Tag: NFTs

Using NFTS to Jump Start Your Entrepreneurial Ventures

By: Jeremy Garcia

The year 2021 will be remembered for many reasons: Kamala Harris became the U.S.’s first female African American Vice-President, Netflix’s Squid Games shocked audiences, Omicron arrived, the January 6 Capitol Riots, and the NFT craze began.

Non-fungible tokens or “NFTs” have attracted the likes of Sotheby’s, Snoop Dog, investors, and small business owners.  As of December 2021, Pak’s the Merge is the most expensive NFT sold for $91.8 million.  Imagine owning a share of that to jump-start your business venture.  But how can you make NFTs work for you?

what are nfts and how do they generate revenue for your business?

NFTs are a class of “one-of-a-kind” crypto assets and can be artwork, virtual real estate, music, files, and are created on a blockchain.  NFTs are valued on their rarity, making them non-fungible, unlike bitcoins or fiat money which hold the same value (fungible).  The advantage of NFTs are that ownership and authenticity can be verified because blockchain technology is hard to hack or modify.

the general overview

You sell NFTs by selecting the appropriate marketplace and then funding a crypto wallet to “mint your NFT” to upload it onto the marketplace.  You then choose the option to sell and follow the appropriate prompts to list your asset, including listing time, price, the type of sale (if you want to sell shares of your asset), currency accepted, and more.  The marketplace will calculate the “gas fees” or transaction fees that compensate blockchain miners who add the NFT code to the blockchain and validate the asset.  After the NFT is listed, you must promote it on the marketplace or other platforms, including your website.

selling your art as a creator

Many NFTs are sold by their creators to generate profit and garner attention.  The creator or owner remains with the copyright of the NFT (more on that later), however, buyers purchase property in the NFT, meaning they have proof of the digital ownership of the asset but the creator retains copyright.  This is like music, while you buy the rights to listen to the song, you cannot (or should not) reproduce it for public use because the copyright belongs to its creator.  By selling your own work, interested buyers purchase your work’s property rights and you can either reinvest the profit in other crypto or exchange the profit and transfer it to your bank account.  You can list your NFT to generate additional gains if you set to collect royalties if buyers sell or trade your work.

nft tradings 

Another way to generate profit with NFTs is to buy a sell other creators’ assets.  Similar to buying physical collectibles, you buy a stake in investment and retain it until the demand is higher than your original purchase price and sell it.  You don’t have to mint the NFT because the owner already did this, but you will pay additional gas fees to relist the asset.

a checklist of things to consider when raising capital using nfts 

    1. Understand NFTs Before Jumping on the Bandwagon – It is crucial to understand the nuances of the business and a good practice is to visit sites like Coindesk.com or CoinMarketCap to understand blockchain, cryptocurrencies, and NFTs.  You can also watch YouTube videos or other online sources, but you must use your better judgment to ensure source legitimacy.
    2. Choosing the Correct Marketplace – There are a variety of marketplace platforms used to sell NFTs.  OpenSea is the largest NFT marketplace, but others have pros and cons.  There are marketplaces specifically for Sports NFT trading, others for digital art, some for music.  Some use specific tokens or coins, while others accept various forms of payment.  OpenSea and Rarible seem to be the best for beginners.  However, inform yourself of the pros and cons of each marketplace before listing your NFTs.
    3. Minting, Wallets, and Other Tools You Need Before Selling – Minting refers to the process of coding the NFT onto the Ethereum blockchain.  Ethereum is a decentralized, open-source blockchain that functions on smart contracts.  Ethereum has its cryptocurrency known as ETH, and before you can sell an NFT, you need to open a crypto-wallet and exchange fiat currency into ETH crypto to pay for the gas fees.  There are various wallets to choose from, and it’s best to research the appropriate wallets for your interests.  You will also need to use a wallet or app to convert crypto to fiat money.  Some wallets, like Coinbase Wallet, let you convert if they support your type of crypto.
    4. Fees – Every event or transaction involves a fee, and whether it’s listing your NFT, using a marketplace, opening a wallet, exchanging between fiat currency and crypto, every event has a transaction fee attached to it.  However, some platforms charge more than others, and gas fees vary because of many factors such as time of day, transaction amount, and more.  Research the various platforms and wallets to find out how their fees work.
    5. Legal Considerations Based on How You Sell NFTs –

If you own your NFT, register your work with the U.S. Copyright Office or the copyright office in your jurisdiction.  While this won’t necessarily prevent copyright infringement, you have the right to sue the parties involved.  If you’re trading NFTs, make sure you avoid liability by selling property you have rights to.

If you plan on selling fractions of your NFT, you might have to register with the Securities Exchange Commission “SEC”.  While NFT regulation is still unclear, the SEC has used the Howey Test—SEC v. W.J. Howey Co. —to determine whether fractionalized crypto shares can be considered an investment contract and, therefore, a security.  Blockchain assets usually run-on Smart Contracts, considered the same as a contract under the SEC.

