NFT Marketplace

Subscribe to NFT Marketplace

As discussed in Part I of this series, Ordinals are a pioneering new method of utilizing the Bitcoin blockchain that will usher in new and innovative use cases on Bitcoin. As promised, in Part II we will discuss the implications for creators and owners.

Implications of Ordinal NFTs for Creators and Owners

As with most crypto innovation, capable users quickly flocked to the shiny new object. Copies of popular Ethereum NFT projects began appearing on the Bitcoin blockchain after the Ordinals launch. For example, a clone of CryptoPunks, named Ordinal Punks, popped up and is reportedly gaining traction. Further, the owner of Bored Ape Yacht Club (“BAYC”) #1626 permanently removed the NFT from its spot as one of the most valuable in the space by “burning” it, then inscribing the NFT on Bitcoin using Ordinals.  While the owner of BAYC #1626 effectively deleted – or symbolically transferred – the NFT, it appears that some NFT creators are not purists and are willing to experiment on Bitcoin. For example, Yuga Labs, the creator behind the Bored Ape Yacht Club Ethereum-based NFT phenomenon, announced that it would release a NFT project called TwelveFold on the Bitcoin blockchain.

In our December article we asked: what do hard forks mean for my NFTs? In this article we ask a similar question: how does a copy of an NFT on completely different chain (Bitcoin, not Ethereum), affect value and licenses?

A number of questions arise. Does the holder of the copycat Ordinal on Bitcoin require a license corresponding to the Ethereum NFT? What happens to the Ethereum NFT purchaser’s rights granted to it under the license, which may or may not include a commercial right to exploit and sublicense? Does an Ordinal inscription of an Ethereum NFT fall under a purchaser’s general non-commercial use and public display rights that are generally given to purchasers on NFT marketplaces? Does the original Ethereum NFT holder hold one set of rights and the holder of the copycat on Ordinals possess any rights that may be in conflict with the original NFT holder’s? Generally speaking, would the value of the NFT be affected if two identical copies exist on two different blockchains? Does the NFT owner or project have a say in which blockchain to recognize? Has any IP infringement occurred?

In late October, a New York district court refused to dismiss the Department of Justice’s (DOJ) indictment against defendant Nathaniel Chastain, who was charged with wire fraud and money laundering relating to his using insider knowledge to purchase non-fungible tokens (NFTs) prior to them being featured on OpenSea, an online NFT marketplace, and later selling them at a profit. (U.S. v. Chastain, No. 22-cr-305 (S.D.N.Y. Oct. 21, 2022)). Despite the headlines and the fact that the DOJ’s press release labeled this enforcement as charges brought in “the first ever digital asset insider trading scheme,” the Chastain indictment was not actually based on the typical insider trading statutes involving securities law violations, but instead the federal wire fraud statute.  Indeed, despite having an insider trading flavor, the word “security” does not appear in the indictment and the court, in refusing to dismiss the DOJ’s wire fraud claim, ruled that the Government’s wire fraud claim does not require the presence of a “security.”

Minters of collectible non-fungible tokens (NFTs) have taken a wide range of approaches. In addition to variations in the means of distribution, token standards, governing smart contracts and platforms on which initial sales or transfers are made, the terms, conditions and content licenses (or lack thereof) under which users take possession of an NFT often differ from project to project. The recent delisting by OpenSea of the original (or “v1”) version of the popular “CryptoPunks” NFT art collection in light of a takedown notice issued pursuant to the Digital Millennium Copyright Act (DMCA) by the collection’s creator, Larva Labs, and the ensuing DMCA counter-notification by v1 owners, illustrates some of the challenges that can result from the absence of clear written legal terms governing an NFT distribution.