FIRST PUBLISHED March 2, 2016 (Medium)

Author’s Note: I am in the process of moving my older work to Mirror. This was the last in a series of six articles laying out how blockchain tech could prove revolutionary for the content ecosystem.

Over the past few weeks, we’ve introduced one by one the primary ways in which blockchain technology may impact the creative industries. To recap, here are the areas we’ve covered:

• Proof of Creation, Ownership and First Use

• Transfers of Digital Assets and Tokens

• Rights Management

• Smart Contracts

• Micropayments

As discussed, there are individuals and companies focused on all of the above areas — for the growing list, check out our Current Blockchain Projects In The Arts page (and if we’ve left yours out, please let us know).

The areas we’ve discussed for the most part involve what happens to artistic works after they have been created — how are they registered, transferred, managed, paid for, etc. But a technology that provides for secure transactions between parties may also provide a platform for parties who wish to work together on creative projects, and also for parties who wish to incorporate existing works into new and different works. So today we’ll discuss:

Creative Collaboration

First, bear with me for a little copyright background. Jump past the italicized text below if you know all of this already

There are a variety of ways in which parties collaborate to produce artistic content:

Joint works.* Two or more individuals may contribute to a unified work and agree that their contributions be deemed as equal — under copyright law, this is known as joint authorship. An example is two screenwriters collaborating on a script, where both share credit as authors.*

The U.S. Copyright Act defines a “joint work” as

a work prepared by two or more authors with the intention that their contributions be merged into inseparable or interdependent parts of a unitary whole. [Note that in the copyright context “author” always means any creator of original content, whether it’s a photographer, sculptor, filmmaker, etc.]

If this mutual intent exists, both authors will be considered joint owners of an undivided interest in work, meaning that either author can exploit the whole work without consent of the other author(s), with only a duty to share equally any royalties earned. However, a joint author can only license the work on a nonexclusive basis to third parties — in order to give a third party the exclusive right to use the work, all of the joint authors must agree.

Collective works.* Authors and artists and musicians and filmmakers can also make their own contributions to a collective work, such as a compilation. In this case, the individual authors retain copyright in their contribution, but the party that puts together the collection will be deemed the author of the whole, including edits, the selection and arrangement of the pirces, introductory and connecting material, etc. The creator of the collective works is given the right to use the individual contributions only in the collective work, as well as in later editions of that collective work.*

The Copyright Act defines “collective work” as

a work, such as a periodical issue, anthology, or encyclopedia, in which a number of contributions, constituting separate and independent works in themselves, are assembled into a collective whole

Derivative works.* The history of artistic creation is also the history of borrowing and building upon the work of others. The concept of a derivative work recognizes that some new works are based heavily on an already-existing work. A film derives from a screenplay. A musical arrangement derives from the original composition. A YouTube video mash-up may be seen as derivative of multiple underlying pieces of music and video.*

To create a derivative work, the creator must have permission to use the underlying, original work, unless he or she “transforms” the underlying work so substantially that the law will recognize it as its own, unique new creation. Thousands of pages of ink have been spilled by litigants and judges over where to draw this “fair use” line, and we won’t delve into that here. Today, we’re more concerned with collaborative efforts where a new author wants permission to incorporate an existing piece of text, music, photography, art, film, etc. into a new work.

The formal definition of “derivative work” under the Copyright Act is

a work based upon one or more preexisting works, such as a translation, musical arrangement, dramatization, fictionalization, motion picture version, sound recording, art reproduction, abridgment, condensation, or any other form in which a work may be recast, transformed, or adapted.

Creative Collaboration Using Blockchain Technology

When disputes arise between joint authors, between authors and creators of collective works, or between authors and creators of derivative works, those disputes generally boil down to either a misunderstanding as to the parties’ rights and interests (sometimes because those rights have not been carefully set forth), or a deliberate attempt by one party to exceed the scope of their rights. Thus, any system that promises more transparency into initial ownership, what rights have or can be granted, and what transactions have occurred involving those rights, stands to curb such disputes.

The blockchain does promise this transparency. Let’s start with joint works. The key legal issue in determining joint authorship is the parties’ intent. To the extent that blockchain-based systems make it easier for collaborators to create works with rights information baked in at the inception, authors can clearly indicate their intent to create a joint work as it’s created.