Taxation is something to keep in mind.  While the IRS also struggles with crypto regulation, it classifies crypto assets as property, and you need to report your assets as such.  Additionally, it is crucial to record all transactions because every transaction is likely a taxable event.

It is essential to seek legal counsel if you want to use NFTs to generate income for business ventures because an experienced attorney can explain and likely provide solutions for a variety of legal issues.

This post has been reproduced with the author’s permission. It was originally authored on February 7, 2022 and can be found here.

Jeremy Garcia, at the time of this post, is a third-year law student at Penn State Dickinson Law interested in practicing in Capital Markets and Acquisitions after law school. Born in the Dominican Republic and raised in New York City, Jeremy received a Bachelor of Arts and a Master of Public Administration from John Jay College of Criminal Justice. Jeremy worked in government in the Telecommunications and Data Privacy field before law school. Jeremy enjoys volunteering with organizations that help underrepresented communities and is the current Chair for the National Latina/o Law Students Association.

Sources:

Jacob Hale, The 10 Most Expensive NFTs Ever Sold, Dexerto.com (Dec. 18, 2021). https://www.dexerto.com/tech/top-10-most-expensive-nfts-ever-sold-1670505/

Coinbase Basics, What is a non-fungible token (NFT)?, Coinbase.com, https://www.coinbase.com/learn/crypto-basics/what-are-nfts

Nicholas Rossollilo, How to Sell Non-fungible Tokens “NFTs”, The Motley Fool (Dec. 11, 2021). https://www.fool.com/investing/stock-market/market-sectors/financials/non-fungible-tokens/how-to-sell-nfts/

Will Gottsegen, Policy, Some NFTs Are Probably Illegal. Does the SEC Care?, (Oct. 20, 2021). https://www.coindesk.com/policy/2021/10/20/some-nfts-are-probably-illegal-does-the-sec-care/

U.S. Securities Exchange Commission, Framework for “Investment Contract” Analysis of Digital Assets, https://www.sec.gov/corpfin/framework-investment-contract-analysis-digital-assets

Internal Revenu Services, Small Business & Self-Employed: Virtual Currencies, https://www.irs.gov/businesses/small-businesses-self-employed/virtual-currencies

Brian Frye | Featured Entrepreneur | 2022

By: Fredner Prevalus

Professor Brian Frye of the University of Kentucky College of Law is a groundbreaker when it comes to creativity and entrepreneurship. He is an artist, filmmaker, and law professor. We talked about how the combination of art and the law inspires him in his writing, his involvement in NFTs, his podcast, and his entrepreneurial spirit.

 

Act I: Setting the Stage

“It’s conceptual artwork in the form of a law review article.”

Professor Frye obtained his Bachelor of Arts in Cinema Studies with a minor in Philosophy from the University of California at Berkeley in 1995. He later went on to earn a Master of Fine Arts in filmmaking from the San Francisco Art Institute in 1997. He spent several years working on various projects in the independent filmmaking and artistic space before earning his J.D. from the New York University School of Law in 2005. After Professor Frye earned tenure at the University of Kentucky School of Law, he started to unconventionally use his legal scholarship as a medium for conceptual art. This led to the law review article titled “SEC No Action Letter Request.”

The article was a prospectus for the sale of the piece of conceptual art – the piece of conceptual art being the law review article itself.  In it, Professor Frye describes how the artwork/article is also a security under the Howey test and why the SEC should not grant the stated request because it would be permitting the sale of an unregistered security. The clever, thought-provoking, and humorous article caught the attention of many on the internet, including a notable Bloomberg financial columnist who praised the article on its exploration of our understanding of the definition of a security. However, the article/artwork was dismissed as a security because of the overly broad implications and the presumption that no one would purchase it. Essentially, a market for it is non-existent.

Act II: Enter NFTs

“I dreamed up a market and then I woke up and there it was!”

Our conversation quickly moved to a discussion about his latest entrepreneurial endeavor, NFTs.

In the middle of 2020, several months after publishing the abovementioned article, Professor Frye found NFTs.

NFTs, or Non Fungible Tokens, are unique pieces of data that are stored on a digital ledger that are typically represented by intangible goods. NFTs are all the rage right now, as you can see from this chart.

Professor Frye explained that NFTs are essentially “a digital token that gives you nothing.” This is in reference to the traditional legal understanding of property ownership that confers an exclusive bundle of rights to the owner – use, convey, destroy. An owner of an NFT does not necessarily have an exclusive right to the good represented by the NFT and in this sense, ownership is separate from the good. All that one “owns” is the NFT itself.

What is the value of nothing? You would be forgiven if you intuitively answered nothing. However, according to Professor Frye, “nothing” has value. According to recent reports, Professor Frye has earned upwards of roughly $65,000 in the NFT market.

One may reasonably ask, what benefit then is someone receiving through the purchase of an NFT?

