CRYPTOKITTIES, CRYPTOGRAPHY, AND COPYRIGHT 1 - BYU Copyright Symposium

 
CRYPTOKITTIES, CRYPTOGRAPHY,
                  AND COPYRIGHT1
         NON-FUNGIBLE DIGITAL CREATIVITY ON THE BLOCKCHAIN

                                   Tonya M. Evans2

                                   INTRODUCTION
        This paper examines the copyright implications of unique, scarce
digital creative assets transferred and stored on blockchains, which I refer to
herein generally as unique crypto assets (UCAs).3 Specifically, I explore the
emergence of non-fungible cryptographic tokens (NFTs) created based on the
ERC-721 smart contract standard4 and recorded on the Ethereum public,
distributed ledger.5 This novel standard enables, for the first time, verifiable
digital scarcity—an elusive characteristic in the world of Web 2.0. Further,
ERC-721 empowers UCA holders to maintain control over copyright in their
cryptographic creations in gaming, collectibles, and copyright-intensive
industries, to name just a few. Those industries are generally controlled by
powerful, often siloed, intermediaries that restrict access, regulate
1
  Working Title. Also exploring … “and Creatives” or “and Creativity”. Note, footnotes in
this WIP are “notes to self” not intended to reflect proper citation format.
2
  Professor, University of New Hampshire School of Law and member of the Franklin
Pierce Center for Intellectual Property; B.S., Northwestern University; J.D. (Dean’s List),
Howard University School of Law (Cum Laude, Editor-in-Chief, Howard Law Journal).
3
  See generally notes __-__. See also, Shawn S. Amuial, Josias N. Dewey, and Jeffrey R.
Seul, The Blockchain: A Guide for Legal and Business Professionals, in THE BLOCKCHAIN:
A GUIDE FOR LEGAL & BUSINESS PROFESSIONALS § 1:2 (Oct. 2016).
4
  ERC stands for Ethereum Request for Comments. ERC-721 “is a free, open standard that
describes how to build non-fungible or unique tokens on the Ethereum blockchain. While
most tokens are fungible (every token is the same as every other token), ERC-721 tokens
are all unique.” The standard “defines a minimum interface a smart contract must
implement to allow unique tokens to be managed, owned, and traded. It does not mandate a
standard for token metadata or restrict adding supplemental functions.” http://erc721.org/.
5
  The Ethereum Project’s website describes the Ethereum blockchain as follows:

    Ethereum is a decentralized platform that runs smart contracts: applications that
    run exactly as programmed without any possibility of downtime, censorship,
    fraud or third-party interference. These apps run on a custom built blockchain, an
    enormously powerful shared global infrastructure that can move value around and
    represent the ownership of property. This enables developers to create markets,
    store registries of debts or promises, move funds in accordance with instructions
    given long in the past (like a will or a futures contract) and many other things that
    have not been invented yet, all without a middleman or counterparty risk. See
    https://www.ethereum.org/.

                                                                           P a g e 1 | 17
transferability, and govern how or whether user-generated digital content
may be controlled and exploited by the user.6 Presently, for example, if a user
makes a digital sword in the popular video game MineCraft or a creative skin
in Fortnite, she cannot transfer that digital good into another platform, at least
not without the platform’s acquiescence based on its contractual terms of use
and licensing structure. Of course, the Internet protocol layer—the code
itself—does not give a traditional user who generates digital content any
automatic or intrinsic right or ability to exploit rights created automatically
by authoring creativity fixed in a digital medium.
         By contrast, the same sword, if created as an NFT in a decentralized
gaming application, is the user’s to sell, lend, or use in another virtual world
that leverages the ERC-721 (or similar) standard in its application. It is the
creator’s public-private asymmetric key pair7 that secures ownership and
control of the token and prevents counterfeiting and piracy.8 This holds true
whether the game ceases operations or the token holder simply chooses to
leave that platform altogether. I argue that this type of programmable creative
self-sovereignty—with the attendant economic benefits that flow from
copyright interests—better protects creators than was possible in a pre-
blockchain world. ERC-721’s novel coding features provide UCA holders
with powerful ownership, provenance, and chain-of-title control and, for the
first time, pure digital scarcity. Cryptokitties, the first blockchain project to
utilize the ERC-721 standard successfully, is a digital collectible gaming
platform in which players can buy, sell, trade, and breed digital cats that the

