NFTs can embed legal relationships and legal terms into code and automate the entire life cycle of the associated transactions.
“Here we come, walkin’ down the street. We get the funniest looks from everyone we meet. Hey, hey, we’re the Monkees, and people say we monkey around. But we’re too busy singing to put anybody down.”
In 1966, while the established crowd thought rock music was a passing fad — mere dance music for teenagers — the Monkees went on to sell more than 75 million records worldwide. And here we are almost 60 years later with the “smart money” laughing at a new set of monkeys, non-fungible tokens (NFTs) known as the Bored Apes and their Yacht Club (#BAYC). To most lawyers, bankers, and accountants, and other smart folks, NFTs are just another passing fad. Silly monkeys!
Columnists here on ATL are a case in point. Joe Patrice, recently wrote: “It’s not that NFTs are dumb, they are incredibly dumb.” Olga V. Mack, while not engaging in such ridicule, tends to focus on NFTs merely as digital art. The reality is that NFTs are the new digital contract (#legaltech). Routine Process Automation (RPA) and its ability to automate the drafting of paper contracts is of course still interesting because most lawyers still haven’t learned to apply it to their practice, but that doesn’t mean RPA tools like ContractExpress are still cutting edge. Cutting edge is a technology that completely eliminates the need for the paper contract. NFTs do just that. They embed legal relationships and legal terms into code and automate the entire life cycle of the associated transactions. Let’s consider some use cases.
First of all, the silly monkey pictures that appear on the tokens associated with the Bored Ape Yacht Club are actually no different than the cover of a book. Open up the book, look at the underlying token, and you will find that the holder of the NFT has purchased membership rights to a club that includes access to physical venues and events as well as future distributions automatically received in digital wallets in which the NFT is held. The rules and processes for the transfer of the asset and the benefits (the club membership, distributions, etc.) are immutable, transparent, and free of transaction costs (#frictionless).
Since we are talking about music here as well, let’s talk about concert tickets. Neonox.io offers proprietors of events a blockchain-based platform on which to issue event tickets as NFTs. The NFTs offer a transparent and guaranteed method of transferability, enable the event owner to participate in resale proceeds, eliminate transaction fees, ensure authenticity, remain connected with the event attendee, and leave the event attendee with digital memorabilia following the event. The event ticket NFTs eliminate the question of authenticity and the middle layers controlled today by Ticketmaster, Stubhub, and others. Sure the NFTs, like paper concert tickets, will display some relevant artistic design. Imagine if someone thought a paper ticket to a Rolling Stones concert was just a silly picture of a funny looking man with a big fat tongue. Worthless before the concert? Worthless after the concert?
Balaji Srinivasan, a Stanford University technology professor, and author the book, “Network State,” talks about the concept of “soul-based NFTs” a token that is permanently associated with an individual with a specific purpose of non-transferability, say for example, your passport. Consider the legal rights controlled through today’s passport system of paper books and inkpad-based stamps. Say you need a record of what date you entered a country and what date you left, for tax residency purposes or visa authorization purposes among other reasons, and you are still flipping pages trying to decipher faded date stamps. An NFT-based passport paired with a biometric marker (fingerprint or iris scan) provides a mechanism that ensures authenticity, traceability, immutable records, and eliminates the friction associated with today’s paper book and inkpad stamp records. It is this antiquated paper-based system that is incredibly dumb.
Certainly, a large number of pointless NFT projects abound — many such projects are literally nothing more than computer-generated variations of the same image and absolutely no functionality. The inception of the dot com era in the 90’s similarly saw a multitude of sham websites. Anyone who relied on that fact to conclude that the internet was dumb or the need for a business to have a website was dumb probably ended up feeling like they made a silly mistake, much like the experts who wrote off the Monkees in 1966.
Sanjay Kamlani is the founder and CEO of Maker5, a law firm innovation advisory and software development business with a legal industry Venture Studio. Sanjay serves on the Duke University Innovation & Entrepreneurship Board of Advisors and is an active member of Duke Capital Partners. You can reach Sanjay at [email protected] and follow him on Twitter @SanjayKamlani.