NFTs in Artwork: Where does my NFT exist and who has control of it?

You have bought your NFT, but who has control of it and what obligations do they have to safeguard your asset?

Complications may lie in where your digital asset is stored – where it actually “exists”.

Because NFT artwork data is usually too large to store on-chain economically, in practical terms it needs to be hosted somewhere. The metadata associated with the NFT should point to the host address which should help in clarifying whether this is centralised or decentralised storage.

If this is an http URL, this is clearly centralised storage on the web and it is likely that the NFT is hosted by a third party, with its own set of hosting terms. The host is a further – silent – party at the table adding a further layer of contractual terms relevant to your NFT. This adds a further point of potential tension as the NFT owner is dependent on the host’s services. In some cases, there is in an obligation to continue to host the digital artwork on a particular service or at a particular file or web location.

If the asset is stored at a decentralised location – such as the Interplanetary File Server (IFPS) – this provides some comfort against some risks by providing a decentralised storage of the hashed data, but it is probably still reliant on a third party (eg the platform tool used by the author to mint the NFT) hosting the asset data on its private IFPS gateway.

Some NFT projects have evolved to store all their data on-chain, but this is generally not expected to be practicable for most use cases.

The trend for dynamic artworks has often meant that there is an inevitable – and potentially problematic – further ongoing dependence on the artist. For example, the artwork may need to be manually uploaded to the host by the artist and may need to be periodically updated by the artist. In this situation, the artist’s continued cooperation is fundamental to the state, value and, possibly even the ongoing existence of the artwork which underlies the NFT – an artist’s work doesn’t necessarily become more valuable after their death.

And the hosting contract may be between the artist and the host, which means that if an issue arises with the host, you would need the artist to co-operate with you to deal with those issues.

Commentary

Centralised hosts and third party links generally warrant further investigation. Does the seller offer there any guarantees that a particular host, domain, or service will be available to the buyer after the sale? Can the asset location be updated by the owner? Could the third party deny access, go bust, or be prevented from hosting the asset?

It is worth remembering that certain NFTs are only compatible with certain blockchains, so the choice of blockchain and cross-chain operability of the NFT can also be central to the NFT’s ongoing value.

Whether you are a buyer or a seller, you may wish to seek advice from a lawyer experienced in digital assets, on the terms of the transaction and implications for you.

In the next article Chris explores a key NFT question – how can I guarantee the NFT is genuine?

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Should you have any questions, or wish to discuss any issues raised in this article, please get in touch with the author of this article Memery Crystal’s Chris Pulham. If you are having any issues in relation to an NFT you have purchased or sold please get in touch with Rosenblatt disputes partner Laura Clatworthy.

Disclaimer: We at Memery Crystal (and our parent company RBG Holdings plc) support and encourage free/independent thinking in relation to issues which are sometimes considered to be controversial subject matters. However, the views and opinions of the authors of articles published on our website(s) do not necessarily reflect the opinions, views, practices and policies of either Memery Crystal or RBG Holdings plc.