse to prosecute the theft of a
cryptographic token valued at $69 million. 231 And while a judge may
consider the games in a player’s virtual game library to be based on
contracts and licenses, rather than real property interests, and thus not to
pass to the next generation after death,232 no judge will refuse to allow
Bitcoin to pass by will or intestate succession.233 In short, people have
had enough with the persistent refusal of internet law to recognize online
property interests, and the amount of money at stake is now sufficient to
hire teams of lawyers to make the changes stick.
This Article’s core prediction, therefore, is that not only will NFTs
survive the most recent crypto-crash, but that the example of NFTs will
serve as a grounding analogy that courts will use for a major course
correction, away from the Kindle-and-iTunes model of “you don’t own
anything” to the establishment of real and enforceable legal online rights
in digital property. We are standing at the start of a shift in law as
significant as the developments around online contracting, that have now
rendered the Facebook Terms of Service more practically important to
many citizens’ lives than the United States Constitution. The
introduction of true property law—not merely a collage of patched
together license rights and misleading advertising copy—into online
spaces will revolutionize the internet.234 Once Vignesh Sundaresan
(MetaKovan) establishes clear ownership rights over The First 5,000
Days, and at $69 million for a piece of internet history, he absolutely
will, the ripple effects will include the undeniable introduction of a form
of property ownership that companies have sought desperately to
prevent through license agreements that claim purchasers have no
rights.235
230. Wayne Rumbles, Theft in the Digital: Can You Steal Virtual Property?, 17 CANTERBURY
L. REV. 354, 365 (2011) (noting that when a virtual sword was sold without the “owner’s”
permission, Chinese police refused to assist because “virtual property [was] not covered as a
protectable asset under the then current law”).
231. Cf. Samantha Bomkamp, Chicago Trader Accused of Stealing $2 Million in
Cryptocurrency in City’s First Bitcoin Fraud Case, CHI. TRIBUNE, (Feb. 16, 2018),
https://www.chicagotribune.com/business/ct-biz-bitcoin-fraud-trader-charged-20180217-story.html
(showing that where a Chicago trader was charged with fraud for allegedly stealing two million
dollars in bitcoin and other cryptocurrency from his employer).
232. Cf. FAIRFIELD, supra note 226, at 86 (referencing legal disputes involving ownership of
deceased soldiers’ social media accounts, and companies arguing that social media accounts are
merely contractual services).
233. See Fairfield, supra note 161, at 57 (stating NFTs will be inherited under the law of wills).
234. See id. (“NFTs represent an important opportunity . . . to rebalance a low of digital
transactions that has nearly eliminated online personal property interests entirely in favor of
long-term control by those who pretend to have sold them.”).
235. See id.

To reach this point, we will need a robust theory of virtual

property. That is the immediate challenge we face: to lay out in
unambiguous terms how courts can and inevitably will separate the
kinds of digital assets subject to contract-and-license regimes from those
subject to the simple law of personal property.
A. Virtual Property and “Bundle of Rights”

What do we own when we own something? When we own a work
of art? Traditionally, courts have determined that we own the copy (not
the copyright, more on that in the next Subpart), the object. Our power
over that object is endorsed by the state. We are able to use, exclude
others from using, transfer, or even destroy the item without legal
interference or repercussions.236 For example, if I own an Apple iPhone,
ask “Will it Blend?” and put it in a blender, no police officer will stop by
to arrest me.237 If I do so with someone else’s iPhone, I will be arrested.
If I transfer something that is mine, then law recognizes the ownership
of the new recipient. For example, if I give you my watch and someone
subsequently steals it, then their offense is against the new owner, not
me. If I permit you to swim on my land, and sell the land to Santa,
suddenly you are bound to respect Santa’s wishes with respect to how,
where, and whether you may swim.
We recognize this bundle of rights (and I have included the
traditional ones). There are updated versions we should have for our
digital property—the right to repair, modify, hack, run code, and so
on238—for the purposes of giving effect to humans’ wishes. We pay
more to own something than to merely license or rent it. We do so
because we value the increased freedom, the extra capabilities. 239 This is
the work made famous by Amartya Sen and Martha Nussbaum; rights
mean nothing if citizens do not have the capability of carrying them
out.240 A right to vote means nothing without a car to drive to the polling
station. A property interest is a demand on resources that the owners can
236. Cf. FAIRFIELD, supra note 226, at 15 (explaining traditional property rights as a “bundle of
sticks”).
237. Id. (“[T]he power to destroy can be described as the ultimate exclusion: excluding
everyone from enjoying the property, including the owner.”).
238. See id.
239. See, e.g., id. at 95 (stating that buying a car, instead of renting, means that “we do not
have to care about the rental agency’s requirements”).
240. See Martha C. Nussbaum, Capabilities and Human Rights, 66 FORDHAM L. REV. 273, 288
(1997) (positing that empirical truths include the capability to “hold property”); see also FAIRFIELD,
supra note 226, at 19 (stating that “property rules should promote not just the technical right to do
something, but the actual ability to do it.”).