6
  For example, the MineCraft End-User Licensing Agreement makes clear that, “Although
we license you permission to install on your device and play our Game, we are still the
owners of it. We are also the owners of our brands and any content contained in the Game.
Therefore, when you pay for our Game, you are buying a license to play / use our Game in
accordance with this EULA - you are not buying the Game itself. The only permissions you
have in connection with the Game and your installation of it are the permissions set out in
this EULA. Any Mods you create for the Game from scratch belong to you (including pre-
run Mods and in-memory Mods) and you can do whatever you want with them, as long as
you don't sell them for money / try to make money from them and so long as you don’t
distribute Modded Versions of the Game. Remember that a Mod means something that is
your original work and that does not contain a substantial part of our code or content. You
only own what you created; you do not own our code or content.”
7
  Asymmetric cryptography, also known as public key cryptography (PPK), “uses one key
for encryption and a different key for decryption.” Staci I. Levin, Who Are We Protecting?
A Critical Evaluation of United States Encryption Technology Export Controls, 30 LAW &
POL'Y INT'L BUS. 529, 531 (1999). This distinguishes PPK from symmetric key
cryptography, which requires parties to share a private key. See id. (citing Bruce Schneier
& David Banisar, THE ELECTRONIC PRIVACY PAPERS: DOCUMENTS ON THE BATTLE FOR
PRIVACY IN THE AGE OF SURVEILLANCE, 259 (1997).
8
  And, importantly, the token does not represent the creative asset, it is the creative asset.

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Cryptokitties, Cryptography and Copyright
                                  3
user actually owns.9 And once a player owns a Cryptokitty, she can breed,
buy and sell within the Cryptokitties platform or race, 10 dress,11 or battle her
Cryptokitty in other Ethereum games.12
        In Part I, I critique the chronic concerns regarding the lack of intrinsic
scarcity of digital goods and the problems for creators with the advent and
mass adoption of the Internet, digital technology, and peer-to-peer file
sharing.
        In Part II, I provide an overview of the promise of blockchain
technology, generally, to remedy the failings described in Part I. Thereafter,
I highlight the Ethereum network (touted as the world’s largest computer),
specifically. Additionally, I summarize the open-source comments process
that led to the adoption of ERC-20 standards to create fungible tokens
recorded on the Ethereum Network. I compare that standard to the ERC-721
standard used by decentralized application developers to create NFTs by
exploring the concept of fungibility.13
        In Part III, I highlight Cryptokitties as a case study of my thesis. I also
examine and critique the Nifty License, established by the Axiom Zen,
creators of the Cryptokitties game.14 That license expressly sets forth the
rights of creative NFT creators and NFT owners. The license makes clear that
NFT creators hold strong rights to access, share, and use and otherwise
exploit creative rights associated with an NFT. I also briefly summarize other
projects and promising use cases that involve native user-generated creative
crypto assets.
        Part IV, I view creative crypto assets through a copyright lens. I
highlight the ways creative UCA holders may be better situated to protect and
leverage copyright than pre-blockchain holders of digital goods due to the
self-sovereign control that creative UCAs embody. The strongest areas of use

9
  See, generally, https://www.cryptokitties.co/. A list of other ERC-721 tokens is found at:
https://nonfungible.com/ (Decentraland, CryptoPunks, Cryptomon and so forth).
10
   KittyRace: https://kittyrace.com/.
11
   KittyHats: https://kittyhats.co/
12
   See infra Part III and notes. See, also, Axiom Zen’s “KittyVerse”:
https://www.cryptokitties.co/kittyverse (last visited October 8, 2018).
13
   Other platforms that run dApps, smart contracts and decentralized autonomous
organizations (DAOs) include: NEO and Tron (both actively developing an NPT standard),
QTUM, Lisk, Cardano.
14
   See https://www.niftylicense.org/license (last visited October 8, 2018). The license sets
forth NFT ownership of the token as follows: “You acknowledge and agree that Creator
(or, as applicable, its licensors) owns all legal right, title and interest in and to the Art, and
all intellectual property rights therein. The rights that you have in and to the Art are limited
to those described in this License. Creator reserves all rights in and to the Art not expressly
granted to you in this License.” Id.

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are in registration, proof of ownership and the immutable chain created by
each subsequent transfer, self-executing micropayments, provenance and the
possible value over time created by digital scarcity in the ecosystem.15
Blockchain’s core characteristics of peer-to-peer networks, public-private
key asymmetric cryptography, and consensus mechanisms, are ideally
designed to create an immutable, censorship-resistant digital footprint that
can dramatically reduce the friction and inefficiencies in enforcement of
unauthorized uses in the digital realm.16
        Finally, in Part V I, I examine the future of tokenized copyright assets.
Any goods or services capable of being represented in software can be
“tokenized” and, thus, reflected as a digital asset recorded on a blockchain. I
critique the property of copyright tokenization and contrast it with the clear
benefits of purely digital UCAs.