I think that it’s quite likely that we’ll see word processing programs, music and video production platforms, and other content creation systems built on top of blockchain technology in the near future (or maybe at least plug-ins that allow a work being created to be registered and/or imbued with key rights info at a click? Where’s a blockchain developer when I need one…).

While centralized client-server systems may still be preferable — for multiple technical reasons — in local environments like the workplace, at the very least collaborative efforts between users in different locations could well benefit from a blockchain-based underpinning, which would allow owners/creators to mutually decide how to proceed and lock their decisions in place.

This would not just be for joint works. Works contributed to a collective work would also be more traceable and identifiable — which for instance could be very valuable if a third party later saw a particular piece they liked in the collective work and wanted to use it themselves for some other purpose, and could easily identify the owner and license the necessary rights. More importantly, creators will be able to embed terms regarding how works can be used (or not) for subsequent derivative works, and easily track the usage of their works in such derivatives.

With the ability to securely identify, record and track each contributor a particular creative works creation and developments, one can imagine that many platforms could be built that might enable forms of collaboration we have not even dreamed up yet.

Here’s a far-flung example. One concept that’s been discussed in the blockchain context is a distributed autonomous corporation, which is sort of a company run without human control (and without a centralized control at all, but rather operating pursuant to a distributed set of rules). For a DAC, humans contribute specific tasks that cannot be performed by computers, and are automatically paid for performing those tasks. In the future, the production of digital films or musical works might be a candidate for a DAC, at least in part — humans would perform all of the various creative tasks (including editing or mixing etc. through to the final version) but automated agents would handle transmission of portions to the various collaborators, record interim versions to the blockchain, and might for instance finalize the ultimate digital files for distribution. The point is there would be no production “company” overseeing things, but rather an assembled group of humans who each agree to perform their own creative tasks under an agreed set of rules with a clear view of how much they will be paid and what rights they will have in the released content. Almost like a co-operative association, but decentralized and partially automated. And the collaborators could do the work from anywhere in the world.

Sounds a bit sci-fi, and for now it probably is. When I open the first Decentralized Autonomous Law Firm™, I’ll let you know.

FIRST PUBLISHED February 29, 2016 (Medium)

Author’s Note: I am in the process of moving my older work to Mirror. This was the fifth in a series of six articles laying out how blockchain tech could prove revolutionary for the content ecosystem.

Would you be willing to pay me a couple of cents for reading this article?

In a nutshell, that’s the premise of micropayments: Everyone pays a small amount — potentially fractions of a cent — for each piece of digital content they consume.

There are essentially three revenue models for digital content:

1. Offer a specific piece of content for purchase or rent at a set price.

2. Offer a larger pool of content for a subscription fee.

3. Offer content for free, supported by ad revenue.

The beauty of micropayments is that theoretically they can open up the first revenue model to a wider array of content. If adopted widely, they can also potentially allow for more dynamic (or at least much lower) pricing for all types of content, including professionally-produced music, television, film and books.

The idea of micropayments is hardly new. They’ve existed in the physical world for a long time, anywhere that high volume and cash payments come together. Even better, they exist where the payments can be made and the products can be delivered mechanically, without human intervention. Here’s a classic example:

For digital content, micropayments were first proposed in the 1990s as Internet usage was burgeoning, and many large companies began developing micropayment solutions in anticipation of widespread adoption. That never happened. The closest we’ve come to micropayments in broad use is the 99 cents (sometimes even a bit less) that consumers routinely pay for apps and songs on the various online stores offered by Apple, Google, Amazon and the like.

Newspapers, magazines and other text content have had more difficulty finding a similar model, although the start-up Blendle is one of the latest attempts to make micropayments work (in Blendle’s case, by having consumers pre-fund an account from which the payments are taken).

Why has the promise of micropayments not been borne out in the past, and why does blockchain technology offer a new hope for this concept? Two words: Transaction costs.

Let’s take Apple’s iTunes store, one of the few successful models. If a consumer buys a song for 99 cents, Apple reportedly keeps about a third — maybe around 35 cents. The rest goes to the labels and music publishers, and finally a portion to the artist (estimates suggest around 10 cents per download). For each individual transaction, however, credit card companies apparently charge Apple around 25 cents.

While Apple has developed software that delays payments and groups together transactions from a particular user over a few days, so that Apple only pays one transaction fee for multiple transactions, as you can see, it’s difficult to drive payments much lower using traditional billing methods. And remember, for Apple, the driving reason for the store is not to make money from downloads, but to drive sales and adoption of its much more expensive devices.

