A guide to Non-Fungible Tokens (NFTs), 2023 - Flipbook - Page 15
•
Offline storage: although not common, it is possible to store an underlying digital
asset offline, for example on a computer system that is not connected to a
network or on an external hard drive. The NFT will need to be configured in such a
way that allows for clear identification of the underlying asset. This is difficult to
achieve under current protocols, but is possible theoretically.
With any NFT that has a physical underlying asset, as adopted in various
sectors such as art and fashion, the metadata of the NFT would, instead of
linking the token directly to the underlying digital asset and, if desirable, the
storage location, need to reference the physical item. This could potentially
be done with use of a hybrid contract, to create the link with natural language
contractual wording. The NFT can function as proof of authenticity. However,
this is not necessarily fool proof as the physical item is easily movable and
could be lost or counterfeited.
While transfer of control of the data and metadata of the NFT, as a token on
the blockchain, may be dealt with by way of a fully smart contract, it is likely
that effective transfer of any underlying asset or other rights attached to such
a token would require a hybrid contract to record the legal requirements for
transfer. While the law in this area is not yet settled, it can be presumed that,
for example, in the case of a copyright assignment, which must be in writing
and signed on behalf of the assignor, it may be difficult to evidence compliance
with use of a purely smart contract. For further discussion on the distinction
between fully smart and hybrid contracts.
Permissioned & private blockchains
A potential solution for control and ownership issues, both in respect of
the underlying asset itself and any IP rights, could be the use of private or
permissioned blockchains:
•
•
Private blockchain: a blockchain that only a certain and identifiable group
of verified persons have access to.
Permissioned blockchain: a blockchain where certain actions, while
happening automatically as on a permissionless blockchain, require
authorisations from a person or entity.
As noted above, these kinds of blockchains still retain their drawbacks, such
as expense, so are not a complete solution to the problem. Also, expertise
is required, which prevents more general access and there is a possibility of
transactions not being carried out in a verifiable way. They are also not likely to
be interoperable with other blockchains.