exercise without the “mother-may-I” of the state.241 Of course,

reasonable constraints on the use of property are necessary for us to live
together in harmony (or else Joshua’s right to play his Metallica records
at the aesthetically correct high volume might disturb Larry’s sleep), but
property secures to people the ability to do what they wish to do without
needing to seek permission from anyone else. The core of property is
that direct satisfaction of preference through expanding capabilities is
the core of property.242
One such capability is of particular importance in our current
discussion: the ability to earn by owning.243 Imagine you rent an
apartment, and it burns down through no fault of yours. Who is
damaged? The true owner of the apartment, of course. Conversely,
imagine that the land and the apartment building appreciate in value?
Who benefits? The owner. The point here is that ownership is necessary
for earnings based on the rise in value of assets. This is no minor point.
For generations in the United States, redlining and racist lending
practices have cut Black buyers out of one of the primary means for
wealth creation.244 We ought to take attacks on the ability to earn by
owning something extraordinarily seriously: that value will go to
someone, and the question is whether the kinds of earning humans want
to do can happen without the ability to transfer clear ownership over an
asset to another owner.
I believe it cannot. And, as the following Subpart demonstrates, that
is currently the state of affairs that has traditionally plagued attempts to
create markets in digital assets,245 and if it does not adequately resolve, it
will render the law incapable of adequately supporting the NFT market
in art, in particular because the dollar figures of individual purchases are
so high. Buyers will simply not tolerate a system in which their ability to
earn is curtailed because of license and contract conditions that, despite
the surface appearance of ownership, in fact demonstrate there are
241. See FAIRFIELD, supra note 226, at 18 (stating “property means a kind of liberty from
government interference”) (citing JEDEDIAH PURDY, THE MEANING OF PROPERTY: FREEDOM,
COMMUNITY, AND THE LEGAL IMAGINATION 19 (2010)).
242. See id. (“Property is thus to be measured by the yardstick of human capability.”).
243. See Fairfield, supra note 161, at 39 (“One of the key ways of determining ownership
throughout law is to look at who gains when the property rises in value, and who loses when the
property falls in value.”) (citing U.C.C. § 1-203 (AM. L. INST. & UNIF. L. COMM’N 2002)).
244. See Charles Lewis Nier III, The Shadow of Credit: The Historical Origins of Racial
Predatory Lending and Its Impact Upon African American Wealth Accumulation, 11 U. PA. J.L. &
SOC. CHANGE 131, 194 (2008) (“[O]ne of the primary explanations for the large racial disparities in
terms of wealth is a direct consequence of discrimination in credit markets which has acted to both
limit minorities’ access to home ownership and to increase the cost of achieving home ownership.”).
245. E.g., Fairfield, supra note 161, at 68 (explaining the failure of ReDigi).

serious limits to true ownership.246 We believe this will force the law to
evolve.
B. Problems With the Existing Legal Framework