As we’ve discussed previously, blockchain technology theoretically reduces transaction charges by allowing trusted transactions directly between parties, without the need for intermediaries. There’s still a cost involved in transactions — essentially the infrastructure costs of whatever blockchain network is being used — but it can be magnitudes lower than current transaction costs. For instance, small transactions on the Bitcoin blockchain currently might cost a few cents. But there are solutions being developed that might drop even these costs dramatically.

Ultimately, a micropayment system can be combined with a digital asset registry and a rights management/smart contract system, all using blockchain technology, to allow a content provider to release new content with embedded mechanisms for how underlying rights are transferred and used, and how payments are made to each of the parties responsible for developing the content. That’s precisely the type of structure being developed by companies like Monegraph, ascribe, Ujo, Stem, and others.

One can imagine a future where micropayments become the norm for all digital content, leading to a true consumption-based model that means consumers pay only for the content they actually care about, rather than subscribing to packages of content or wading through advertisements in order to consume individual pieces of content.

But there are many issues yet to be worked out before that can occur. Some are systemic, reflecting many years of doing business in a particular way, resulting in a bias against change. But others may be fundamental to user behavior. For instance, while Apple’s 99 cent music downloads can be deemed a success on some fronts, it is also widely blamed for severely damaging the music industry, by simultaneously driving up demand and consumption, while ripping apart the prior pricing structures. By convincing consumers to pay 99 cents for a single song, Apple caused more lucrative (to the artist and label) album sales to plummet.

In other words, when consumers can access only the specific content they truly want, and operate in a kind of online echo chamber, they may go looking for (or stumble across) other content less often. Newspapers and magazines know this well, and have resisted breaking apart their content into smaller consumable pieces, lest the scope of their coverage shrink towards the vanishing point.

Another question is whether consumers themselves will ever be ready for micropayments. In 1996, Nick Szabo — the creator of Bitcoin forerunner Bitgold, an early proponent of smart contracts, as well as a candidate for the still-anonymous creator of Bitcoin itself, “Satoshi Nakamoto” — wrote about the “mental transaction costs” of micropayments. In his paper, Szabo argued that the ability of humans to work out whether a transaction makes sense itself imposes a barrier on adoption of micropayments.

In 2000, Craig Shirky wrote an influential article on the mental cost of micropayments, also arguing that users hate them and that they will never be adopted:

[U]sers want predictable and simple pricing. Micropayments, meanwhile, waste the users’ mental effort in order to conserve cheap resources, by creating many tiny, unpredictable transactions. Micropayments thus create in the mind of the user both anxiety and confusion, characteristics that users have not heretofore been known to actively seek out.

One could argue that Apple solved this mental transaction problem by creating the flat price of 99 cents for music downloads. Had it instead implemented dynamic pricing, one can imagine that consumer confusion over pricing — even if in the long run it might drive individual prices lower — might have killed the whole thing right off the bat.

But one can also imagine systems where micropayments much lower than 99 cents, with some form of dynamic pricing working behind the scenes, might become the norm. Combined with smart contracts and blockchain-based management systems, they might well come to define a new ecosystem of content consumption.

Anyway, that’s my two cents.

Author’s Note: I am in the process of moving my older work to Mirror. This was the fourth in a series of six articles laying out how blockchain tech could prove revolutionary for the content ecosystem.

The first thing we do, let’s kill all the lawyers.

Thus says Shakespeare’s Dick the butcher in Henry VI, Part 2. It is unlikely that the Bard of Avon was predicting the Blockchain back in 1591, but when it comes to the concept of smart contracts, it must be noted that in some capacities attorneys are intermediaries, and as we’ve discussed in prior posts, you don’t want to be a middleman when B-Day arrives for your industry.

But we don’t have to write off the legal industry just yet. While smart contracts mediated by the blockchain may soon supplant some types of existing agreements, we have a very long way to go before a smart contract on the blockchain will be able to take the place of an arms-length negotiation between parties involving complex terms.

Still, the concept of smart contracts is rapidly advancing, and has the potential to cause significant disruptions to the creative industries, especially in the context of rights management and royalty payments systems.

So what is a smart contract?

