PFP, Art, and Sharing

Hi everyone, this is Charles Hoskinson broadcasting live from warm, sunny Colorado. Today is January 3rd, 2023, a special day because it is Bitcoin's birthday. Happy birthday, Bitcoin! Fourteen years old and always finds a way to be new, despite getting long in the tooth. As technologies go, Bitcoin has changed the world faster than anything else in the history of humanity, and I’m really proud to have been part of that initial movement.

I’m proud to be in this industry, and I think our best days are ahead of us. I wanted to make a quick video. Can you guys hear me? Let’s do a sound check real quick. Yeah, it looks good.

Alright, audio is good. I want to talk a little bit about PFPs and art sharing. Somebody tweeted at me a picture based on me that was turned into an NFT by a particular project. I liked it, so I grabbed the picture and put it as my profile picture on both Facebook and Twitter. I do this from time to time for various artists in the NFT community.

The reason being is that it creates a lot of notoriety. Many of these artists are smaller shops, and to have a million people see their work—since I have a million followers on Twitter and about 300,000 subscribers on YouTube—is great exposure, especially within that community. Now, there was an auction for that particular NFT, and it sold for about 10,000 ADA, so it really worked well for the artist. However, some people are complaining that I’ve stolen or misappropriated the artwork, which brings up a broader question about the right-click phenomenon with NFTs. I wanted to discuss this a little because it raises an important point that we need to think about.

When you buy an NFT, it’s not always clear what you’re buying. I have artwork all across my office—Samurai armor, masks, wood carvings, and paintings. Whether it’s a copy or an original, it’s clear that it’s a physical object that I own, and I have the right to resell it at any time without any royalty tail or similar stipulations. When you buy an NFT, you don’t necessarily own the intellectual property associated with the image. You own a digitalized object that is embedded in a blockchain.

This is a problem. First off, my likeness is being used without my permission. I don’t mind; I’m a big Creative Commons guy and an open-source advocate. For example, all these live streams are released under a Creative Commons license, allowing people to take them with attribution, commercial or otherwise, as long as they don’t misrepresent my words. Many people in the NFT community love me or Cardano and want to pay respect or homage to the things we’ve done, so they incorporate me into their artwork.

That’s fine; it’s expression. However, the problem arises when it’s unclear what the intellectual property rights are when they turn it into an NFT and sell it. What are the implied rights and contracts involved? For instance, if you buy a limited edition NFT, one of one, what happens if the artist decides to make another one? Even if well-intended, that’s a one-of-one limited edition sold for 10,000 ADA.

What if the artist creates another one and gives it to me? Is that a problem? I don’t know. Does the artist have the legal right to do that? What’s the contract between the NFT seller and the NFT buyer?

This is a very interesting topic that is understudied and underappreciated. We need to sort some things out as part of the standards process. When generating an NFT, we should also generate a checklist of rights and usage. This doesn’t have to be thought about by the NFT issuer but could be similar to a Creative Commons license. There should be a notion of NFT usage that outlines what rights you have, resale capabilities, and embedded royalties.

In many cases, you don’t actually own the original IP associated with the artwork. For example, if a photographer takes pictures of you, many photographers have standardized contracts where you have unlimited royalty-free commercial and non-commercial use of the pictures, but the original picture actually belongs to the photographer. It’s very much the same with many artists; when you commission art, the artist retains the IP even if you pay them to create it for you. We really need to dig into what exactly you are buying and embed those contractual relationships into the NFT. This is where NFTs touch real finance.

I talk a lot about DeFi versus real finance. Real finance involves standards, certification, identity, governance, metadata, and regulation—how it embeds itself in existing laws. A real finance NFT is one that has some notion of metadata, including information about the creator and terms of service. Think about governance: what are you allowed to do with it, and what aren’t you allowed to do? The royalty structure and what you actually own are critical.