In 2010–2011, the Ninth Circuit Court of Appeals decided two
cases about whether someone owned a digital work—in one case, music
electronically encoded onto a CD, 247 in the other, software encoded onto
a CD.248 In both cases, the transferees claimed they had an ownership
right in the asset and were free to transfer it and sell it on to someone
else.249 The same panel on the same day came to opposite conclusions.
They decided that the recipient of the music owned it free and clear,250
whereas the purchaser of the software did not.251 The fighting question,
said the court, was whether the transaction at issue was a sale (which
would transfer an ownership interest) or a mere license.252 In
determining the sale versus license distinction, the court relied on
laughable criteria: first, they relied on whether the parties called the
transaction a sale or a license.253 This of course ignored what wiser
courts have long called the “economic realities” of a transaction.254 If a
transaction transfers all risk to someone who rents a car, for example,
courts will usually say that the transaction was a disguised sale. Second,
the court asked whether or not the license restricted the licensee’s ability
to transfer the asset.255 This flatly ignored the question: if the transferee
was the owner of the asset, they would have the ability to resell it despite
any contractual reservation of rights by the transferor. So, the court’s
246. See id. (“[I]f the technology is analyzed primarily within the framework of intellectual
property and contractual licensing rather than the law of personal property, NFTs become copyright
licensing with extra steps. They lose the characteristics of ownership that interest vendors and
purchasers.”).
247. UMG Recordings, Inc. v. Augusto, 628 F.3d 1175, 1177-78 (9th Cir. 2011).
248. See Vernor v. Autodesk, Inc., 621 F.3d 1102, 1104, 1111 (9th Cir. 2010).
249. See id. at 1112; see also UMG Recordings, Inc., 628 F.3d at 1177.
250. See UMG Recordings, Inc., 628 F.3d at 1180 (“We conclude that, under all the
circumstances of the CDs’ distribution, the recipients were entitled to use or dispose of them in any
manner they saw fit, and UMG did not enter a license agreement for the CDs with the recipients.”).
251. See Vernor, 621 F.3d at 1111 (“We hold today that a software use is a licensee rather than
an owner of a copy where the copyright owner (1) specifies that the user is granted a license; (2)
significantly restricts the user’s ability to transfer the software; and (3) imposes notable use
restrictions.”).
252. See id. at 1107, 1111; see also UMG Recordings, Inc., 628 F.3d at 1177.
253. See Vernor, 621 F.3d at 1108; see also UMG Recordings, Inc., 628 F.3d at 1180.
254. E.g., United Hous. Found., Inc. v. Forman, 421 U.S. 837, 851-52 (1975) (“In considering
these claims we again must examine the substance—the economic realities of the transaction—
rather than the names that may have been employed by the parties.”). See also Brian Elzweig &
Lawrence J. Trautman, When Does a Nonfungible Token (NFT) Become A Security? 18 (Mar. 11,
2022) (unpublished manuscript), http://ssrn.com/abstract=4055585.
255. See Vernor, 621 F.3d at 1110-11.

question was circular: if the court decided that the transferee was the
owner, the restriction on sale would be ineffective. And finally, the court
asked whether the purported license imposed other restrictions on the
use of the asset.256 Which invoked the same problem: owners are
allowed to do some things with digital assets (like make backup copies,
for example, or other things that are an essential step in using the asset),
so the determination of whether the transferee was an owner or a mere
licensee preceded the question of whether the restrictions on use of the
asset were permitted.257
The upshot was that the Ninth Circuit permanently muddied
questions of digital ownership. The resulting legal regime has been
another decade in the wrong direction. Digital assets are overwhelmingly
governed online by license conditions (why are they licenses? Because
they say they are, even if the site or service claims they are selling the
digital asset), and those license conditions assert that buyers do not own
what they purchase.258
This is merely part of the comedy of errors that has been the
thirty-year history of development of the relationship between ownership
of a digital item, a digital piece of art or other unique asset, and
ownership. The upshot is clear: online, we own next to nothing. Indeed,
this law is beginning to creep back into realspace. As Joshua Fairfield
has written, you do not truly own your smartphone, tablet, smart car,
internet-enabled television.259 These assets do not answer to you, but to
the companies that own the intellectual property in the software that runs
them.260
NFTs are not free from the sale-license distinction, or from the
copy-copyright distinction that follows from it. 261 Buyers of NFTs are
startled to learn that terms and conditions often apply; terms and
conditions that would be flatly absurd if imposed on the purchaser of
multi-million-dollar physical artwork. These limits include constraints
on the very core of an art-NFT purchase: the ability to earn based on the
256. See id. at 1111.

