In an effort to reduce its energy usage, the Ethereum blockchain is scheduled to upgrade to Proof of Stake, or ‘Merge’ tomorrow. Some former miners under Proof of Work are expected to continue to support the old version, creating a fork in the blockchain. This calls into question how NFT licenses are to be recognized. Does the owner get a license on each chain or just one?
This is especially important as NFTs are now a major application of the Ethereum blockchain, and the money involved can be significant. The minimum price of a Bored Ape Yacht Club NFT is well over $100,000. Given some NFTs also come with the commercial right to sub-license, the question is, which NFT continues to have that right?
A report from law firm DLA Piper highlighted the need to delve into the licenses.
Our brief research found five types of licenses when it comes to forks. Some recognize NFTs on both chains, so the number of collectibles will double, with Rarible NFTs as an example.
Others reserve the right to designate which fork is valid for the NFTs, which is the case for the new Yuga Labs license for CryptoPunks NFTs. A variation is to designate which fork is the chosen one in advance, such as the template NFT licenses from venture capital firm A16z. It selects the chain recognized by the industry. While that’s not an issue for the Merge, it could be less clear for future forks.
A third path is to reserve the right to upgrade the NFT’s smart contract in the case of a fork. That’s the path chosen by the popular ArtBlocks collection.
Nike-owned RTKFT has the Clone X NFT collection on Ethereum. Its license agreement doesn’t mention forks. However, one clause might give it the right to designate which fork is valid for the NFTs because it says it can declare “any other restrictions that RTFKT may inform you of in the future.” So the fourth avenue is to keep a fair bit of general control.
And the final group doesn’t seem to deal with forks. Both the Decentraland and TheSandbox metaverses use the Polygon sidechain, so the Merge does not impact them. But in theory, Polygon could be forked in the future, although some believe it’s not very decentrailzed. However, Decentraland only mentions forks as a disclaimer, and TheSandbox does not include the term ‘fork’ in its license, which is otherwise relatively restrictive.
So while some NFT licenses may not currently mention how they deal with forks, we suspect they all will do so in the future.