15
   Current projects exploring these and other possibilities include: LBRY, Po.et,
CopyTrack, Binded, KodakOne.
16
   See Primavera De Filippi and Aaron Wright, Blockchain and the Law: the Rule of Code,
__ (Harvard Univ. Press, 2018).

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Cryptokitties, Cryptography and Copyright
                                    5
         Part I
         In this Part, I critique the chronic concerns regarding the lack of
intrinsic scarcity of digital goods and the difficulty creators have in protecting
their online creative content given the prevalent copy and paste and peer-to-
peer (P2P)17 culture born of the digital age. Ironically, the Web 3.0 iteration
of technological innovations and protocols that enabled rampant copyright
infringement over the last 20 years, are now being used for an opposite end:
to fortify—not compromise—creators’ rights. For example, instead of using
P2P technology to download an unauthorized copy of a song or movie,
blockchain’s distributed network infrastructure uses a similarly-organized
network to verify and record data across many systems.18
         The copyright regime in the United States is premised on an economic
incentive justification.19 For most of the twentieth century, end-user
copying—in contrast to counterfeiter behavior—was not a serious threat to
copyright owner’s economic success.20 At that time, end-user copies were
most often created for personal use, rarely substituted for purchasing a lawful
copy and were rarely reproduced or distributed on a mass commercial scale
or at all.21
       The advent of digital technology proved a mixed blessing for
copyright owners.22 On the one hand, the technology improved the ability of
content producers to create and disseminate creative works. On the other
hand, however, digital technology enabled copyists to copy, adapt,
disseminate and publicly display or perform the works with little expenditure

17
   “In its simplest form, a peer-to-peer (P2P) network is created when two or more PCs are
connected and share resources without going through a separate server computer.”
https://www.computerworld.com/article/2588287/networking/networking-peer-to-peer-
network.html (last visited August 8, 2018).
18
   https://www.openletr.co/find-your-truth/blockchain-for-artists-ownership-and-scarcity-
in-a-digital-medium292018 (last visited August 8, 2018).
19
   See Mark A. Lemley & R. Anthony Reese, Reducing Digital Copyright Infringement
Without Restricting Innovation, 56 STAN. L. REV. 1345, 1373 (2004) (asserting
“[c]opyright in the United States has always been seen principally as a utilitarian response
to a public goods problem”).
20
   Mark A. Lemley & R. Anthony Reese, Reducing Digital Copyright Infringement Without
Restricting Innovation, 56 STAN. L. REV. 1345, 1373 (2004) (noting that “… unlike
counterfeiting, end-user copies weren't a serious threat to a copyright owner's sales during
this period.”).
21
   Lemley & Reese, at 1373. For example, “A college student might tape an album for a
few friends but was unlikely to make several thousand tapes and give or sell them to
strangers.” Id. At 1374.
22
   Lemley & Reese, at 1375.

                                                                            DRAFT-10/8/2018
of time, money or effort.23 Accordingly, the sharp line that divided
professional counterfeiters and low-level copyists began to blur.24 With the
continued tenacity of technologists to innovate around legislative reactions to
new and novel ways to infringe, innovation will continue to outpace the law.25
This translates into a significantly deleterious economic impact on, for
example, the ability of copyright holders to capture licensing revenue. For
example, the 2017 World Intellectual Property Organization Indicators noted
that while the intellectual property market was estimated to be valued at $5.5
trillion in 2017, only $500 billion in licensing revenue was actually realized.26

23
   Mark A. Lemley & R. Anthony Reese, Reducing Digital Copyright Infringement Without
Restricting Innovation, 56 STAN. L. REV. 1345, 1375 (2004). The authors explain further
that “… as the costs of producing and disseminating copies approach zero, the public goods
problem gets worse, because the ratio of the cost of creation to the cost of imitation
approaches infinity.” Id. See also Stacey L. Dogan, Code Versus the Common Law, 2 J.
TELECOMM. & HIGH TECH. L. 73, 76 (2003) (noting “[t]he combination of digital formats
and the Internet has made it possible for individuals to make perfect copies of digital works
and to distribute them around the world.).
24
   Lemley & Reese, at 1375 (citing Stacey L. Dogan, Code Versus the Common Law, 2 J.
TELECOMM. & HIGH TECH. L. 73, 90-92 (2003)).
25
   Stacey L. Dogan, Code Versus the Common Law, 2 J. TELECOMM. & HIGH TECH. L. at 76
(2003)).
26
   WIPO World Intellectual Property Indicators, 2017 p. 29. CHECK.

