What crime could occur while processing non-fungible tokens without copyright?

Question

Alice creates a non-fungible token (NFT) of a digital file that they do not own copyright of. She adds the token to the ethereum blockchain, and creates a transaction that transfers it to a wallet controlled by Bob. Bob does not download the blockchain, but keeps his keys safe. Charlie knows nothing about this exchange, but downloads the blockchain and mines the block that represents the transaction. Dawn also has the blockchain, and downloads the newly mined block and adds it to her copy (as does everyone else in the world with a copy of the blockchain).

It seems to me that the NFT is a derivative work of the original file, and therefore if Alice was located in the US she would be breaching copyright in creating the NFT, and in distributing it by adding it to the blockchain. Bob has never seen the NFT and has never created a copy of it, but has the theoretical ability to create transactions involving it that would be recognised as valid by others. Charlie has created a copy of the NFT (by downloading the blockchain) and distributed a derivative (by publishing the mined block) but has no knowledge of any infringing activity. Dawn has created a copy of the NFT.

If Alice was in the US, and therefore breaching copyright law in creating the NFT, are Bob, Charlie and/or Dawn either committing any crimes, or exposing themselves to potential civil charges?

If Alice was in a jurisdiction which did not recognise the copyright on the original work (perhaps Iran?) does this change the situation? What about if Charlie is?

Answer 1

NFTs typically link to the file, but do not include it. Thus, no copyright concerns apply.

Specifically: NFTs have an opaque identifier that ensures each NFT is unique. You can ascribe any meaning you want to to these identifiers, for example that a particular token identifier represents the Mona Lisa, and that another ID represents this answer.

However, the NFT can have associated metadata. This metadata contains a description of the thing represented by the token, e.g. a URL that links to some artwork. For details on the most common NFT systems, see the specifications EIP-721 and EIP-1155.

Of course, the metadata could include copyrighted material, e.g. a poem or a binary encoding of an image. However, it would be very expensive to create such a large token.

Answer 2

The answer probably depends on what implicit or explicit claims Alice is making. If she is claiming (or appears to claim) authorship or similar moral rights then she is infringing copyright and is probably guilty of fraud as well.

On the other hand if Alice merely creates a digital token that says "The Fallen Madonna with the Big Boobies by Van Clomp" then she has basically just signed a piece of text. She can sell it, but all she is really selling is her own autograph.

Are Bob et al party to any of the crimes committed by Alice? I'm not aware of any cases on point, but:

• Bob can reasonably claim to have been either a victim of fraud or an innocent third party.

• Charlie the miner has merely processed data with no knowledge of what it contained. He is therefore innocent of any crime.

• Dawn has merely downloaded the entire blockchain as part of legitimate processing. As long as she doesn't deliberately extract a file which is illegal to possess she has probably not committed a crime.

See also this story describing how illegal files have been stored in the Bitcoin blockchain. In theory this makes the blockchain illegal to possess. Quite what would happen in practice if a prosecution were ever attempted remains to be seen, but unless there were evidence that the defendant had actually extracted the images for viewing I think it unlikely that they would be found guilty.