One possible benefit is that the purchase is an example of the economic concept of conspicuous consumption. With conspicuous consumption, the benefit or utility of a good – called a Veblen or luxury good – is not necessarily exclusively derived from the good itself, but rather the acquisition of the good, which serves as a signal for one’s status, power, or wealth. In contrast to normal goods, there’s a positive correlation between price/exclusivity and demand for Veblen goods. Another possible benefit is that the purchase is an investment in the potential long-term profitability of the artist and their work. In this sense, it’s not dramatically unlike the purchase of a security, such as shares of stock in a publicly-traded corporation.

Whatever the reasons, Professor Frye found an exciting new home for his conceptual art. A couple of months after creating the NFT for the conceptual artwork “SEC no action Letter Request,” a buyer purchased the NFT for 0.5 eths which is equivalent to $1500. Professor Frye subsequently created “Deodand: How to Do Things with Legal Scholarship,” a law review article that consists of a collection of conceptual art in the form of individual poems or “cones,” that reflect on what it means to do legal scholarship. Deodand was sold for a total of $25,000 on the OpenSea NFT market.

Act III: Reflections and Predictions

“If people are actually invested enough in the production of works of authorship that they want to invest in the producer themselves as opposed to investing in the ownership of particular works, I think that might work. I hope it might work.”

In addition to finding a space where individuals can share in the joy of conceptual artwork, Professor Frye is excited about the educational possibilities in this new arena. As an academic, he argues that there is a responsibility to understand what the market is. In addition to legal scholarship, he explores the market through discussions with participants in his podcast “ipse dixit.” Although not certain about what the future of the new market entails at this early stage, Professor Frye envisions that the market will become a plurality of different markets. Also, through his new article “After Copyright,” he’s hopeful that the new market means that we may be able to “do away with property as a way of incentivizing works of authorship.”

Act IV: Limited Laissez-Faire   

Professor Frye acknowledges that government regulation and oversight can be a good instrument to promote efficiency, safety, and fairness. However, he cautions that short-sighted, uncreative policy-making that lacks sufficient insight and understanding of the new market can potentially be problematic in this space. The prudent approach at this early stage may be to allow the market some room to develop before deciding on the most effective means of placing reasonable safeguards. The process can be informed by taking lessons from self-regulatory practices already being developed by market participants.

Act V: A Look-Back

“I’m a problem solver. I like to solve problems. When I see a problem, I want to solve it no matter how ridiculous the solution is.”

In addition to his recent endeavors in the NFT space, Professor Frye’s curiosity and intellectual creativity have led him to produce a wide variety of significant and influential pieces of work.

For instance, his first published law review article, “The Peculiar Story of United States v. Miller,” was cited by the late justice Antonin Scalia in the landmark SCOTUS majority opinion in District of Columbia v. Heller. The article was also credited by the late Justice John Paul Stevens for influencing his approach in Heller. Moreover, as an independent filmmaker, one of Professor Frye’s most notable pieces of work was co-producing “Our Nixon,” which is an archival documentary highlighting key moments of the Nixon presidency. The film was featured on CNN, screened at numerous film festivals, and won a significant number of film accolades.

Act VI: OFF Stage & Parting Words

“Nothing is stopping you from just innovating in any space you happen to be in, including legal scholarship and producing work that people actually want to consume.”

Outside of his professional and intellectual pursuits, Professor Frye enjoys the simpler things. At home, a typical day might involve waking up late and making breakfast for his wife who is also a law professor, taking the dog for a walk, doing some work in the bathtub, and having dinner with his wife. For up-and-comers, Professor Frye encourages budding legal scholars to pay attention to the needs of the audience and “produce something people actually want to read.” Not enough thought is given to the interest of the audience in legal scholarship. It’s important to consider both the style and substance of a piece of work in order to help maximize its impact.

“I hope, or I wish, people would spend more time thinking creatively about what they’re doing and why they’re doing it and how to maximize the impact of what they’re producing.”

Social Media

Professor Frye’s Twitter: @brianlfrye

Professor Frye’s Podcast: https://shows.acast.com/ipse-dixit

Fredner Prevalus, at the time of this post, is a second-year law student at Penn State Dickinson Law. He is a Haitian-Canadian from Toronto, Canada. He earned his MA in Economics at McMaster University in 2014 and worked as a broker in the financial services industry prior to law school. He is the current Treasurer of the Animal Legal Defense Fund, Student Bar Association Budget Committee Member, Law Lion Ambassador, and is participating as a Leading Law Student with the Carlisle Borough Council. His general interests lay at the intersection of law, economics, business, and finance. His special interest areas are in corporate and antitrust law. 

 

Sources

(1) Newman, Jack. (2021, Oct2). A Law Professor Made $65,000 Selling NFTs. Here’s How. Business Insider. Retrieved November 11, 2021, from https://www.businessinsider.com/law-professor-made-65000-selling-nfts-how-he-did-it-2021-10

(2) Person, & Howcroft, E. (2021, July 6). NFT sales volume surges to $2.5 bln in 2021 First Half. Reuters. Retrieved November 11, 2021, from https://www.reuters.com/technology/nft-sales-volume-          surges-25-bln-2021-first-half-2021-07-05/.