Crypto Quentin and Non-Fungible Taylor

🎧 I spoke to Meghan McCarty on NPR Marketplace about how offices are becoming consumer products.

📜 I joined forces with ~18,000 other crazy people to try to buy a rare copy of the United States Constitution. Don't ask me why; it's 2021. The plan was to put it in a museum. More on this story here. Someone outbid us, but we'll be back.

🌎 We just kicked off the first cohort of Hype-Free Crypto. There are 130 participants from every corner of the earth. The next cohort begins in January.

I'm on the road, so this week's piece is quick, dirty, and presents more questions than answers. It looks at how the best way to reform the copyright system is to make it redundant.

How many artists does it take to change a lightbulb? I don't know. Every artist would approach this task differently. Quentin Tarantino would throw a chair at the lamp, bash it into the ground, and then use the live wires to set the whole place on fire. Taylor Swift would sit down and write a song about life in the dark, call a lawyer to sue whoever's responsible, and then give a series of interviews about the experience. Both will probably make millions from the experience.

I kid, but you get the idea: Tarantino and Swift approach life and art very differently. Each of them recently grappled with a copyright question. And each chose to solve it in a very different way. Both solutions tell us something about the future.

Taylor Swift just released a new album full of old songs. Artists often repackage old goods to make more money, but Taylor's act was even more specific: She re-recorded her pieces to get a higher share of streaming revenue. The Wall Street Journal explains:

"In a typical record deal, a label can take 80% of streaming revenue, with just 20% going to an artist. When artists own their masters, they keep around 80% to 95% of that revenue, music lawyers say."

The master recordings for Swift's first six albums are owned by an investment company after being sold by a label that acquired it together with another investment company — all against Swift's wishes. As a result, every time an early Taylor Swift song plays on the radio, investors collect a bigger check than the singer does.

Swift decided to turn the tables (or is it to turn the turntables? I don't know, it's late). She began re-recording her earlier albums and asked listeners and broadcasters to only use "Taylor's Version" from now on. Even if the songs sound identical, Taylor gets a higher cut of the revenue generated from the new versions than the old ones.

This whole episode enabled Taylor to connect more deeply with fans, protest the unfairness of industry practices, and, of course, make more money. (Interestingly, both the new and old versions of her songs enjoyed higher downloads over the past few weeks — enriching both her and her "enemies" who own the old masters).

On the other side of the creative universe, Quentin Tarantino was grappling with his own copyright question. He, too, wanted to connect more deeply with fans, more money, and see what he could get away with. But re-recording a movie is a bit more complicated than re-recording a song (and John Travolta isn't getting any younger). So Tarantino found a different path. CNN reports:

"The two-time Academy Award-winning director and screenwriter announced Tuesday that he will sell NFTs of seven original scenes from "Pulp Fiction," arguably his most famous film. Tarantino will auction the never-before-seen clips as "Secret NFTs," which will be built on Secret Network — a blockchain that focuses on privacy."

Unlike Swift, Tarantino did not try to maneuver within the existing system. He just crashed through a wall and didn't even look back to see if anyone bothered to chase him. But some people are. NBC reports:

"Hollywood studio Miramax sued director Quentin Tarantino on Tuesday over his plans to sell digital collectibles based on his 1994 film 'Pulp Fiction.'

...The lawsuit by Miramax... alleges that Tarantino also plans to sell NFTs of page scans and digital film props."

Now lawyers and judges can argue about whether Miramax has the power to stop Tarantino from selling NFTs, whether NFTs can extend or replace the traditional copyright system, and how much control artists can retain over their work.

What's already clear is that regardless of the law, artists that have a direct communication channel with their fans can basically do whatever they want. Taylor Swift does not need a label in order to get her music distributed. She can distribute it only and tell her followers which version to listen to. Tarantino doesn't need a studio in order to market a new set of collectibles or manuscripts. All he has to do is shout something on a stage somewhere — and let other people spread the message only.  

Meanwhile, traditional institutions are scratching their heads, trying to figure out how to wrestle back the power they lost. And not just music labels and film studios, but lawyers as well. James Grimmelmann, A Cornell Law professor, recently published a piece that explains why NFTs are useless and will never replace legal rights or become "legally authoritative."

Grimmelman makes various points, but he still misses the point. NFTs do not need to become "legally authoritative." They don't offer a way to reform or upgrade the existing system. Instead, they offer an alternative system.

Laws exist in order to fill a gap: they make it possible for people to trust each other. If I have a tomato and you have a dollar, the law ensures that I will give you the tomato if you give me the dollar. It also ensures that the transaction will be reversed if you don't really have a dollar and I don't really have a tomato. By enabling trust, the law enables people to transact with each other and keeps the economy humming

NFTs, and blockchain technology more broadly, do not seek to enable trust. They seek to make trust redundant. When you buy an NFT of an on-chain digital good, the transaction cannot happen unless both parties have what they claim to have, and goods don't change hands unless they're paid for.

To use a popular analogy of this process, consider an analog vending machine. You put a coin into the machine, and a can of Coke rolls out. The can is visible the whole time, and the coin itself activates the mechanical process of ownership transfer. The coin is not just a payment that triggers a transfer. The act of entering a coin is part of the transfer itself. It is part of the mechanical process that culminates in the can's release.

That's why you don't need a lawyer or police officer to buy a can of coke. Vending machines don't require any trust or enforcement because they are designed to make it almost impossible for either party to cheat the other.

NFTs are trying to apply the same logic to a variety of other goods and services. At the moment, this process only works with certain digital goods. But with everyone talking about the "metaverse," digital goods are going to grow exponentially over the coming decade. People will pay (and are paying for) virtual clothes, dance moves, virtual weapons, virtual real estate, music, videos, code snippets, articles, and various services that are delivered exclusively online.

NFTs have the potential to govern many of these transactions. The legal system will also evolve and might grant them more powers over non-digital goods. But it doesn't have to. The greatest promise of NFTs is to make legal enforcement unnecessary. Not for everything, but for many things.

Such a system would make many existing gatekeepers — such as record labels and film distributors —  redundant. But it will also give rise to new gatekeepers. And, if it works as designed, it will make it harder for anyone — including artists —  to breach their contracts. But then again, even if you lock Quentin Tarantino inside a vending machine, I'm sure he'll find a way out.

Have a great weekend. 🙏 If you enjoyed this piece, subscribe to my newsletter. If you'd like to dive deeper into the promise of limitations of blockchain technology, check out my Hype-Free Crypto course.