Ever since the digital artist Beeple sold a non-fungible token (NFT) of his work for $69 million dollars, there’s been a furious excitement surrounding NFTs. Some have called it a revolutionary way to buy, sell, and collect art while others have called it a fad, a scam, or worse.

The truth is, it’s too early to tell what the economic, technological, and societal impacts of NFTs will be until the hype dies down. And I’m far from an expert so I don’t think my input on that front is helpful. I’m more interested in the legal impacts of NFTs anyway. And while it’s still early days, there are a few key ways that NFTs interact with copyright law that impact artists. But before I get into that, I want to lay some groundwork for understanding copyright. Here’s where I’ll start:

Ownership over a piece of artwork does not necessarily imply ownership of the underlying rights to the work.

Let’s say I’m hired to paint a family portrait. The family sits for me, I paint their likenesses, they are happy with the work and pay me for it. Upon payment, I have the painting shipped from my studio to their house where they hang it in their foyer. They now own the physical painting, but that doesn’t mean they own the copyright to the painting. In U.S. copyright law, the rights to a work exist apart from its physical or digital existence (there’s no legal distinction between physical and digital works of art - they all carry the same legal protections). In fact, depending on the circumstances of the art sale, the rights to the work may very well stay with the copyright holder.

And what are those rights? Under the Copyright Act, all works of art come with a “basket of rights” - which we call copyright - including the right to reproduce and distribute the work, make derivatives, and perform or display it publicly.

In practice, this means that although the family now owns the physical portrait I painted, they can’t exercise any of these rights. Only the copyright holder (me, in this case) can exploit further use of the image. Maybe I print it on T-shirts and sell them, maybe I write a novel based on the portrait, maybe I sell it as an NFT. You get the idea. If the family tried to exploit the painting in the same way, that would be copyright infringement and I could theoretically sue them in federal court.

So where do NFTs come in? At its most basic level, an NFT is a digital certificate that represents ownership of a digital asset, usually a piece of art, though it can be anything: a tweet, a video, a GIF… there’s even talk of literary NFTs now. Some detractors argue that owning an NFT is basically the same as downloading a JPG, but that isn’t quite right since an NFT does convey some ownership over the work, and contains theoretical, if not actual, monetary value due to its scarcity. But that’s pretty much all an NFT gives you because…

1) NFTs do not convey ownership to the underlying rights in the work.

An NFT is not a copyright nor is it a replacement for a copyright. A copyright can only be conveyed, sold, or gifted via contract. So unless the copyright holder explicitly conveys the copyright to the buyer - either through the NFT sale itself or in a separate transaction - the buyer does not gain the ability to exploit the work or exercise any of the rights discussed above. In that way, buying an NFT is similar to the family portrait example I used above (the buyer can own the thing, but not the rights to the thing) except that the transaction is entirely digital and uses cryptocurrency technology to undergird it. You’re buying the digital manifestation of the work to collect and own. You can also lend or resell the NFT itself, but you don’t get anything else.

2) NFTs may or may not be derivative works.

Are NFTs derivative works? It’s an open question because the platform is still so new and these issues haven’t been litigated. A derivative work is defined in Section 101 of the U.S. Copyright Act as "a work based upon one or more preexisting works" such as an "art reproduction … or any other form in which a work may be recast, transformed, or adapted.” Making derivative works is one of those exclusive rights granted only to the copyright holder, which means that only the copyright holder can authorize the creation of NFTs. On the one hand, it makes sense that an NFT would qualify as a derivative work because it is, in very substantive ways, based on the original work. On the other hand, it’s an unsettled question whether the NFT itself contains sufficient creative authorship to qualify as a derivative.

3) NFTs are prime targets for fraud and counterfeiting.

Regardless of whether NFTs are derivative works, there’s widespread concern that the unregulated nature of NFTs and cryptocurrency are leading to bad actors who will profit off the system by offering artists’ work as NFTs without the artists permission. In other words, creating digital counterfeits of the original. This is already starting to happen and could become a massive headache for artists if no enforcement mechanisms are enacted. What this means for now is that artists will have to monitor these platforms themselves for potential copyright infringement.

4) Artists are still bound by current copyright laws.

Despite the fanfare and high hopes for supporters of the platform, NFTs don’t somehow change copyright law or skirt around it. The law is still the law and NFT sales are still subject to the same rules as every other transaction. If you’re an artist, you have to ensure that your work doesn’t infringe others’ before you list your NFT for sale, or else you could find yourself a defendant in a copyright lawsuit. If you want to use the work of another in your own work that you plan to sell as an NFT, you have to get permission.

Right now, everything is messy, and if NFTs are here to stay, the only solution to address this messiness is for congress to update the laws surrounding digital transactions and copyright. Given the gridlock congress always finds themselves in, I’m skeptical that we’ll see any meaningful change in the laws. So tread carefully. Know your rights as both an artist and a collector. And don’t let the excitement over quick and potentially exorbitant profits blind you to your legal obligations.