Just like pretty much everything else in the blockchain world, a smart contract is a piece of code. Software. It’s not a true contract, in the legal sense, at least as of yet. In its simplest terms, a smart contract is a piece of code that two or more parties program to cause certain actions to happen as a result of specific conditions that occur or do not occur. A simple Bitcoin transaction is essentially a smart contract — two parties agree that a certain amount of Bitcoins will pass from one to the other upon signature by both parties.

Here’s an example of a slightly more complex smart contract. I sell a piece of digital artwork to a collector. The purchase price is to be paid in installments. The payment schedule is baked into a smart contract, and as the dates come up, the payments pass to me. After a certain amount of payments are made, the artwork itself passes to the collector (see our prior post on asset transfer).

You might be asking: but what’s the difference between this and just having the collector set up automatic payments to me from his bank? And couldn’t I set up a system with an escrow service to transfer the artwork once my account hits the right balance? Maybe I could even create computer script to automate that transfer on my end, if I was so inclined.

The short answer is, yes, all of this is possible using other methods. The difference is that without a smart contract, each party is conducting separate transactions, and each party (or its agent) controls those independent transactions. The collector can always call his or her bank and cancel the payments. I can change my own system so that transfer occurs on a different trigger, or not at all. To overcome these possibilities, the collector and I will have entered into a legal contract promising to uphold our portions of the bargain (which may or may not specify the technical means by which we comply). If one of us fails to live up to our side of the bargain, the legal document will give us the right to enforce the contract’s provisions in court. It cannot actually physically stop one of us from reneging.

By contrast, a smart contract is an agreement that “lives” on a system that is not controlled by either party or that party’s agents. Ideally, both the digital asset being transferred and the currency/assets used for the purchase also live on that system. The contract itself is a self-executing transaction between the parties triggered by events that can be definitively determined to have happened or not. For instance, April 7 arrives, a payment amount is transferred. When the amount transferred equals a certain amount, the underlying asset transfers. No other parties are involved — the distributed ledger ensures that all transactions are verified by multiple participants, and only transactions that follow the smart contract’s rules will be confirmed.

Smart contracts thus lend themselves to definable conditions, and fairly straightforward “If X then Y” logic. Once a condition or “input” becomes subject to any type of judgment call for which a human might be needed, smart contracts cease to be a viable solution (at least at present; one can certainly imagine a future where artificial intelligence agents make some of those calls).

One often-discussed “use case” for smart contracts is that of music royalties, the theory being that self-executing contracts on the blockchain will allow for a more transparent flow of royalties with fewer intermediaries between the copyright owners and artists and the consumers.

Here’s the idea. It takes multiple parties to create a sound recording. There is the composer of the music and usually a separate lyricist who must together grant a composition license to any party that wants to make the sound recording. To make that sound recording, multiple artists/performers will be involved, along with producers and others. But that’s just the beginning of the story; as Jamie Barlett writing for The Guardian recently put it:

The structure of modern music production is Kafkaesque. An artist might sign a deal with a record label. In between them and the music fan there could be the label’s parent company, distributors and hundreds of music services, each taking a cut. There are sync rights, mechanical royalties, performance royalties. Consumers and music services pay different amounts for streaming, downloads and physical sales, and different amounts again to songwriters via collecting societies and publishers. Different deals can be struck in different territories. Add to that a mild obsession with non-disclosure agreements and it can be close to impossible for musicians to work out what they are owed.

Others, including the U.S. Copyright Office and the Rethink Music Initiative at the Berklee Institute of Creative Entrepreneurship, have recently addressed the state of the music industry in this regard.

But the point in the context of smart contracts is that the parties who create music can embed licensing terms into these self-executing contracts, and when consumers purchase music the royalties can flow immediately to each of the participating parties. No middlemen will be needed to process the transactions or, possibly, the distribution of the content itself. Imogen Heap, working with start-up Ujo, recently released a single, Tiny Human, as a test case for a blockchain-based distribution and royalty system. Articles on that effort here, here, and here.

Where does the law itself come into all of this? That’s still an open question. Companies currently offering smart contract solutions approach the legal overlay in different ways. We’ll address this important issue in later posts. Suffice it to say that there will likely be somewhat of a messy interface, at least initially, between the somewhat Utopian vision of a freely operating system of smart contracts and existing laws.

Interestingly, that quote about lawyers from Shakespeare comes on the heels of a speech by Jack Cade, a rebel against Henry VI, who in a comic scene lays out his personal Utopia, where England is reformed for the common people (but with Cade as king), with inexpensive food, and good beer. Jack says:

there shall be no money; all shall eat and drink on my score, and I will apparel them all in one livery, that they may agree like brothers….

