[New Wave] Things We Should Be Careful About When Trading NFTs

Recently gaining attention, NFT (Non-Fungible Token) refers to a kind of electronic registration certificate that stores ownership information of digital images or videos on the blockchain, allowing anyone who wants to verify that information in a decentralized manner. The reason NFTs are called 'Non-Fungible Tokens' is that unlike Bitcoin, which can be exchanged 1:1 with another Bitcoin, NFTs are like registration certificates and cannot be exchanged with other NFTs.

The biggest advantage of NFTs is that since they are stored on a decentralized blockchain, tampering or forgery is impossible, and concerns about loss of ownership can also be reduced. Additionally, due to the transparency of the blockchain, anyone can easily verify this information.

Currently, various experiments are being conducted to link NFTs in areas such as ▲digital collectibles like MLB baseball cards ▲game items ▲anti-counterfeit tickets ▲issuance of identity verification documents and certificates such as birth certificates, passports, and driver's licenses ▲donations ▲licenses and permits. Beyond digital files, NFTs can replace traditional quality certificates by storing unique serial numbers of actual products like luxury goods and automobiles, and NFTs can also be applied to various items worn by avatars in the metaverse to strengthen the economic system within the metaverse.

However, there are also points to be cautious about. First, what we need to understand is that just as a registration certificate only indicates the address of the actual item, NFTs only record the internet address where the original is located. Although in some cases the digital original or a copy is directly stored in the NFT, this is rare due to the high fees involved. (As of June 2021, storing about 1KB requires approximately $13 in fees.) Therefore, original files stored on external storage media outside the blockchain (such as IPFS) carry the risk of being deleted at any time due to hacking or mismanagement.

The second issue is the potential for copyright disputes. As mentioned earlier, NFTs do not include the original copyrighted work itself, so copyright infringement does not occur in the transaction of the NFT itself. However, copyright infringement can occur during the process of creating and registering the NFT on the blockchain, known as 'minting.' If someone digitizes another person's offline copyrighted work without permission and stores it on external storage media, this may infringe reproduction and transmission rights. If the author's name is listed as someone other than the original creator when selling, moral rights infringement issues may arise, and those who purchase and use such NFTs may unintentionally become involved in copyright disputes. Furthermore, it is even unclear whether NFT transactions can be legally regarded as valid copyright transfers or license agreements.

Finally, while NFTs can distinguish between originals and copies, they do not prevent unauthorized copying of the original itself. Therefore, no matter how much an NFT is attached, its scarcity may be lower compared to paintings or sculptures where the concept of an original is clearly established.

The potential applications of NFTs are undoubtedly vast. However, concerns about a bubble are real, as it has been confirmed that the buyer of an NFT artwork sold at a record high price of $69.3 million at a digital art auction was a senior executive working at an NFT investment company, among other major virtual asset players inflating the bubble. A more cautious approach to NFTs is needed at this point.

Seungjoo Kim, Professor, Department of Cyber Defense, Korea University