It would be beneficial if these standards were honored and appreciated by smart contracts across multiple systems—not just Solana, Algorand, Cardano, or Ethereum, but a ubiquitous multi-blockchain standard that ensures durability and interoperability. When we talk about certification, claims embedded within the NFT must be verified or validated by third-party firms. For example, if we say that this NFT belongs to person XYZ, the issuer must have the legal authority to honor the commitments and claims made inside the NFT. Consider the scenario where someone creates a bunch of NFTs affiliated with a famous artist, like Snoop Dogg or Ice-T. Do they have the legal right to create a linkage between themselves and that artist?

Just like people who create a linkage between themselves and me when they create NFTs of me, I don’t mind. I think it’s great for a healthy ecosystem that people can express themselves positively or negatively through NFTs. Certification is basically a verification of those associations. Identity is crucial: how do that this NFT belonged to Charles, Bob, Jane, or Jim? Who is the owner, and how can they prove it?

This is where decentralized identifiers come into play. Finally, there’s regulation—what do you do when you have to litigate? Will a court understand this, and will it be legitimate and lawful? It’s an interesting concept. One of the things we have to figure out as an industry is how to bridge the NFT space from DeFi to real finance.

We need to create templates so that artists don’t have to be lawyers or business professionals. They should be able to pick and choose different aspects, and we litigate it to a point where we know it has legal agency. Whatever those things are decided can then propagate through the system. If there’s a dispute, there should be a way of resolving it. This is the grown-up part of NFTs.

When we move away from art and into the business of it, I believe this will be the big differentiator between successful NFT projects and those that are fly-by-night. Another closely related issue is the concept of "rug pulls" in NFTs. There’s an express warranty or implication about the support of a project. Right now, for most NFT projects, it’s quite implicit—meaning most people don’t write it down. For example, if you buy an NFT from your favorite project, does that mean the core team will support it indefinitely?

If they don’t, when does it become a rug pull—after six months, a year, 18 months, 24 months? That’s an interesting question, and it relates to governance, which should be made somewhat explicit. Additionally, every time an NFT changes hands, there should be a way of putting a royalty tail in place. This is something that needs to be reflected as a SIP in Cardano. What’s cool about the royalty tail idea is that, in addition to going to the artist and other factions, it could potentially go into a decentralized treasury to maintain the NFT collection—think of it a curation fee.

These are just some thoughts and ideas. Every now and then, when I see the community discussing something, I want to make a quick video to say, "Hey, by the way, there’s actually a lot more nuance to this story." It goes beyond someone right-clicking a picture because it turns out our beliefs on this are very different. Who’s right? We don’t know because there’s nothing to clarify it on the blockchain.

If the blockchain is going to be the source of truth, we need to establish standards that are objective, transparent, and transferable. It’s really cool that we’re able to have this conversation and, in real-time, invent a brand new type of industry that everyone can benefit from. Generally speaking, if Microsoft hires a bunch of lawyers and accountants to help navigate its business model, very rarely does IBM, Google, or Apple get to use that. In our industry, it’s the opposite. Once one project has done something, it’s usually in the open domain, and we all benefit from it.

We call this the "Smart Cow effect." As we solve these problems, they will become industry standards and templates. This is an area where I think the CNFT community can really innovate and lead the industry. We’re already in the top three or top five for volume and value. If we want to reach number one, we need to put together a cohesive framework that can be accepted across blockchains.

This dialogue with other NFT projects can help us achieve something quickly, creating something with enough legal agency and durability that it’s understandable by the dense intellectual property businesses in the music, art, and entertainment industries. Because of this bridge, those industries will have a low-friction time coming into our space. If we’re the first movers, I believe there will be a lot of adoption from that. I hope this video was helpful for some people, clarified a few things, and discussed the transition from DeFi to real finance. It’s been a great new year so far, and I think 2023 is going to be a wonderful year for us all.

Thanks for listening, and happy birthday again to Bitcoin!