Maybe Shakespeare was thinking about the blockchain after all.

Further Reading:

• A Gentle Introduction to Smart Contracts

• Nick Szabo’s 1997 seminal piece on smart contracts

• What Are Smart Contracts? Cryptocurrency’s Killer App

Author’s Note: I am in the process of moving my older work to Mirror. This was the third in a series of six articles laying out how blockchain tech could prove revolutionary for the content ecosystem.

In a prior lifetime (the early 90s), for a short period of time I was employed as a sales rep for a major book publisher. Every day, I would hop into my Ford Taurus, and drive to bookstores and wholesalers across the mid-Atlantic, to show the proprietors our upcoming titles for the next few months. I’d talk up the titles and authors I liked, show them the cover art, and then tick off in a box — on actual, physical paper — the number of units of each they wanted. It was actually a pretty good gig.

What does that have to do with rights management using the blockchain? Stay with me.

The three-letter acronym “DRM” is a four-letter word in some circles. Digital Rights Management has come to be associated with Orwellian control and restriction of content by media companies. For a public that wants access to whatever music, images, video and text it chooses, anywhere, at any time — and preferably at low cost — the use of DRM to track and manage the dissemination of content, and especially to disable that content when usage restrictions are violated, is a frustrating impediment to gaining free access to that content.

To the extent that this sentiment tips towards the idea that all content should be free — both free of any restrictions and free of charge — this undermines the very notion of intellectual property, which is that certain creations of the human mind can be owned and protected by the creator, in a similar manner as real estate, vehicles and personal effects. (All such property protections are enforced by governments, although for copyrights and patents arguably these constitute a better deal for the public at large than governmental protections for tangible property, because protection for IP is limited in time and at some point will be contributed to the public domain.)

So, unless you overturn the idea of protection for IP rights altogether, owners of such rights will need to manage how they license and assign their rights, and how those rights are used by other parties. But while sometimes the arguments drift in the more extreme direction noted above, most parties who object to DRM are really objecting to three things:

• The role large corporations have in the ownership and control of most of the content the public wants to watch, read, see or hear.

• Unreasonable restrictions on the use of content that a user purchases or rents.

• Use of DRM to track users and their usage.

These points are related; as the argument goes, large companies can afford to acquire vast amounts of the best available content, and then wield something like a monopoly power to impose draconian restrictions on the use of the content, both to eke out more revenue from the same content and to tie users to a particular platform or service. Those against DRM argue that DRM restricts usage by legitimate owners/renters of content, rather than protecting against piracy. And that it’s further leveraged as a tool to examine users’ habits and activities.

Media companies of course see matters differently. They make tremendous investments in creating and/or purchasing content, and then must exploit it in a market in which revenues have been squeezed by a proliferation of content sources but especially by piracy, which is a huge threat given how easy it is to copy digital works. They believe DRM is a necessary tool to prevent users who acquire content legally from turning their legitimate copy into a seed for many unauthorized copies.

Not surprisingly, those who are now proposing the blockchain as a means of managing copyright ownership sometimes walk a difficult line between these two camps. On the one hand, the blockchain’s first and best use is as an immutable ledger of transactions, so it lends itself well as a method of securely tracking what rights users have to a particular digital asset, such as a song or movie, and of recording further transactions involving that asset (or user). On the other hand, the blockchain can be seen as a sort of Gozer the Destroyer of intermediaries, so in its most Libertarian form a rights management solution for the blockchain would connect creators (authors, photographers, musicians, filmmakers) directly with their audience, eliminating media companies altogether.

But let’s stop for a moment, as we may be getting ahead of ourselves. The aspect of DRM that people dislike most is the technological component that interferes with the actual playback or use of content — that is, the technology that disables your song from streaming because you are trying to listen to it on an unregistered device. While blockchain solutions could enable such technologies, most companies working in the space today are working on different, “upstream” problems — how to identify and track ownership of the content itself, and then how to identify and track the flow of that content among users. While these may one day lead to a form of technological DRM, right now most startups are focused on untangling and making more transparent who holds which rights (especially in the music industry), and allowing creators to track usage and set licensing terms for that usage.

