Understanding Crypto, NFTs, metaverse and its connection with the IP Law
By Ana Cisneros | 14-Sep-2022
It has been 24 years since the term Crypto, a type of “coin” created by individuals, as opposed to banks and governments, was first used. The word was first “coined” in 1998 by Wei Dai, proposing the idea of a new type of money utilizing cryptography to control their creation and transactions instead of being done by a centralized authority. The first cryptocurrency protocol specification and proof of concept, named Bitcoin, was published by Satoshi Nakamoto in 2009. Satoshi left the project at the end of 2010, but since then, the developing community of cryptocurrencies has grown exponentially and has numerous developers working on the Bitcoin protocol. 
Obviously, there is much skepticism surrounding a “coin” that could be used in electronic transactions but could not be “turned” or returned into regular coins or bills and could only be used for certain goods, available only in determined “spaces” and e-commerce platforms. However, the advantage of cryptocurrencies is that they can only function properly if there is consensus among all users. Therefore, all users and programmers are incentivized to protect this consensus, referred to as blockchain. Blockchain is defined as a public digital ledger that records transaction data. Transactions utilizing a blockchain network can be peer-to-peer and remove intermediaries (such as banks or tech companies) from user interactions. This can reduce cost and speed up the time for transactions, among other things.
This accounting method contains each transaction processed, allowing the validity of each transaction to be verified. The authenticity of each transaction is protected by digital signatures corresponding to the sending addresses, allowing all users to have complete control when sending cryptocurrencies from their crypto addresses. In addition, anyone can process a transaction using the computing power of hardware and get a reward in cryptocurrencies for this service.
For users, cryptocurrencies are nothing more than a mobile or desktop application that provides a personal wallet and allows the user to send and receive cryptocurrencies.
Although understanding cryptocurrency and its advantages seemed almost impossible when first created, fast forward to 2022, the term Blockchain, Crypto, Cryptocurrency, and all its variants are as common as the word Starbucks.
Perhaps enhanced by the pandemic, the increasing economic problems of the world, and the lack of trust in public policies, cryptocurrencies have grown significantly, where the more conservative users fear that the lack of government control measures might make the currency volatile and unsafe, or that cryptocurrencies will be a faze or a fashion and could disappear eventually. However, cryptocurrencies are still ruled by the traditional markets, such as offer and demand, and it is affected by world crisis and events. Therefore, it is not entirely “unregulated.” However, it can still not be determined by governments anywhere, precisely given its “open source” and “agreement of content” of all users of the currency. Additionally, the interest surrounding cryptocurrencies is ever-growing.
So much so that by August 2013, the value of all bitcoins in circulation exceeded 1.5 trillion dollars, and the equivalent of millions of dollars in bitcoins was exchanged daily.
Nowadays, we have the following cryptocurrencies in circulation:
Following the growth of cryptocurrencies, we had to learn another new concept to use and understand; the metaverse.
The concept “metaverse,” used for the first time in 1992 in the science fiction novel "Snow Crash," written by Neal Stephenson, revolved around human beings being represented as avatars in this fictional space called metaverse, where they could interact with each other and with software agents in three-dimensional areas using the metaphor of the real world. "Metaverse" is used then as a compound word conformed by the prefix "meta" (meaning beyond) and "universe," and the term is typically used to describe the future iteration of the Internet, made up of persistent, shared, 3D spaces connected to a perceived virtual world.
In this fictional space called metaverse, anyone who wishes will be able to enter or exit immersive virtual worlds.
Since reality is held in this beyond-the-world, software-created space, the logical use of cryptocurrencies seemed inevitable, if not even logical.
Although commercial transactions on the internet still use digital versions of traditional currencies, the practicality of the blockchain-based currencies, cryptocurrencies, and currencies based on them are being developed as the more common transactional currency in a digital world. Some also see metaverses with their 3D virtual worlds and immersive services as utilizing blockchain technology to create permission-less interactions between internet users.
As explained, cryptocurrencies´ agility and peer to peer control (as opposed to government control) , makes them ideal currencies for its use in this newly created space, the metaverse.
Not only are cryptocurrencies being used as means of payment, but their technological innovation has also been applied to a new concept using the same blockchain principle, only this blockchain creates a “token” that is not exchangeable as are cryptocurrencies.
These tokens, known as non-fungible tokens (NFT’s), given their unique, non-exchangeable nature, are currently the talk of the town. Specially for IP lawyers.
As their self-explanatory name indicates, NFT's, or non-fungible tokens, is the name given to goods with certain characteristics. The most important is that they are non-expendable assets. Best examples to understand them range from tweets, since they can be considered works made by a specific author, to works of art, designs, or any other type of human creation (or, maybe, in a not so far future, also created by AI), that makes it so unique, it cannot be replaced.
