In theory, almost any creative work can be tokenized or made into an NFT. However, this always brings out intellectual property (IP) rights concerns. If you sell the NFT, does the person who bought it get IP rights as well? Are these two things even connected?
In this piece, we’ll aim to elaborate on that, but more importantly, we’ll explain why renting out NFTs can be a better choice than selling them.
Relationship Between NFTs and Intellectual Property Rights
For those unfamiliar with it, an NFT is a unit of value or token based on blockchain. Each NFT has a unique ID connected to the asset the NFT covers.
An NFT contains software code in the form of a smart contract, which includes:
- Details on the asset the NFT governs, be it a physical or digital one
- Rules and rights connected to the NFT
Any NFT can have value because it’s non-fungible, which means it's unique and cannot be replaced or duplicated.
Even though the NFT represents a specific asset, that doesn’t mean it holds IP rights. The NFT seller keeps those, as they have to be signed over in writing. Most sellers only trade NFTs, and that’s it. This means that the new owner only gets to keep the NFT, transfer it to someone else, or even sell it. However, they cannot do something that would violate the original owner’s copyright.
For instance, if the NFT is a piece of writing or a picture, the new NFT owner can’t print it out and put it on a shirt. In other words, you get the NFT but not IP rights to the underlying asset. However, if the seller explicitly transfers the IP rights, then the new holder will become the actual owner of the IP rights to the asset itself.
Digital Arms, a platform with a large NFT marketplace for digital firearms and accessories, actually hosts exclusive IP rights to the leading firearm brands of the world. The platform thus simplifies IP rights management in the NFT world and is one of the best online marketplaces for digital firearm enthusiasts.
The IP rights never go together automatically because NFTs are still not adequately regulated by laws in every specific jurisdiction. However, platforms like Digital Arms facilitate that process. It’s worth mentioning that these rules might change in the future if governments decide to regulate the market, so it’s important to revisit all of this when the time comes.
Renting Out NFTs
The lack of regulation is often a hurdle for NFT sellers and buyers. However, the versatility of the underlying technology allows NFT owners great flexibility. For instance, if you have created an NFT, you don’t have to sell it to make a profit. You can also rent it out, which is potentially even more lucrative.
The benefits of smart contracts are that you can encode almost anything in them. You can effectively choose a rental price, collateral price, and even the rental duration period. In other words, you can rent out your NFT for a price and within a specific timeframe. That way, you can earn from it and then regain ownership. Then you can repeat the same process many times over.
This is incredibly beneficial not only for NFT owners but also for those interested in them. If they live in low-income countries or simply lack the funds necessary to buy an NFT they want, getting it for a specific period is the next best thing.
Naturally, even in these cases, IP rights cannot be transferred automatically, so the owner cannot lose ownership of them. However, as the NFT world is still highly unregulated, every NFT owner and buyer has to be careful with setting precise terms in the code of the NFT beforehand. Then every side has to agree to the underlying conditions before making the actual trade.