Many of these companies are focused on giving power back to the artists themselves. As musician Imogen Heap recently said at an event also featuring Benji Rogers:

We need to set the ethical, technological and commercial standards around how our music is used… At the moment, artists, we’re first in and last out: first in with our work, and right at the end, if we’re lucky, we get some cash back.

George Howard has written extensively for Forbes.com on the use of the blockchain to address these issues in the music industry; see here for a list of his articles. See also this article as well as this one from Billboard.

So what about the idea of the blockchain eliminating media companies? Won’t happen. What will happen is disruption, just as it occurred when the Internet first arose. Publishing companies once maintained vast distribution networks — and yes, traveling sales reps — to market their books. Those functions, perhaps never core to the business of making good books in the first instance, have been disrupted or eliminated. Yet there’s still a place for editors who can find good authors and help them shape books into bestsellers, just as there’s still a need for companies who can marshal the resources necessary to create high-quality television series and motion pictures. Nimble companies shift their focus to the areas where they bring unique expertise and value, and embrace new technologies when disruption is inevitable.

By all appearances, the blockchain is one of those technologies.

Author’s Note: I am in the process of moving my older work to Mirror. This was the second of a series of six articles laying out how blockchain tech could prove revolutionary for the content ecosystem.

As we’ve discussed in prior posts, Blockchain technology allows the efficient, direct transfer of digital assets between parties. For our purposes, we’ll first define “digital assets” very broadly as any binary content that someone can own, or that represents content that someone can own. For instance, a music file is a digital asset, as are text files, photos, videos, computer programs and the like.

A slightly more technical — but pretty widely accepted — definition of “digital asset” is any kind of content that has been formatted in binary code and includes the right to use that asset. So, a legitimately-downloaded music file would fit the definition, but a pirated copy might not, because while the person with the pirated copy would have a technical *ability *to use the asset, that person does not have the legal *right *to do so. The right to use the digital asset is typically included in metadata that accompanies the file.

This is analogous to many types of real-world assets; for instance, when I purchase a new car I receive papers that transfer title to me, demonstrating ownership. However, the transfer of assets in the real world doesn’t always involve the physical delivery of the underlying asset. Often the papers representing the asset change hands, but the asset remains where it is currently located — indeed, for real estate, that’s always the case, and what changes hands is the legal right to occupy it and exclude others.

Of course, transfer of records and information that represent ownership of all or some fraction of an underlying asset also occurs digitally. Yet just as with physical documents, this almost always involves intermediaries to guarantee the transfer, which introduces inefficiencies and delay into the transaction; for instance, public equities have a lag time of three days before the final transfer of the underlying securities, after a commitment for sale is made.

Transfer of assets poses additional complications when the asset is a form of intellectual property. It’s easy enough to transfer a physical copy of a creative work — such as a book or a DVD — and the courts recognize the legitimacy of such transfers under the “first sale” doctrine, which allows physical copies to be bought and sold despite the fact that the original author hangs onto the underlying copyright interest. But for digital copies, the lines may become blurred because when a copy is “transferred,” as a technical matter this usually means a new copy is made on the recipient’s device, with the first copy remaining on the transferor’s device until it is deleted. In other words, technically the subsequent copy is not the same file. For this reason, courts have been reluctant to apply the first sale doctrine to digital copies, and as a result many transfers of digital works are either not allowed, or are treated as licenses rather than outright sales or assignments so that restrictions may be applied to downstream transfers.

So, how does the blockchain promise to shake these processes up? Several possible ways. First, the blockchain can be used to record transactions in which ownership of underlying content is transferred, or use of the content is being licensed. Companies such as ascribe, Monegraph, Ujo and others are doing just that. For example, ascribe allows content creators to upload digital content, from which a cryptographic signature (a “hash”) is generated that is permanently associated with the creator, and the resulting ID is then entered on the Bitcoin blockchain (see our prior post on blockchain registries). The ascribe system then facilitates future transactions relating to the work, each of which is also entered on the blockchain such that there is an immutable record and chain of title. For a technical look at ascribe’s system, see here.

Second, the blockchain can be used to generate digital “tokens” that actually represent some or all of the underlying asset; these are sometimes called “asset-backed” tokens (not to be confused with “intrinsic” tokens like Bitcoins themselves that are built into a blockchain system as incentives — essentially the coin of the realm for that ecosystem). Such a digital asset token would be encrypted and would require the owner’s private key to be transferred. These tokens act as an IOU; present the token to the party holding the underlying asset, and you can claim your share.