257. See id. at 1109 (“[W]e consider all of the provisions of the agreement to determine
whether the transferee became an owner of the copy or received a license. We may consider (1)
whether the agreement was labeled a license and (2) whether the copyright owner retained title to
the copy, required its return or destruction, forbade its duplication, or required the transferee to
maintain possession of the copy for the agreement’s duration.”).
258. See Fairfield, supra note 161, at 65 (“For example, when a person buys a Kindle e-book,
they agree simply by opening the app that they merely license the book, they do not own it.”).
259. Id.
260. See FAIRFIELD, supra note 226, at 74 (“[W]e only have claims on our digital and smart
property through our license relationships with intellectual property rightsholders.”).
261. E.g., Fairfield, supra note 161, at 69 (“The all-important copyright, the right to make
reproductions, that is absolutely necessary to convey a digital item from one person to another, is
expressly retained by [the NFT minter].”).

art’s appreciation in value (which, incredibly, some art-NFT

marketplaces cap),262 transfer fees that kick back to the NFT seller with
each subsequent sale,263 the seller’s ability to pause the transferability of
the NFT,264 and even restrictions on legal rights that stop the purchaser
of an NFT from vindicating their rights in court.265
The example of art-linked NFTs is so compelling because it
implicates all of the usual problems of distinguishing a copy of artwork
from the copyright in the art, and does so without any physical object,
not even a CD, to ground the personal property interest. When courts
begin to recognize the property interests in NFT-linked art—and it can
be confidently predicted they will have no choice but to do so—they will
finally have to set a framework in place that goes beyond purely
listening to the characterization of the selling party, or looking for a
physical object to ground and distinguish the personal property interest
from the contractually determined license interest to determine which
digital assets are owned free and clear, and which were never truly sold
at all.
C. Proposed Framework for Digital Property

An updated framework for determining digital property interests
distinct from contractually derived license terms and conditions is
proposed. I begin by reaching back to work from 2005, in which Joshua
Fairfield argued that virtual property gained its value by virtue of being
rivalrous, persistent, and interactive.266 First, for an object to gain market
value as a digital asset, especially in a collector’s sense, it needs to be
rivalrous.267 As a judge wrote when adjudicating ownership of a domain
name URL: property is anything susceptible of unique possession.268 If I
own LarryTrautman.com, you do not. If I have the art-NFT, you do not.
Assets that are not rivalrous are like air: everyone has access free of
262. See id. (“There is no limited exception for transfer and, indeed, owners cannot exploit
their [NFTs] for commercial gain (which, under relevant internet law emphatically includes
reselling a digital asset for profit . . . ).”).
263. See id. (explaining a specific NFT minter “claims right to collect a commission of 4.5%
on all forward sales”).
264. See id. (explaining that tokens can be coded so that the transfer function of the token can
be made “‘pausable,’ such that the original creator of the token can pause its future transfer”).
265. See id. (“[A]lmost every online contract contains an arbitration clause, an agreement that
the buyer gives up her right to go to court, and must instead proceed to arbitration, where consumers
nearly never receive redress.”).
266. Fairfield, supra note 152, at 1053.
267. See FAIRFIELD, supra note 226, at 149 (“Rivalrousness becomes profitable through the
mechanism of scarcity.”).
268. See Kremen v. Cohen, 337 F.3d 1024, 1030 (9th Cir. 2003) (“Property is a broad concept
that includes every intangible benefit and prerogative susceptible of possession or
disposition . . . . [Property] must be capable of exclusive possession or control.”).

charge (for now, we’ll be bottling it soon enough), and so even though
we value it deeply, nobody pays for it. There is no market in it. Next, it
appears digital objects gain market value by being persistent over time:
that is the very reason we are forced into streaming services. The copies
are not persistent, every time we must request permission to listen to the
music again. If we give up our subscription to Spotify, the music is
gone. An item in a virtual world is fairly persistent: it may last as long as
the world servers are up. But an NFT is even more persistent. Because it
is recorded in a decentralized database, it does not die when the world
servers go down.269 NFT-linked art may be displayed in a range of
virtual settings, from a tweet to a Decentraland-based virtual museum.270
The very indelibility of blockchain technology speaks to the persistence
of blockchain-based assets.
The last criterion, then, is interactivity. In a virtual world,
interactivity can be immediate and visceral: player A can hit player B
with the Sword of Admiration. But interactivity goes far deeper. The
criterion speaks to the sociality of the asset. In a way, it is the opposite
of the rivalrousness criterion, defining a sweet spot that we call property.
Under the rivalrousness criterion, it can be asserted that if everyone can
have an identical copy of the thing, then it is not really owned.271 Under
the interactivity criterion, it can be argued that if no-one other than the
owner can possibly interact with it, then it also is not the proper subject
of property.272 Here we must be careful: property ownership of course
includes the ability to exclude others from seeing, using, or otherwise
interacting with an asset.273 The owner of the Mona Lisa could in fact
prevent anyone else from seeing it. But interactivity as an asset feature
means that people other than the owner could interact with it. They
could see it, they could buy it and receive it if the erstwhile owner were
to gift it to them.
If, then, an asset is rivalrous, persistent, and interactive, then how
are we to determine who owns it? One thing we cannot do is rely on
license characterizations. First, parties may lie: characterize a transaction
269. E.g., About, INTERPLANETARY FILE SYS., https://ipfs.io/#why (last visited Jan. 15, 2022)
(“IPFS powers the creation of diversely resilient networks that enable persistent availability—with
or without Internet backbone connectivity.”).
270. See Clive Thompson, The Untold Story of the NFT Boom, N.Y. TIMES (May 12, 2021),
https://www.nytimes.com/2021/05/12/magazine/nft-art-crypto.html (discussing the creation of
Colborn Bell’s Museum of Cryptoart and other virtual museums).
271. See FAIRFIELD, supra note 226, at 148 (“If an item is non-rivalrous, both you and I can
have it at the same time.”).
272. Id. at 16 (“We do not buy property just to kick others off it. We buy it so we can control it
- protect it from others, use it ourselves, and, if we permit them to, determine how others use it.”).
273. Id. at 15 (“Historically, the power to exclude has been the most well-developed of
[property] rights.”).