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Cryptokitties, Cryptography and Copyright
                                     7
         Part II
        In this Part, I provide an overview of the promise of blockchain
technology, generally, to remedy the failings described in Part I. Thereafter,
I examine Ethereum’s network (touted as the world’s largest computer),
specifically. Additionally, I summarize the open-source comments process
that led to the adoption of ERC-20 standards to create fungible tokens
recorded on the Ethereum Network. I compare that standard to the ERC-721
standard used by decentralized application developers to create NFTs by
examining the concept of fungibility.27
         Blockchain has already dramatically altered our relationship with
digital creativity. Before blockchain, the Internet,28 World Wide Web,29 and
digital technology introduced new ways to create, adapt, distribute, display,
and perform literary and artistic words. Peer-to-peer technology reduced the
barriers to access the creative works of others and also enabled rampant
unauthorized copying, adaptation, distribution, public displays and public
performances that were not legally excused by doctrine like fair use.
        To understand Web 3.0, it is important to understand previous
iterations of the static web of information (Web 1.0) and the more dynamic,
interactive social web (Web 2.0).30 Web 1.0 is best understood as the original
centralized client-server delivery model of the information age; that is,
making information available to consumers who interacted with it passively.
Web 2.0 represents the decentralized web, which involves numerous client-
server models and contemplates consumers as creators but which also
involves information still siloed by entities that have become powerful
private, multinational monopolistic corporations (Google, Apple, Facebook
and Amazon). Web 3.0 represents the distributed Internet, characterized by
the absence of centralized intermediaries where consumers are both producer
and owner who controls the flow of information and, now, of value.31

27
   Other platforms that run dApps, smart contracts and decentralized autonomous
organizations (DAOs) include: NEO and Tron (both actively developing an NPT standard),
QTUM, Lisk, Cardano.
28
   “The Internet has been in development since the 1960’s, and is a way to allow different
computers around the World to talk to one another. Whether it is downloading a pdf file
from a website, or chatting to a friend over Skype – it is the Internet that connects the
computers together. The Internet is not actually a single physical network – it’s just a set of
rules (Internet Protocols) that allow different networks to communicate.” See
http://www.infogineering.net/web-internet.htm (last visited August 8, 2018).
29
   CITE/brief definition.
30
   See http://joerg-rech.com/Paper/BC_WeberRech_WebX%20Y-
Classification_cameraready_final.pdf (last visited October 6, 2018).
31
   Decades ago, Paul Baran “envisioned a network of unmanned nodes that would act as
switches, routing information from one node to another to their final destinations. The

                                                                               DRAFT-10/8/2018
With blockchain’s hallmark characteristic of transparency,
immutability, and decentralization, digital assets created via asymmetric
cryptography can now truly be eternal, immutable, censorship resistant and
scarce.
        __. Summary of Blockchain Technology
         The inventor of the Bitcoin blockchain, “Shatoshi Nakamoto”, is an
anonymous individual or group that has inspired a near cult-like following of
Bitcoin maximalists and blockchain enthusiasts. Shatoshi wrote a nine-page
white paper in 2008 that would prove to revolutionize the world.32 In that
paper, Shatoshi described a paradigm shift away from the century’s old
double-entry bookkeeping system and its digital veneer and toward a viable
system for a new digital economy.33 The crypto visionary posited that “[a]
purely peer-to-peer version of electronic cash would allow online payments
to be sent directly from one party to another without going through a financial
institution.”34
       Shatoshi invented Bitcoin to empower individuals to control their
own money and thereby reduce control by governments and powerful private
corporations that act in a quasi-governmental way (namely, Amazon,
Facebook, Google, Yahoo and Apple). The goal, as articulated in the white
paper was to eliminate the need for a middle man or centralized authority in
completing and settling financial transactions. And also to solve the double-
spending problem for digital currency. This was accomplished by creating a
censorship-resistant, verifiable, shared ledger system of purely digital
currency.

nodes would use a scheme he called “hot-potato routing” or distributed communications.”
See https://www.rand.org/about/history/baran.html (last visited October 8, 2018).
32
   See the Shatoshi Whitepaper, https://bitcoin.org/bitcoin.pdf (2009).
33
   See the Shatoshi Whitepaper, https://bitcoin.org/bitcoin.pdf (2009).
34
   See the Shatoshi Whitepaper, https://bitcoin.org/bitcoin.pdf (2009). See also Timothy
May, The Crypto-Anarchist’s Manifesto, http://www.activism.net/cypherpunk/crypto-
anarchy.html (last visited: October 8, 2018).

