What You Should Know About DFTs: Three Key Considerations for Businesses | Vinson & Elkins LLP
âIf you are a business, you need to think about ways to take advantage of NFTs. “
What do fast food, art and sport have in common? In recent years, companies in each of these industries have adopted a technology known as non-fungible tokens, or NFTs.
An NFT is a unique digital asset that represents the ownership of a limited instance of a piece of content authenticated through blockchain technology.
âNFTs are essentially smart contracts,â said Devika Kornbacher, V&E Technology Transactions and Intellectual Property Partner.
Content related to NFTs is also generally digital. Many of the most famous NFTs are associated with digital works of art, but NFTs also provide unprecedented opportunities for businesses outside of the arts, Kornbacher explained.
âIf you are a business, you need to think about ways to take advantage of NFTs,â she said. âIf business leaders think long and hard enough, they can probably identify a way to leverage NFTs to monetize content they couldn’t monetize before. And businesses that don’t think that way will fall behind.
An example of businesses monetizing content through NFTs is the NBA Top Shot: virtual collectible cards sold as NFTs on an e-commerce site. Kornbacher, herself a basketball fan, owns a few Top Shot Moments âpacksâ. Each virtual pack includes a set of NFT, the NBA’s virtual answer to traditional sports collectible card packs.
Each NFT “card” is a virtual cube that includes a player’s photo and an exciting video clip of an NBA game. To date, more than half a million people own Top Shot Moments, according to the NBA’s Top Shot website.
âThe NBA is at the cutting edge of technology,â Kornbacher said. âI probably wouldn’t buy an NBA music video that I’ve seen on YouTube, but the packaging of that content, these NFTs, makes it appealing and makes it work. Even though everything is electronic, it intentionally gives you the feeling of a physical, tangible object that you own.
What NFT Top Shots also have in common with traditional collectible cards is that various cards are relatively rare, making them a popular commodity for collectors. Rarity is one of the keys to success in selling NFT, Kornbacher said.
âWhenever you have demand and shortage, you can make money,â she said.
In addition to the NBA, other notable entrants in the NFT space include Taco Bell, which sold taco-themed GIFs as NFT, and IBM, which earlier this year announced plans to stockpile. patents as NFT to facilitate trade and sale.
As companies explore their own forays into the world of NFTs, there are a few things to keep in mind:
Choose your market place wisely
Companies can create their own NFT markets like the NBA has done, or they can choose to participate in independent markets. It is essential, said Kornbacher, to ensure that the market is well managed and has gained the trust of its buyers and sellers. (Marketplace that accidentally host crooks can shake their users’ trust; see the next section.) Once a marketplace has gained a respected reputation, online communities tend to spring up alongside it. Community members often trade NFTs with each other after buying them in the market, thus creating a secondary market.
NFT authentication is automatic but not foolproof
Since the provenance of NFTs is stored in the public blockchain, buyers and sellers of NFTs do not need to invest in expensive authentication techniques (as an oil painting dealer might have to do. , for example). However, there is a risk of fraud, depending on who created the NFT related to the content in question. In several cases, crooks have posed as artists, uploaded the artists’ (actual) work to an online marketplace and sold it for a profit, excluding the original creators from the deal, according to TheVerge.com. To avoid dealing with an NFT scammer, Kornbacher recommends that buyers âspend time verifying that NFT properties are listed and that the NFT seller is who they claim to be. Look for fake NFT sites that masquerade as legitimate markets like OpenSea. If the price seems too good to be true, it is probably a scam. Only use marketplaces that you know are managed or used by content creators. “
Pay attention to NFT patents
Creating an NFT for a piece of content can be a relatively straightforward endeavor, but it doesn’t always have to be. In 2019, Nike made headlines for its patent for a specific system for creating virtual shoes attached to NFTs. Nike has yet to market a virtual shoe NFT, according to the Wall Street Journal. But his patent, in theory, could create headaches for other shoemakers looking to create a system similar to “Cyrptokicks”.
âMore companies could apply for patents on ways to take advantage of NFTs or create tokens,â Kornbacher said. “Although software patents are not as easy to obtain as they used to be, the fact that NFTs are inherently digital could result in more patents being granted in space, creating future ‘patent wars’ similar to wars in the world. smartphones of the past decade. . “
While the future of NFT-related patents remains uncertain, Kornbacher said it’s clear that unlike other trending tech trends, NFTs are more than a fad.
“The problems that non-fungible tokens solve and the monetization opportunities they present make me believe that they are here for the long haul,” she said.