How might this work in practice, in the creative industries? Imagine that Company A operates an online video service offering feature films. It sells copies of a new film to 10,000 different users. But, like many services today, the user never actually downloads the film file but simply streams it from the cloud whenever the user wishes to watch it. Each user has the right to watch the video an unlimited number of times, because this is a purchase, not a rental. Company A issues tokens to each of its 10,000 customers. Those customers can hold onto their tokens, or if they tire of the particular movie, sell their token to another party in an after-market. Because there can only ever be 10,000 unique tokens in the market (unless and until Company A sells more copies), there can never be more than 10,000 owners of a digital copy. Users simply present their valid token to Company A to watch the film. Company A does not need to keep track of its purchasers, or require individualized authentication each time a purchaser wants to watch his or her film — it just checks the token against its own key.

While the above might seem anathema to many digital content providers in the current market, where control over the transfer of copies is a key business consideration, it is little different from, say, the physical book market, where after a reader finishes reading a novel he or she can decide to keep it for further reading or reference, or sell it at a lower cost in the used book market. Still, it is also possible that providers could sell digital tokens with embedded restrictions, and since those restrictions would travel with the digital token, they then could be readily enforced (although this might make tokens more like a digital rights management system, something we cover in our next post).

Author’s Note: I am in the process of moving my older work to Mirror. This was the first of a series of six articles laying out how blockchain tech could prove revolutionary for the content ecosystem.

by Lance Koonce

Blockchain technology allows the secure transfer and recording of information, including digital assets, without the need for middlemen. This opens up many possible use cases, some of which may have a significant impact on the arts and businesses involved in content creation, distribution, and management. While the number of possible applications with relevance to the creative industries is potentially enormous, at present they can be broken down into the following general categories:

• Proof of Creation, Ownership and First Use

• Transfers of Digital Works

• Rights Management

• Smart Contracts

• Micropayments

• Creative Collaboration

These categories overlap and interrelate, but it’s helpful to break them out in this way in order to understand what aspects of blockchain technology enable each of them. In our next few posts, we’ll devote time to each category. Let’s start with the first one.

Proof of Creation, Ownership and First Use. Fundamental to all creative industries is the fact that tangible products of the human intellect are protectable under most countries’ laws as property of the creator of that product. This includes all types of creative works, including books, films, and music, protected under copyright law, and new inventions, protected under patent law. Words and logos that are used to signify goods and services are also protected, under trademark law, although ownership of trademarks typically lies with the first user or the first to register the trademark with a central authority, for a particular category of goods or services.

Because these tangible expressions of human thoughts are treated as property, they can be bought, sold and licensed, just like real estate and personal property such as cars. This has allowed complex industries to arise around the use and transfer of intellectual property. But key to the operation of these industries is being able to determine the creator/originator as well as the current owner of a work, invention or trademark.

As a result of this need for proof of ownership, most countries have developed elaborate systems of centralized governmental registration, which in the US is dominated by the registries/databases overseen by the US Copyright Office and the Patent & Trademark Office, but also includes state trademark registries. One can also include entities such as ICANN, which oversees a system of registries for domain names, in this discussion. These registries are not dissimilar from the centralized systems for registering ownership of lands and other property.

And just as blockchain-based solutions for land registration have been proposed (see here and here, but also here), the blockchain holds immense promise for eliminating or reducing the need for centralized registries of intellectual property. Imagine a global, distributed database for all types of intellectual property in which — once the ownership information for a work is placed in the blockchain — that information is essentially immutable, and not subject to the control of any particular agency (or country, although we’ll address cross-border issues in later posts). In its purest, most utopian form, this would be a record of IP ownership held by the people, for the people, of the whole planet.

Some companies are already proposing solutions for IP registration using blockchain tech. In fact, one of the earliest forks of the Bitcoin blockchain was Namechain, which enables a .bit domain system outside of ICANN..

Proof of Creation. For original intellectual property that is created in digital form in the first instance, blockchain-based IP registries make eminent sense. Creative projects that are created on applications and systems built on blockchain technology could be recorded essentially upon creation — indeed, even early versions and drafts could be recorded — leaving no question as to who created it, and when. There are companies working on precisely these types of applications for copyrightable works, such as Monegraph, Stem, Verisart, and Ascribe.