as a license when it is in fact a sale of an asset. And second, the

economic realities of the transaction may indicate that one party or the
other was promised the owners’ ability to bear the downside risk of loss
and the upside chance of gain. When that is the case, the “economic
realities” of the transaction are that the transferee is the owner of the
asset.274 The seller has not merely rented out what belongs to her. This is
not a difficult task: courts routinely determine whether someone has
bought a car or is renting it, for example. Both contain monthly
payments to some other entity. The transactions are almost always called
rentals instead of true sales (because doing so gives certain advantages
to the seller). But when courts pop the hood of the transaction, they
determine that underneath the transferee bears all of the downside risk of
loss in value, and reaps the benefit of the upside gain.
The other elements of the Vernor v. Autodesk attempt to
differentiate between license and sale are just as intellectually
bankrupt.275 If the seller of an NFT claims the ability to restrict transfer
(or extract payments upon transfer) the relevant question is whether that
demand sticks. If the transaction was a sale of an ownership interest,
then the request of the seller for extra power or money is moot. Consider
whether you could sell a car, and then demand payment the next time
your buyer sold the car further on: you could not.
The better move is to follow courts in looking to the economic
realities of the transaction. Where something like an art-NFT has been
marketed and sold to the purchaser as the transfer of ownership—a sale,
not a rental or a mere license—then courts should consider the asset to
be owned as a matter of traditional personal property ownership. In
particular, where the entire purpose of the transaction is for the buyer to
carry the downside risk of depreciation in the property’s value, and reap
the upside gain if the market swings up, courts must laugh at claims that
the asset was merely licensed rather than sold out of court. There is no
need to invoke the bizarre patchwork of law that surrounds e-books,
streamed music, iTunes, or video games—law that determines even
digital assets that are fully bought and paid for are not owned, but
merely licensed. Rather, we can return to a simpler and more direct legal
form: the true sale of personal property. This has one additional
particularly important effect. It normalizes the collection of digital art
within the art collection world, setting owners of art in the same position
regardless of whether their purchase is online or off.
274. See Fairfield, supra note 161, at 39 (“One of the key ways of determining ownership
throughout law is to look at who gains when the property rises in value, and who loses when the
property falls in value.”) (citing U.C.C. § 1-203 (AM. L. INST. & UNIF. L. COMM’N 2002)).
275. Id.

VII. THE FUTURE OF DIGITAL PROPERTY

As professors Schultze and Mason write, “Virtual communities and
social networks assume and consume more aspects of people’s lives. In
these evolving social spaces, the boundaries between actual and virtual
reality, between living individuals and their virtual bodies, and between
private and public domains are becoming ever more blurred.”276 We will
now provide a few thoughts about likely futures for digital property.
A. Artificial Intelligence (AI)

Reports abound of artists using various machine learning
techniques to create novel works of art. At the Google Cultural Institute,
code artist Mario Klingemann, “is applying deep learning to large
datasets for creating huge, stunning digital art.”277 Another example of
those “who have started a journey of finding out how creativity can be
enhanced by AI . . . [is] Matthew Yee-King, a musician who is
employing evolutionary and genetic algorithms to work on sound
synthesis.”278
B. Payments for Artistic Endeavors

