If you are following our NFT self-experiment, you already know
what an NFT is and what it stands for. To recap (and add some
technical perspective), an NFT is a unique assignment of a specific
number and further data, such as an artwork or a link thereto, to
an owner (or their public key) in the blockchain. It is unalterable
and unchangeably stored on the blockchain. For the NFT to be
transferable and to be able to provide information on the current
owner of the NFT, the assignment must be managed by a program that
creates – or “mints” – the
token. For this we need a “smart
What is a smart contract?
A smart contract is not a contract
in the legal sense, but a program that runs on the blockchain.
Smart contracts have two essential characteristics: they can
receive and send transactions, and they are unalterable.
A smart contract basically runs in its own wallet on the
blockchain. It has its own private/public key pair and can provide,
read and store data. Interactions with a smart contract take place
via transactions with the wallet of the smart contract. These
transactions contain corresponding commands that are
“understood” by the smart contract. The specific number
of a token, the address of the assigned owner of the token and
other data of the token or the smart contract are saved in the
“storage space” of the smart contract. For a smart
contract to be “fit” to be used to create an NFT, the
smart contract’s code must support specific functions (and
“fit” in the respective blockchain where it will be
used). For the Ethereum blockchain, a unified standard for NFTs is
precisely defined under “ERC-721.6”.
The standard enables a reliable and uniform communication with the
program / smart contract so it is clear how an individual or the
NFT platform/blockchain can interact with the NFT.
Of course, someone with the requisite skills could program a
smart contract entirely by themselves, which when using the
Ethereum blockchain follows the ERC-721.6 standard.
An alternative, however, is to use one of the many existing
templates of smart contracts that are freely available and
accessible to be used in online libraries under open source
licences and add some individual data/codes, such as the name of
the token, functions of transactions and potentially a link to the
artwork that is assigned to the token.
Legally speaking, the smart contract might be copyright
From a legal perspective, questions have arisen: As with any
other software, it cannot be ruled out that a smart contract as a
program is sufficiently individual to be protected by copyright.
This does not change fundamentally even if the software is offered
publicly for free use under an open source licence. But what do the
licence conditions for the open source products contain? Do they
sufficiently cover the intended use? These are only rhetorical
questions at this point, because the conditions under which open
source software is offered for free use are quite different. So
here is just a cautionary note. The answers will depend on which
product the user ultimately chooses.
Using an existing smart contract
Still, both options (full and partial programming) have one
– in our view and for our self-experiment – significant
disadvantage: the entire source code of the smart contract would
have to be stored in the blockchain. Storing this amount of data
would incur considerable costs and consumer a lot of power, making
it neither cost-efficient nor environmental friendly. A third
option is to use an existing smart contract. Some providers allow
minting of new tokens via an online form.
For our NFT self-experiment, we chose to use an existing smart
contract, specifically one from Rarible, as it was easily
accessible by our wallet, also uses IPFS (more about that below),
follows the ERC-721.6-standard, and is simple to use. Again,
general terms and conditions had to be accepted. We checked them
especially with regard to whether the use of this software would
grant any rights to the work of art to be uploaded. That was not
the case here. Nor did the typically extensive General Terms and
Conditions contain any unexpected special provisions. It is pointed
out very clearly that the sole responsibility for the “unique
Collectible” created with the help of the tools offered lies
with the user who uploads the “Collectible” (“There
can be no guarantee or assurance of the uniqueness, originality or
quality of any Collectible or Collectible Metadata.”). That
seems perfectly fair. And of course, an artist who transforms his
artwork into an NFT or links it to an NFT with the help of such
services must take responsibility for not infringing any
Nevertheless, we became aware of a particular legal aspect of
this new distribution method.
The danger of misleading advertising
If an artist offers an oil painting in a gallery and the gallery
owner physically hands over the artwork to the buyer, there is no
doubt about what the object of purchase is. Even in the case of
online purchases of an original oil painting – at an auction,
for example – the usual illustration and description of the
work in the printed or online auction catalogue makes it clear what
is being sold. But is this also clear if an NFT was offered for
sale as a “Collectible”? Does the buyer then know exactly
what they are getting? Doubts could arise here, and it may be
assumed that newcomers will not have a clear picture. Some may
equate the NFT with the work of art. They might be disappointed
when they discover afterwards that the NFT only contains a link to
a work that can be downloaded digitally somewhere, but they neither
receive the file (in high resolution) nor a printout, and certainly
no licence to use it. There is definitely a risk of misleading
advertising here. This could also consist in the omission of the
required clarification. The legal consequences of such unfair
behaviour, including claims for injunctive relief, damages, etc.
are evident. It is therefore up to the seller to clearly describe
the content of the NFT in order to avoid misleading the buyer. This
should also be kept in mind when promoting NFT sales outside of the
platform. This obligation is particularly relevant with the
emergence of this new technology, because it must be expected that
the average consumer will have little concrete knowledge about it
and therefore a high need for information in order to avoid
purchase-relevant misleading statements.
What data is packed in a freshly minted NFT?
In principle, it is possible to include an entire data set of an
artwork (i.e. the GIF in our case) in an NFT and thus into the
blockchain. Still, in view of the high energy consumption and
transactional costs, for our self-experiment we decided to limit
the data in our NFT to a minimum.
Besides the owner’s address and the token ID, only a link
(more precisely in our self-experiment a URI)
to the actual artwork is stored. In this link, which contains
the metadata of our NFT, we further included
the name of the artwork, added a link to where the artwork is
stored (instead of a description) and formulated as a short licence
URI, hash – who?
Our aim was for the NFT to remain unambiguously assignable and
permanently linked to the artwork and the associated data. The
solution was to have a hash value (a
unique and reproducible alphanumeric value from a specific data
set) calculated from the artwork. If the algorithm used is known,
anyone can check whether a particular work of art is assigned to
the respective token holder, as long as the hash value is stored in
the blockchain. The Interplanetary File
System (IPFS; a worldwide peer-to-peer network for
decentrally storing public files) calls up / reaches data not under
their storage location, but under its hash value, such as the link
to our artwork and associated data. The hash value forms
our URI. This has some advantages:
- the link to the metadata (including the artwork) is uniquely
identified as a hash value (URI);
- if the file should ever be deleted from the IPFS (this usually
does not happen arbitrarily, but whenever a file is unused for a
long time), you can always reload the same data in IPFS and the
link becomes retrievable again (because the hash value of this data
- the hash value that is noted/secured in the NFT can prove a
data record (in our self-experiment, the data record of a specific
work of art and that it’s linked to the NFT).
This may be especially relevant if the owner of the NFT also
owns the digital work of art or as a way to prove that the digital
art was in fact created by the named “artist”.
Voilà, our NFT was created – or freshly
minted, as the NFT pros would say!
By using an existing smart contract and inserting a bit of data
about our artwork, we found what we thought was the best way to
store the artwork and its associated metadata and identify it in
the NFT – as a URI. No serious legal hurdles or uncertainties
have arisen at this stage of the self-experiment. However, in the
case of a new type of product, such as art-related NFTs, and new
distribution channels, such as the offer of art-related NFTs via
online platforms, it is important to inform the customer exactly
what they are getting for their money. A clear description of the
NFT and its content is necessary to avoid claims of misleading
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.