        Computer technology is on the verge of providing the ability for
        individuals and groups to communicate and interact with each other in a
        totally anonymous manner. Two persons may exchange messages,
        conduct business, and negotiate electronic contracts without ever
        knowing the True Name, or legal identity of the other. Interactions over
        networks will be untraceable, …with nearly perfect assurance against
        any tampering. Reputations will be of central importance, far more
        important in dealings than even the credit ratings of today. These
        developments will alter completely the nature of government regulation,
        the ability to tax and control economic interactions, the ability to keep
        information secret, and will even alter the nature of trust and reputation.”

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Cryptokitties, Cryptography and Copyright
                                    9
        Essentially, blockchain is software. It is new data structure, a new way
of storing information on a computer and synchronizing encrypted data
across multiple computers. It is also referred to more broadly as distributed
ledger technology (DLT) because blockchain uses a peer-to-peer network of
computers to maintain a single record (or ledger) of transaction data.
However, this data is not maintained by a central entity (ex: the Copyright
Office or Google Drive) but rather by the network of computers. This shared
ledger serves as the single point of truth agreed to by consensus of the
network participants, as explained more fully below.
         Blockchain technology combines three technologies that have existed
for decades: the Internet, peer-to-peer networks and public/private key
encryption with digital signatures.35 A public key is like your bank account
number. It is public-facing. A private key is like your bank account password.
It is private and should not be shared because it is the way you encrypt and
decrypt transactions. When Alice sends Bitcoin to Bob from her digital
wallet, she uses her private key to digitally sign (aka approve) the transaction
from her account to Bob’s public key. Alice’s private key is the only one that
can approve transactions involving the uniquely paired public key.
        Public, permissionless blockchains have four primary characteristics:
1) consensus; 2) append-only; 3) disintermediated; and 4) transnational.36
Blockchain protocols incorporate consensus mechanisms that require
network participants to agree on a single truth about the state of the ledger
for each new transaction and this agreement maintains trust within a
community of people who are strangers to each other. They are append-only
because new information can be added but nothing can be deleted.
Blockchains are disintermediated because they do not rely on any centralized
intermediary for transactions to occur. Finally, blockchains are transnational
because the protocols are not limited by geography or borders. No private or
public entity controls therefore public blockchains are censorship-resistant.37
        The peer-to-peer network of computers is responsible for verifying
transactions against the software protocol’s rules. Each computer that runs
the blockchain’s software and is called a node.38 New transactions are
broadcast to the network and verified by each node.39 Verified transactions
are grouped in regular intervals by network consensus.40 A group of verified
transactions is called a block. New blocks are added to the chain by a special

35
   CITE
36
   De Filippi and Wright, at __.
37
   De Filippi and Wright, at __.
38
   De Filippi and Wright, at __.
39
   De Filippi and Wright, at __.
40
   Common consensus methods include proof-of-work and proof-of-stake. DEFINE.

                                                                     DRAFT-10/8/2018
node called a miner. Miners compete to solve a mathematical equation. The
winner gets the block reward (new bitcoin); new block is added to chain.
Blocks are interrelated because each contains part of previous block’s data.41

        Records in a blockchain are stored sequentially in time in the form of
blocks and each block has a block header that includes, among other
metadata, a hash.42 Hashing is the process by which a grouping of digital data
is converted into a single “number”, a hash.43 The hash serves as the unique
identifier the source data or a digital fingerprint of the source data that cannot
be altered.44 The data includes the particular transaction and also the hash of
the previous block in the chain.45 When a subsequent block is added, it too
references the hash for the previous block and so on. To change one block,
you would also have to change every block that came before it.46
         Part III
        In this Part, I highlight Cryptokitties as a case study of my thesis. I
also examine and critique the Nifty License, established by the AxiomZen,
creators of the Cryptokitties game.47 That license expressly sets forth the
rights of creative NFT creators and NFT owners. The license makes clear that
NFT creators hold strong rights to access, share, use and otherwise exploit
creative rights associated with an NFT. I also briefly summarize other
projects and promising use cases that involve native user-generated creative
crypto assets.48
       Cryptokitties, the first blockchain project to utilize the ERC-721
standard successfully, is an Ethereum-based digital collectible gaming
platform in which players can buy, sell, trade, and breed digital cats that the
user actually owns.49 Cryptokitties became all the rage—and virtually