Financial journalist Jason Zweig suggests that NFTs provide an
opportunity for artists to gain a greater payback for their labors by
providing “an ownership stake they’ve never had before.”279 He presents
the example of:
Josie Bellini, an artist based in Chicago who majored in finance in
college and worked briefly at an investment-advisory firm. Since late
2018, she has sold about 300 of her paintings this way.
One of her NFTs, a dazzling digital work titled “Yours Truly #0,” is on
sale by its current owner, an account called Bitbuzz, for 250 ether.
That’s a cryptocurrency, worth a total of about $450,000. Ms. Bellini,
who sold the NFT for 50 ether in February 2020, will receive a 5%
royalty if it sells now and anytime again in the future.
Typically, when an NFT is traded on the blockchain, that network
won’t allow a sale and purchase to be completed without forwarding
the predetermined royalty to the wallet, or account, of the artist who
created it.
276. Ulrike Schultze & Richard O. Mason, Studying Cyborgs: Re-examining Internet Studies
as Human Subjects Research, 27 J. INFO. TECH. 301, 301 (2012).
277. Xing, supra note 42.
278. Id.
279. Zweig, supra note 41.

“It’s so amazing that even if it gets traded 10 or 20 times or more, I’ll

still be getting my fee for it,” Ms. Bellini says. “That’s totally not how
the art world has worked until now.”280
C. Future Regulatory Compliance Issues

Rapid adoption of novel technologies, such as NFTs, vividly
illustrate the struggle for our laws and regulations to keep pace.281
Characterizing the technologies involved and use of these assets may
have different legal outcomes raising new issues in law. Among the
questions that may arise includes whether your NFT or work of art is
characterized as a commodity, security, or usage, subject to money
transmitter laws that continue to evolve. Attorneys Cohen et. al., warn:
Understand whether the NFT sponsor is carefully addressing
compliance with regulatory requirements, and understand the potential
effect on liquidity if the NFT is marketed as a security or a commodity,
and understand potential rescission rights if an NFT that is not
marketed as a security is subsequently determined to be a security that
was issued in violation of the registration requirements of the securities
laws.282
D. The Future of Digital Property

As to the likely future of NFTs, professor Michael M. Dowling
reports that his initial finding suggests inefficiency in pricing along with
“a rapid rise in value.”283 Professor Dowling observes, “Early-stage
markets tend to be driven by a volatile search for suitable pricing models
and only slowly emerging market efficiency.”284 Exhibit 8 depicts the
NFT United States Dollar Price Chart and the rapid rise in total dollar
expenditures since January, 2021.285 Christie’s 21st Century Art
Specialist Noah Davis says, “I feel honored to have been welcomed into
this insanely creative [cryptoart] community, humbled by their virtuosic
280. Id.
281. Lawrence J. Trautman, Governance of the Facebook Privacy Crisis, 20 PITT. J. TECH. L.
& POL’Y 41, 81-82 (2020) (writing about Facebook struggling with privacy issues); see also
Lawrence J. Trautman, How Google Perceives Customer Privacy, Cyber, E-Commerce, Political
and Regulatory Compliance Risks, 10 WM. & MARY BUS. L. REV. 1, 31-37 (2018); Lawrence J.
Trautman, E-Commerce and Electronic Payment System Risks: Lessons from PayPal, 17 U.C.
DAVIS BUS. L.J. 261, 283, 293-95, 302-03 (2016).
282. Histed et al., supra note 191.
283. Dowling, supra note 154, at 9.
284. Id.
285. NFT U.S. Dollar Price Chart, NONFUNGIBLE, https://nonfungible.com/market/history
(last visited Jan. 15, 2022).

talents, and inspired by their utopian visions. I see so much potential for
blockchain technologies from Smart Contracts to DAOs - to
revolutionize (some might say ‘disrupt’) our way of doing business.”286
And as a view from one of the world’s major historical art auction
houses, Christie’s Specialist, Mr. Davis states, “Blockchain isn’t just
going to shake up the art world and decentralize the financial industry,
it’s going to change the way artists make art, and the way every creative
industry operates, by democratizing access to information, diminishing
opacity in favor of transparency, and empowering creative people
everywhere.”287
Exhibit 8
NFT United States Dollar Price Chart288
Tech-savvy entrepreneur and owner of the Dallas Mavericks, Mark