As mentioned before, NFT´s apply the same technology as cryptocurrencies, namely they are also defined as protected electronic assets, but they are not replaceable like cryptocurrencies, since the digital certificate of validity of NFTs is lost when they are altered. And this is the particularity that makes them an interesting asset for the Intellectual Property Law.
The first cryptocurrency to evolve into NFT´s was Ethereum, the second most used and well-known crypto.
And where all of these concepts collide and merge with the IP law, comes from the many examples nowadays involving disputes of important brands, artists, and competing fashion houses themselves in connection with NFTs. Certainly, as we have learned, the IP law and the lawyers specialized in this branch of the law, were not fully prepared for the disputes that are arising in connection with this new concept.
The most famous case so far must be deemed the dispute between HERMES, the French haute couture house, and Mason Rothschild. Long story short, HERMES has been selling a bag, called Birkin bag, since 1984, which not only shares its name with the very famous Ms. Jane Birkin, since she was the inspiration for the bag design and hence, but is also a bag worth about $13,000.00 USD, has been said is a better investment than gold, since its price keeps increasing each year, and has a celebrity-filled waiting list of at least 6 years. Although it is said that the waiting list is no longer the way to get a Birkin bag, the truth is that you still need to wait for such a coveted piece of artisan, by means of visiting an exclusive Hermes store (where there are rarely any bags available, let alone on display), or contact a sales associate (SA), build a relationship of trust and friendship, and then maybe be able to get one specific Birkin bag eventually (so, no waiting list…but still).
Such is the value of the infamous Birkin bag and the importance of its design, name, and exclusivity in the market.
But exactly, which market? When the metaverse started to gain momentum, owners of trademarks, designers, haute couture houses, and luxury brands started questioning whether their already existing registrations and protected rights covered the goods in the metaverse. At the end of the day, the same goods sold in traditional markets can also be acquired in the metaverse; however, its description could vary.
A good example of this is the recent applications filed by Nike in the US, where the USPTO examiner requested the company to clarify the description of goods and services, since the description did not imply their use in the metaverse.  The specific official action required Nike to add that the goods and services described were to be used in online virtual worlds. Whether this requirement was made to avoid duplicity since Nike already protects the cited goods and services, or since it is really needed to have trademarks that protect similar or closely related goods in the real world and in the metaverse, but with a clear description of where in fact this trademarks are meant to be distributed, it seems so far that trademarks in the real world should suffice to protect the invasion of rights in the metaverse.
Such is the claim of Hermes, company that in 2019 discovered that artists Mason Rothschild and Erik Ramirez, had made a collaboration in the metaverse, by means of an NFT, which they called BabyBirkin, and which can be described as a “fuzzy”, electronic representation of the Birkin bag, which, as has been explained, has an iconic design. At first, Hermes did not retaliate, due to the possible counterclaim of “fair use”, a figure present in the common law regimes, which allows the use of trademarks and copyrights not for its distinctive characteristics but merely for its descriptive qualities.
Since the “fuzzy” BabyBirkin NFT was used in a descriptive way, namely as the reinterpretation of the bag as if it was merely an homage in the metaverse, Hermes did not act at this time. However, the “BabyBirkin” was uploaded to OpenSea, which describes itself as “the largest NFT marketplace”, and then sold the BabyBirkin at $23,500 USD and it was later resold at $42,000 USD.
This of course, caused Hermes to reconsider its strategy, since the use of Birkin as a bag, was not only descriptive anymore; it was making people in the metaverse, make money with the newly invented figure, NFT, using the iconic design of the bag, and the well-known name Birkin.
The tricky part came when Hermes decides to use regular means of approaching this violation of its rights through regular methods, and was called out by Rothschild on Instagram:
The implications of this new “field” of claims for IP law, is to determine, as said before, whether the existing rights suffice to initiate claims in this new platform, as well as to assure that this new creations can be assessed or grasped from the IP point of view (namely, if the NFT´s could be in fact considered copyrights, or if they should be deemed a new figure and how would its recognition or rights over their creation be assessed).
As with every new world phenomenon which involves human and economic rights, we have no precedents for these new claims and disagreements, and the importance of being informed and understanding the ever evolving metaverse phenomenon and the NFT´s nature and category is that we, as lawyers, will have to create the criteria for the cases to come regarding this new way of protecting IP rights in different spaces, and adapt to the ever changing rules of a world portrayed in a space similar to the infamous Matrix, with all its consequences in the fictional -and real-world.
 NFTs or non-fungible 'tokens' are unique digital assets that cannot be exchanged for each other as no two are alike. Anything that can be represented digitally has the potential to become an NFT: from a tweet to a meme to a work of art. The cryptography of the 'tokens' allows to prove that the owner is the sole possessor of the original piece. BBVA - Qué son los NFTs: los ‘tokens’ para el coleccionismo de bienes digitales
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