Are NFTs DRM by Another Name?

Twenty years ago, when the first generation of DRM (digital rights management) technologies hit the market, one of the benefits they touted was that with DRM-packaged files, consumers could be sure that they were getting genuine content from the source. For example, if the content was a scientific journal article with research results, they could be confident that it wasn’t altered. Nobody remembers this, because nobody cared.

Now here we are in 2021, where a technology exists that, one could argue, has some similarity of purpose but less functionality than those DRM schemes: it guarantees the authenticity of an object for the purchaser while not ensuring its uniqueness or scarcity. This technology is the latest hype magnet in tech; it is the enabling technology for a piece of digital art that sold at auction last week for $69 million. I’m talking, of course, about non-fungible tokens (NFTs): records stored on blockchains that link purchases to the identities of purchasers.

What do NFTs do that DRM doesn’t do? Not much. To me, the only interesting thing is that NFT schemes make public the identities of people who paid money for the NFTs that point to digital objects so that those people have help from the NFT platform in exercising bragging rights. DRM technologies generally don’t do this, though they certainly could.

Notice that in the previous paragraph I used the unwieldy phrase “paid money for the NFTs that point to digital objects” instead of the more straightforward “bought the digital objects.” That’s because NFTs, like many DRM schemes, create digital simulacra of ownership of creative works; and just like DRMs, NFTs fall short of emulating true ownership. Ownership implies scarcity; both NFTs and DRMs are attempts to impose scarcity on a technological world that resists it strenuously.

The winner of that auction at Christie’s last week, who goes by the pseudonym Metakovan, no more owns that pile of bits by the digital artist Beeple than I own the ebooks that I got from Amazon. I can read the ebooks on my laptop and my phone (and my Kindle reader, if I could find it in my closet), but I couldn’t read them on a Nook or Kobo (if I had either). I can’t resell, give away, or rent them; even if I were to hack the DRM, I’d be violating Amazon’s terms of service.

Metakovan can view the Beeple artwork on any device that will display JPEGs. But in a sense, he can’t alienate the work either, because it’s already available to everyone in exactly the same format as it is to him. He can’t lend or rent the NFT, because the NFT platform doesn’t support those operations (though it could). He can resell the NFT, but then he doesn’t get to keep all the revenue from the resale–commissions go back to both the artist and the NFT platform and/or auction house. (Resale royalties to artists for physical art objects are mandated by law in many countries, but not in the U.S.) It’s not clear whether he can give the NFT away (i.e., resell it for $0) or leave it to his children to inherit.

In neither the NFT nor DRM cases do buyers get the same bundle of rights that are guaranteed for a physical object in copyright law. In both cases a single private entity controls and benefits from the process in perpetuity, whereas no private entity is involved–or is even allowed by law to be involved–after someone purchases a physical copyrighted work.

There have also been integrations of NFTs with DRM. We’ve discussed a couple of them here: ebook schemes that use DRM along with NFTs for identification of ownership. This is essentially the same as a traditional DRM scheme, except that the transaction records and identifiers sit on a blockchain instead of in some vendor’s private database. These schemes support alienation (resale, giveaway, loan), but standard DRM schemes could do this too; for example, Amazon’s Kindle supports e-loans in limited circumstances, and both Adobe’s DRM and Readium LCP support library e-lending. Because blockchains are inherently ownerless, some of these providers have touted the prospect that blockchain-enabled ebook markets can be vendor-independent; so far nobody has figured out how to make the DRM part vendor-independent (although this may be possible with Readium LCP DRM).

It’s useful to speculate on the future of NFTs for content by looking at the trajectory of DRM since it first appeared. DRM still exists for ebooks in most places and for commercial TV shows and movies. It was tried and rejected for music downloads, but it’s still used for streaming music services. DRM was never used for digital art, mainly because digital art didn’t really exist during the era of DRM’s original technological development; it was never really used for images at all.

To the extent that NFTs for content make sense at all, they only do so for types of content that are unique objects–paintings, drawings, sculptures–or nearly unique objects–signed and numbered photographs or lithographs. This has to do with consumer expectations. Digital art, unlike digital music or video, imports consumer expectations from the physical world, and those expectations include uniqueness or near-uniqueness.

In contrast, the idea of an NFT for an article or song seems silly. The most prominent example of the latter, from the rock band Kings of Leon, is only plausible because it’s also tied to physical items like concert seats and limited-edition vinyl. On the other hand, an NFT for a piece of art is very much like a provenance record; it’s equally applicable to digital and physical artworks. Auction houses like Christie’s have always kept provenance records; blockchains are a convenient way to do this that didn’t exist until recently.

Yet consumer expectations change over time. Music is a good example of this. Streaming music services eschew music ownership entirely. Streaming was a niche curiosity in the early 2000s, but now–according to annual industry revenue numbers that the RIAA released last month–it accounts for over 80% of industry revenue, and the vast bulk of that comes from interactive services like Spotify that let users choose whatever they want to listen to. The only other segment of the music industry that’s growing is vinyl, which experienced an impressive 23% growth last year. In other words: after many years of being offered ersatz ownership of digital music via downloads, consumers have decided that they don’t care about ownership when it comes to digital music, and if they want to really own music, they’ll buy vinyl instead of MP3s (even DRM-free ones).

There’s a risk that the same kind of thing will happen to digital art. There are many ways that the NFT bubble can deflate; here are just a few I can think of. Some artists will decide to try emulating signed and numbered photographs/lithographs by selling multiple NFTs for single works of art; this will inevitably backfire if they get too greedy and the number gets too high, i.e., more like traditional DRM where the number is unlimited in “sales” situations. (Notably, U.S. law recognizes 200 as the maximum number of copies a visual work can have and be “limited edition.”) NFT bragging rights will become less meaningful if there are millions of NFTs in general floating around. And then there’s the potential for undermining the original alleged purposes of NFTs, when third parties try to create “counterfeit” (or “pirate”?) NFTs for objects that already have them, are owned by someone else, or are in the public domain. (Policing this would be similar to policing unauthorized uploads on a content-sharing site like YouTube; perhaps a subject for another day.)

Ultimately, what NFTs and DRMs have in common, and in common with countless other technologies, is that both will find their niches after lots of hype, experimentation, and backlash. Yet there is one huge difference: DRMs only generated interest among copyright owners, not consumers, while NFTs have generated massive consumer hype. And hype is what’s driving the mania for NFTs right now. There’s no better evidence of this than the fact that Metakovan runs an NFT investment fund and benefits directly from all that hype. He invested his $69 million not so much in a visual artwork as in publicity for NFTs. And at least in the near term, his investment certainly paid off.

(c) Bill Rosenblatt (IPEG Consultant), this article was first published by Copyright and Technology