41
   De Filippi and Wright, at __.
42
   De Filippi and Wright, at __.
43
   De Filippi and Wright, at __.
44
   De Filippi and Wright, at __.
45
   De Filippi and Wright, at __.
46
   https://www.investopedia.com/terms/m/merkle-tree.asp (Last visited: October 6, 2018).
47
   See https://www.niftylicense.org/license (last visited October 8, 2018). The license sets
forth NFT ownership of the token as follows: “You acknowledge and agree that Creator
(or, as applicable, its licensors) owns all legal right, title and interest in and to the Art, and
all intellectual property rights therein. The rights that you have in and to the Art are limited
to those described in this License. Creator reserves all rights in and to the Art not expressly
granted to you in this License.” Id.
48
   NTS: Is the relationship between the NFT creator and NFT owner analogous to the
relationship of the artist and the owner of the physical painting?
49
   See, generally, https://www.cryptokitties.co/. A list of other ERC-721 tokens is found at:
https://nonfungible.com/ (Decentraland, CryptoPunks, Cryptomon and so forth).

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Cryptokitties, Cryptography and Copyright
                                  11
crippled the Ethereum Network—at the end of 2017.50 Genesis, Founder and
Fancy Cats led the “scarcity breeds value” charge, with one crypto cat selling
for over $114,000.51 As of August 2018, however, daily user rates have
plummeted to merely hundreds, leading many crypto purists, commentators,
and crypto game enthusiasts to question its viability and relevance.52
Nonetheless, the game was the first successful use of the ERC-721, which
AxiomZen developers created to solve for the limitations of the fungible
token standard when a unique, scarce, indestructible digital asset is
contemplated.
        Part of the Cryptokitties hysteria, reminiscent of the Beanie Babies
craze that began in the late nineties,53 reflects the unique mix of
preprogrammed, finite characteristics of cryptokitties. Some are rarer and,
therefore, more highly coveted, within the crypto gaming community.54
Accordingly, certain—perhaps the majority of—cryptokitties have little to no
value; while others are valued in the tens of thousand dollars. In fact, one
person has reportedly made more money selling his cryptokitties than
investing in his IRA.55 Each cryptokitty, unlike a dollar, apple, or the
proverbial widget, is unique and, therefore, non-fungible.
        The meteoric rise in popularity of scarce, unique digital assets in the
blockchain ecosystem presents compelling legal and economic questions of
ownership, transfer and enforceability, especially when those unique digital
assets are literary or artistic creations fixed in a tangible medium. This
emerging sub-asset class, within the larger class of crypto assets, redefines
settled notions of copyright ownership, transfer, termination, as well as
inheritance issues. Like blockchain’s distributed ledger technology, crypto
assets built on the rails of blockchain protocols transcend borders and
national frameworks for the protection, exploitation and inheritance of digital
creative assets.
        Copyright holders were rightly concerned about the proliferation of
unauthorized copies of digital works. Without technological measures to
prevent access or exploitation, consumers could easily create and disseminate
perfect digital copies without consuming their own. In contrast to the lack of

50
   CITE
51
   CITE
52
   See http://www.bbc.com/news/technology-42237162.
53
   See http://www.miamiherald.com/living/liv-columns-blogs/dave-
barry/article210157539.html.
54
   In fact, valuation websites have cropped up to assist cryptokitty owners value their
“catfolio”: https://catfol.io/.
55
   See https://www.theverge.com/2017/12/13/16754266/cryptokitties-ethereum-ether-
game-cats.

                                                                             DRAFT-10/8/2018
digital scarcity and rampant infringement ushered in by digital technology
and peer-to-peer networks via the centralized web,56 blockchain’s internet of
value actually makes ownership of digitally scarce assets possible. This
advent provides a solution for those concerns in ways legislation and
technological measures have failed to do by fundamentally re-ordering the
relationship of creator and consumer to digital creativity.57
         [TO BE UPDATED]

         __. Fungibility
         Like their physical counterparts, crypto assets have a number of
characteristics, including whether or not a crypto asset is fungible or non-
fungible.58 Fungibility is a characteristic of an asset that determines whether
or not items or quantities of the same or similar type are exchangeable and of
equal value when transferred or utilized.59 If they are the same or similar,
they are fungible. Non-fungible assets are unique. This definition holds true
whether the asset is entirely physical, entirely digital or a physical asset that
is tokenized; that is, represented as a digital asset.60 Additionally, “[s]imilar
to how the value of a commodity is related to its scarcity, the value of a
collectible item to a collector is connected to its rareness among other
items.”61 Non-fungible assets derive their value from their uniqueness,
scarcity and, of course, demand.
        A number of blockchain projects are seeking to raise the profile, value
and esteem of digital art by solving for a chronic and considerable limitation:
the duplication problem in the digital age. Much like Satoshi’s double-spend
concern, the concern of innovators in this space is to eliminate the ability of
unauthorized copyists and counterfeiters to exploit their creative works.62
         [TO BE UPDATED]