Cuban, observes “NFTs are just one application of smart contracts.
Think about textbooks being NFTs. You buy it. Use it. Easily resell it.
Publishers get royalty on each sale. Think how stocks work right now.
Most people think they own the stock.”289 However:
They own the right to the stock. It’s held in street name. It gets lent out
to shorts and they don’t collect the vig on the borrow. And then of
course there is front running and payment for order flow and the fact
that a share of stock doesn’t truly convey the holder any real
ownership rights. If every share or block of shares was an NFT then it
all would be transparent . . . .
Smart contracts on blockchains, particularly Ethereum, is an enormous
game changer that every company will use . . . . Weather insurance
(Arbol is a great example). With a smart contract I’m soon going to be
able to have the Mavs buy weather insurance where using a smart
contract I pick the temperature and precipitation thresholds and the
smart contract checks the National Weather Service for my ZIP code
or another chosen data source and on that day or period if the threshold
286. Press Release, Christie’s, supra note 47.

287. Id.
288. NFT U.S. Dollar Price Chart, supra note 285.
289. See Kessler, supra note 2.

is met, I get Ethereum deposited into my account automatically. “No

different than the Internet of 1995 where people weren’t quite sure but
eventually they saw the network effect and value. Smart contracts are
going to eat a lot of the software-as-a-service world.”290
When asked about the recent high level of transaction costs, Mr.
Cuban replied, “It is too expensive. But that’s specific to original
Ethereum. There are changes coming to Ethereum 2.0 and immediate
options with Layer 2 enhancements with a bunch of
companies . . . Coinbase is the Netscape of now . . . . There will be
cheaper options.”291
Writing about virtual land NFTs in March of 2021, Professor
Michael M. Dowling remarks about how “early 2021 has seen these
markets explode in popularity.” In a personal conversation on the topic
he remarked:
We’ve seen prices for every NFTable part of virtual worlds shoot up
this year, but that was following a similar growing trend in 2020. It
was just not as notable in 2020 because the absolute prices were not as
high. That’s on the back of some clear value propositions emerging.
Worlds like decentraland, unlike a lot of their early competitors,
genuinely look good, and so people are starting to see sparks of how
this could become a viable business in addition to a viable
metaverse.292
VIII. CONCLUSION
Several puzzles related to the emergence of a new form of fully
digital property, the NFT, have been explored as it relates to the art
market. My goal is the creation of free and fair markets. The challenge
to free markets is the degree to which NFTs will function as clean
packages of rights, easily transferable in markets without trailing strings
of rights that render them ultimately unattractive as collectibles. In
particular, the trailing string of intellectual property poses a serious
challenge to the viability of NFTs as art forms. As things stand, NFT
owners do not truly own the artwork linked to their token. 293 If courts
shape legal policy appropriately, NFT-based transactions may come to
reflect the same or a similar compromise to that from which real-world
art collectors benefit: the owner may use, display, benefit from, capture
290. See id.

291. See id.
292. E-mail from Michael Dowling, Professor of Fin., Dublin City Univ. Bus. Sch., to author
(Mar. 28, 2021, 7:15 CST) (on file with author).
293. What is Crypto Art?, supra note 90.

the rise in value from, and otherwise benefit from the social value of
being the owner of the item. The link between an NFT and hyperlinked
art is looser than that between physical canvas and paint and the
intellectual property that inheres in the artist’s creation.
The challenge to legal theory will be in tightening those linkages,
despite the fact that NFTs do not have any physical copy to anchor the
copy-copyright dichotomy. Some similar deal will have to be hammered
out. I propose, and believe that the future will inevitably lead to, some
form of true digital online property, in which the digital token takes the
role of the presence of a physical copy—the thing owned by the
collector—and that will be distinct from the right to make infinite copies
of the art—a right retained by the artist or rights holder. Some provision
for in-between states will need to be made. For example, the owner of a
digital painting will need the right to transfer it, and it is well-established
law that computers cannot transfer information without copying it. For
this reason, the copyright in a digital artwork will need to be further
divided between the right to transfer and the right to make infinite
copies. Both involve copying, but only one makes additional permanent
copies. Courts have been loath to make this distinction, but they will
have no choice.294 NFT investors have been promised in no uncertain
terms the ability to sell their property and realize the market rise in
value. Courts will not take it away from them, nor will sellers who insist
on the technical version of the no-copying rule survive as sellers; they
cannot be trusted.
So much for free markets. As for fair, I have proposed that courts
look to the economic realities of the deal rather than its surface
characterization.295 As in many other legal contexts (the lease-sale
dichotomy chief among them), courts must recognize that sellers will
sell NFTs as personal property but attempt to litigate them as intellectual
property licenses. This flies directly in the face of the form of the
transaction, in which a buyer makes a one-time transfer and is promised
a permanent transfer of limited rights in a digital object. Humans
understand what objects are, what personal property is, because of their
experience in the real world. When NFT sellers invoke the similarities of
their wares to personal property, to true ownership, they must be held to
their promises, no matter what it says on page seventeen, sub-paragraph
C of a license agreement the buyer cannot possibly read.
The effects of these two shifts will be profound. Online property
has suffered under an overexpansion of intellectual property rights. One
need not look further than the license agreement for a Kindle, or the
294. See supra Part VI.B.

