NFTs for Data
Data NFTs allow for more power & flexibility in managing & selling data
I asked one of the brightest minds at the intersection of artificial intelligence and blockchain Trent McConaghy, from Ocean Protocol; what really is the purpose of Data NFTs? After having mischaracterised them for tools to enable data owners to unlock multiple revenue streams. It turns out; “The main idea of Data NFTs is more to explicitly represent base IP (e.g. copyright) which allows for more power & flexibility in managing & selling data”. This addresses the fundamental issue of ambiguous legal documents, that back copyright, that are not generally interpretable[4]. With the help of NFTs and blockchain technology, copyright can be represented transparently on an irrefutable public ledger, unambiguously. Thus, the process of transferring ownership and rights is highly lubricated; cutting immense legal and transfer costs and the middleman altogether. This post will focus solely on intellectual property in the context of copyright, and particularly in data ownership and the transfer thereof.
I thought this would be important as data becomes more democratised and ubiquitous, as a result of the proliferation of public data marketplaces like Ocean Market.
Fungible and Non-Fungible Tokens (NFTs)
Fungible tokens, like cryptocurrencies that we are accustomed to on the Ethereum blockchain, follow the ERC-20 token standard. Meaning tokens of the same smart contract are interchangeable. Let us use the dollar as an example. Any 1 dollar note is exactly the same as the next 1 dollar note. It does not matter where you got that dollar from, it is homogeneous. You can think of apples of the same tree, you could probably trade one for another of a the same tree — granted they don’t vary fundamentally.
Non-fungible tokens, on the other hand, follow the ERC-721 token standard. This token is different to another from the same smart contract. NFTs are used to identify something or someone in a unique way. According to ethereum.org, this type of token is perfect to be used on platforms that offer collectible items, access keys, lottery tickets, numbered seats for concerts and sports matches, etc. Tokens of this standard are basically great candidates to represent a one-of-a-kind item. It cannot be identified by any other than itself.
The blockchain game, Cryptokitties, ushered in NFTs into the mainstream in 2017. This decentralised application (dapp) allows players to purchase, collect, breed and sell virtual cats. A cryptokitty can have unique attributes; from colour, family history, to even genetic makeup. Because of their non-fungible characteristic, security, immutability and transparent nature, as enforced by the ethereum blockchain, NFTs make for great candidates to represent ownership of a specific ‘bundle of rights’.
Base Intellectual Property (IP) and Sub-licenses
Let us consider an artist who has made a painting. Initially, the artist has full ownership or copyright to the painting[3]. Until said painting is sold to a collector, who in turn claims all ownership of the copyright. The copyright to the painting is its base IP. I would relate this to data sold to a public market: when a data owner publishes a dataset, say on Ocean Market, they immediately assume copyright over their intellectual property, granted it is rightfully theirs.
Now let us consider an author of a book[3]. The author owns all claims to the copyright of the book, he then exclusively licenses the base IP to a particular publisher. The exclusive license earns the publisher the right to sell and profit from the books. The publisher then distributes virtual copies (eBooks) of the hard copy, all copies of which have a different fungible sub-license to the base IP[3]. Meaning all sub-licenses are the same and entail the same set of rules on how the books can and cannot be used by the consumer of the eBook.
Data NFTs
The underlying idea is to tokenise base IP and its sub-licenses thereby representing them more explicitly in ‘dry code’. Rather than conventional human-readable ‘wet code’, such as lengthy legal documents that can be interpreted differently depending on who you are in the legal process[4]. Bitcoin introduced a ‘dry-code’ machine-readable approach to electronic money, enabled by blockchain. In the real-world, ownership of assets is defined through access control (if you hold it, you own it), it is no different to digital assets, as made possible by Bitcoin[1]. Data NFTs combine base IP which is best implemented by some incarnation of the ERC-721 standard, and sub-licenses to base IP which are best implemented by way of the ERC-20 standard.
Let’s take this into perspective. Ocean Market is a data marketplace that allows data owners to publish & monetise their data, and scientists to consume the data by training their models on the data at a fee.
In the beginning, the publisher has sole ownership of their copyright or base IP (ERC-721). And can choose to mint an x amount of sub-licenses (ERC-20) which are all in his/her control at first. The publisher can now have the ability to either:
- Transfer the fungible sub-licenses to third-parties,
- Or transfer non-fungible base IP, in turn ceding all copyright of the data and its sub-licenses.
This process of protecting and transferring copyright has been a tedious, long, error-prone and expensive process. This is because of numerous legal nuances, technicalities, legal costs and human-readable language semantics. NFTs propose a new way in which ownership can be seamlessly proven, protected, and transferred at the fraction of the cost, without any ambiguity.
This post has been purposely simplistic to get the main idea of how NFTs can be used in intellectual property — particularly copyright of data shared in public data marketplaces. Therefore, making it more readable and easier to understand by a larger non-technical audience. To get a more in-depth and technical explanation on the relationship between NFTs and intellectual property, I highly recommend reading Trent McConaghy’s ‘NFTs and IP’ series.
Check out Trent McConaghy’s ‘NFTs and IP’ series:
[1]NFTs & IP 1: Practical Connections of ERC721 with Intellectual Property
[2]NFTs & IP 2: Leveraging ERC20 Fungibility