56
   Internet of information (Web 1.0) and Internet of Things (Web 2.0).
57
   NTS: expound on the current third-party licensing norms in creativity-intensive
industries.
58
   https://blockchainhub.net/blog/blog/nfts-fungible-tokens-vs-non-fungible-tokens/ (last
visited October 8, 2018).
59
   See https://www.merriam-webster.com/dictionary/fungible.
60
   NFTs can include digital collectibles like a Cryptokitty, digital works of art like the work
of, and tokenized physical works of art, real estate or even legal documents. NTS:
Examples or internal cross-reference.
61
   See, generally, https://medium.com/crypto-currently/the-anatomy-of-erc721-
e9db77abfc24.
62
   NTS: Explore Gallery, KnownOrigin, Theos, and decentralized art galleries
(https://coincentral.com/best-decentralized-art-galleries/}.

                                                                         P a g e 12 | 17
Cryptokitties, Cryptography and Copyright
                                        13
            Part IV
         In this Part, I view creative crypto assets through a copyright lens. I
highlight the ways creative UCA holders may be better situated to protect and
leverage copyright than pre-blockchain holders of digital goods due to the
self-sovereign control that creative UCAs embody. The strongest areas of use
are in registration, proof of ownership and the immutable chain created by
each subsequent transfer, self-executing micropayments, access controls,
automated payments and enforcement, and the possible increased value over
time created by digital scarcity in the ecosystem.63 Blockchain’s core
characteristics of peer-to-peer networks, public-private key asymmetric
cryptography, and consensus mechanisms, are ideally designed to create an
immutable, censorship-resistant digital footprint that can dramatically reduce
the friction and inefficiencies in enforcement of unauthorized uses in the
digital realm.64
        As the etymology of the word copyright suggests, the most essential
right in the bundle—and the one from which all other 106 rights derive—is
the right to copy.65 One of the most difficult issues with creative digital works
and those converted into digital form is the ability of copyright holders to
police unauthorized use and enforce rights. Blockchain projects like
Binded,66 CopyTrack67 are creating digital fingerprints (cryptographic

63
   Current projects exploring these and other possibilities include: LBRY, Po.et,
CopyTrack, Binded, KodakOne.
64
   See Primavera De Filippi and Aaron Wright, Blockchain and the Law: the Rule of Code,
__ (Harvard Univ. Press, 2018).
65
   See 17 USC 106(1)-(6) (----).

            (1) to reproduce the copyrighted work in copies or phonorecords;
            (2) to prepare derivative works based upon the copyrighted work;
            (3) to distribute copies or phonorecords of the copyrighted work to the public by
            sale or other transfer of ownership, or by rental, lease, or lending;
            (4) in the case of literary, musical, dramatic, and choreographic works, pantomimes,
            and motion pictures and other audiovisual works, to perform the copyrighted work
            publicly;
            (5) in the case of literary, musical, dramatic, and choreographic works, pantomimes,
            and pictorial, graphic, or sculptural works, including the individual images of a
            motion picture or other audiovisual work, to display the copyrighted work publicly;
            and
            (6) in the case of sound recordings, to perform the copyrighted work publicly by
            means of a digital audio transmission.
66
     CITE
67
     CITE

                                                                                DRAFT-10/8/2018
hashes) to provide an immutable record for each copyrighted work as well as
automated enforcement mechanisms.68
        A fundamental copyright concern of authors and copyright holders in
the Web 2.0 world was the inability, at the protocol level, for them to protect
the author’s right to copy, adapt, distribute and publicly perform or display.
Nothing in the Internet protocol itself protected the underlying rights from
being exploited. With the ability of any user to exploit any of the 106 rights
to create and disseminate perfect additional digital copies without consuming
the user’s copy, nothing in the web protocol protected authors.69 Blockchains
maintain all the functionality of Internet-enabled peer-to-peer transfers but
also solve for the protection concern by requiring private keys. Asymmetric
cryptography (also known as public-private key cryptography),70 a core
element of blockchain technology, requires control of private keys to access
and exploit the corresponding crypto asset.71
       One owns a crypto asset by having a private key. One proves
ownership by signing the crypto asset with a public digital signature
generated that private key pairing.72
        [TO BE UPDATED]