295. See supra Part VI.C.

iTunes license. Online, we do not own even what we fully buy and pay
for. That cannot be the case for NFTs, where millions of dollars and a
clear expectation of securing the rise in value of the asset to the owner
and not the creator is at stake. These cases will be litigated, and owners
will win. And it is that combination of satisfaction of profound pent-up
demand for digital online ownership, plus a technology that provides a
component of the asset—the token—which is clearly independent of
intellectual property rights and which purports to carry an ownership
interest, that will establish precedent for the ownership of personal
property online. It does not seem likely that the deal between owners and
creators will be worked out in a season. But the interest and resources
brought to play in a dispute over the ownership of a digital Mona Lisa
will not brook the kind of casual dismissal of ownership claims in digital
books and music to which courts have been prone.
In the end, art-NFTs will establish the case for digital property as
fully distinct from intellectual property. Bitcoin started this process—no
court seriously questions whether it is property, and for precisely the
reasons discussed above. The issue has remained: Will digital personal
property interests vanish on contact with intellectual property, or will
they survive and become part of a negotiated deal, of a similar type to
that worked out between collectors and creators of the world’s great
pieces of real-world art? Once that linkage has been established, the
property forms established by art-NFTs will feed back into the
legal-technological ecosystem and will support the recognition of many
other kinds of digital property interests. The demand for true ownership
online is large and has until now been by and large unsatisfied because
unsupported by basic legal protections for owners. Art-based NFTs are a
killer app that will force the law to change. Once it does, we will become
as used to owning fully digital assets as we are to owning our watch, car,
or home.

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VIRTUAL ART AND NON-FUNGIBLE TOKENS

Fueled in part by the wealth recently created from digital

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I. OVERVIEW ............................................................................................. 363

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15. See, e.g., id. at 272 & n.132.

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II. MARKET FOR DIGITAL ART EMERGES

A. The NFT Gold Rush

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counting . . . . Metapurse has been able to scoop up Beeple’s works at

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postwar-contemporary—Christie’s will slot its offerings by time

Bids from more than thirty were received, resulting in a winning

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On May 28, 2021, we read about historical documents of interest

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B. History of Digital Art

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assign provenance and value to the medium.”37 During November 2018,

37. Beeple’s Opus, CHRISTIE’S, https://www.christies.com/features/Monumental-collage-by-

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the World Wide Web in the 1990s, a diverse variety of opportunities

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wanted to reflect in the look of their Punks. ‘They needed to be a

To be expected, some CryptoPunks are rarer than others.58 In an

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Christie’s describes the CryptoPunks market as “extremely active,”

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According to The Wall Street Journal, Sarah Meyohas’s art “places

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In retrospect, “Bitchcoin functioned as a sort of proto-NFT, and the

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NFTs of pixilated digital images of humans, aliens and other creatures—

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a proof-of-stake blockchain to retain the very values of her

74. See Press Release, Christie’s, supra note 47 (alteration in original).

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making nifties,’ Duncan said. ‘We want some CryptoPunks in the

E. Impact of Bitcoin Price Volatility

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action to restrict or eliminate ways for Chinese citizens to exchange

With a population of 1.41 billion and important global economy

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F. NFTs and Energy Consumption

G. Eden Fine Art Gallery

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art marketplace is a constantly changing world, with new entries

H. Crypto Art in Sports

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I. Topps Ventures Into NFTs

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