        __. Creation
        [TO BE UPDATED]

        __. Registration
        Traditionally, governmental entities, like the United States Copyright
Office (a department within the Library of Congress), have been the central

68
   https://abovethelaw.com/2018/02/how-blockchain-just-may-transform-online-copyright-
protection/?rf=1 (last visited October 8, 2018). Significant questions remain, however,
whether such a system can be fully decentralized given the need for pre-registration
information verification. However, other than a cursory view, The Copyright Office does
not verify the veracity of information submitted. This often leads to a “battle of the
certificates” when two registrants have competing and conflicting information.
69
   https://coincentral.com/future-of-erc-721-and-unique-assets/ (last visited August 6,
2018).
70
   See https://searchsecurity.techtarget.com/definition/asymmetric-cryptography. For an
explanation of the origins of asymmetric cryptography, see the Whitfield Diffie Martin
Hellman, paper, New Directions in Cryptography, in which the authors first publicly
proposed asymmetric encryption (1977)
https://searchsecurity.techtarget.com/definition/Diffie-Hellman-key-exchange
71
   See https://coincentral.com/future-of-erc-721-and-unique-assets/.
72
   See https://coincentral.com/future-of-erc-721-and-unique-assets/. See also __________.

                                                                     P a g e 14 | 17
Cryptokitties, Cryptography and Copyright
                                  15
intermediaries charged with responsibility of maintaining a local or national
registry of copyrights.73 National registries were thought to be in the best
position to facilitate the huge undertaking of administering the respective
country’s copyright rules and regulations. These governmental entities serve
as the central repository of representative copies of registered works.
Additionally, copyright registers maintain a searchable database to indicate
owner and contributor information, the title and nature of the registered work,
The essential characteristics of public blockchains—immutability,
censorship-resistance, and assurance can now be used to replace this process
and provide greater protection of data, transparency and censorship
resistance.
        Although the Copyright Office requires deposits to register a work,74
it does not retain all works deposited for copyright registration.75 One reason
is the amount of physical and electronic storage space required for an ever-
growing database of creative works. However, a blockchain that supports
decentralized file storage, like FileCoin, would not have the concern. Relying
on the Interplanetary File System (IPFS),76 he blockchain would be able to
store transaction data and also the representative copies of the underlying
work.77
         [TO BE UPDATED]

         __. Licensing and Monetizing (Crypto Asset Management)
         [TO BE UPDATED]

73
   Congress created the United States Copyright Office, and the position of Register of
Copyrights, in 1897. “The Register directs the Copyright Office as a separate federal
department within the Library of Congress, under the general oversight of the Librarian,
pursuant to specific statutory authorities set forth in the United States Copyright Act.
Earlier in the Nation’s history, from 1870-1896, the Librarian of Congress administered
copyright registration (at that time mostly books) directly, and earlier still, from 1790-
1896, U.S. district courts were responsible for doing so.” See
https://www.copyright.gov/about/ (last visited August 1, 2018).
74
   CITE
75
   See Copyright Office Circular No. 6, Obtaining Access to and Copies of Records and
Deposits, https://www.copyright.gov/circs/circ06.pdf (last visited August 1, 2018).
76
   The IPFS A peer-to-peer hypermedia protocol designed to make the web faster, safer,
and more open. The four problems IPFS endeavors to solve are: 1) the inefficiency and
expense of the HTTP Internet protocol; 2) the daily destruction of Internet history; 3) to
halt and counteract the hypercentralization of the current Internet’s current iteration; and 4)
to enable resilient networks that are not wholly dependent on “Internet backbone
connectivity”. See https://ipfs.io/#why (last visited August 1, 2018).
77
   See https://medium.com/swlh/filecoin-and-ipfs-f5e84ae79afa (last visited August 1,
2018).

                                                                               DRAFT-10/8/2018
__. Reproduction
[TO BE UPDATED]

__. Adaptation
[TO BE UPDATED]

__. Distribution
[TO BE UPDATED]

__. Public Display and Performance
[TO BE UPDATED]

                                     P a g e 16 | 17
Cryptokitties, Cryptography and Copyright
                                  17
       Part V
       Finally, in Part V I, I examine the future of tokenized copyright assets.
Any goods or services capable of being represented in software can be
“tokenized” and, thus, reflected as a digital asset recorded on a blockchain.
       [TO BE UPDATED]

       Conclusion

                                                                  DRAFT-10/8/2018
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