The idea of IP registries is not without issues that will need to be overcome. A key concern is that while the record of works itself may be immutable once it hits a blockchain, for works that are not created on a blockchain-based system in the first instance, who will verify that the information entered into the record is accurate? While most services likely will require the purported creator to affirm that he or she is the author and owns all rights before the work is registered, there are limitations inherent in such a self-policing type of approach. For instance, what prevents someone from claiming ownership of a work that was actually created by someone else? This same problem exists for any registry of ownership, but if a gatekeeper is required for a blockchain registry, does that undermine its usefulness?

For instance, it is difficult as of yet to imagine a blockchain-based alternative to the patent registration system, given that the U.S. Patent and & Trademark Office — staffed by many thousands of patent examiners — carefully reviews patent applications for registrability. It’s not impossible that a blockchain-based solution might arise for patent registration, but unless the process for recognition of a patent itself changes, the USPTO’s gate-keeper function will likely remain intact.

Proof of First Use. For trademarks, in the U.S., “common law” trademark rights are acquired by the party to first use a particular word or logo (or any other source indicator) in connection with a particular category of goods or services. (The U.S. differs from other jurisdictions, where there is more of a “race to registration” approach, where the fact and timing of registration is key.) Proof of first use in commerce is thus key, and one can imagine a system in which blockchain technology might well play a role in confirming and time-stamping such use, as an inexpensive method of protecting businesses’ trademark rights.

In future posts, we’ll discuss different kinds of IP registries on the blockchain, as well as whether blockchain-based registries can ever replace the existing, government-run registries.

Author’s Note: I am in the process of moving my older work to Mirror; this was an early introductory piece about the potential breadth of blockchain use cases for readers who really did not know the field at all yet.

Blockchain technology may turn out to be as revolutionary as the Internet in changing fundamental aspects of many businesses, including businesses based on creative content. But whereas the Internet primarily changed the ways in which content is distributed, the blockchain will change the ways in which deals get made and people get paid (among other things). It will radically alter how value is transferred, stored and accounted for.

The blocks of data that are verified and recorded in the distributed ledger of a blockchain can contain virtually any type of information. For this reason, it permits a variety of digital assets to be securely exchanged, and makes the records of those exchanges virtually impossible to expunge. The word “immutable” gets thrown around a lot in the context of blockchain records, for good reason.

It is the capacity for these immutable transactions to carry information and move digital assets that has really fired the imaginations of people working in this space (a space which is rapidly becoming “everywhere”). Blockchain infrastructure may be able to support many types of applications, some of which are just beginning to be identified, including things as diverse as land registries, digital voting, self-executing contracts, and tracking systems for Internet of Things objects. For a sampling of those many possibilities, check out the following articles:

• Wall Street Journal

• Wired

• Inverse

• The Guardian

That last article, in The Guardian, discusses a recent, eye-opening report by the UK government that demonstrates the breadth of the potential impact of blockchain technology, just in the field of government services. The report notes that

Distributed ledger technologies have the potential to help governments to collect taxes, deliver benefits, issue passports, record land registries, assure the supply chain of goods and generally ensure the integrity of government records and services. In the NHS, the technology offers the potential to improve health care by improving and authenticating the delivery of services and by sharing records securely according to exact rules.

Here’s a link to that report. But it’s just one of many recent analyses that suggest a “tip-of-the-iceberg” aspect to our current understanding of where blockchain technology may lead us.

Forbes recently described the current surge in blockchain companies, projects and ideas as a “Cambrian explosion”. The shockwave of that explosion is now reaching industries that initially saw Bitcoin as mostly irrelevant to their business models, but are beginning to now recognize that the underlying blockchain technology is likely to become a significant, disruptive force. One of those industries is the creative industry, by which we mean film, television, music, publishing, video gaming and, soon, virtual reality environments. Blockchain technology will almost certainly disrupt businesses and individuals working in these fields, sooner than many may think.

In our next post, we discuss ways in which this might occur.

Author’s Note: I am in the process of moving my older work to Mirror. This was my earliest written piece on blockchain technology, and was intended as an introduction to be followed up with more in-depth pieces on specific use cases, in particular in the media and entertainment industries.

If you’ve found this site, you’re no doubt aware of Bitcoin and other, recently-minted “cryptocurrencies.” You also almost certainly know that the technical underpinning of most of these cryptocurrencies — and Bitcoin’s greatest innovation — is something called the blockchain. This site and our forthcoming blog posts will explore how this innovation will disrupt industries far afield from finance, including the creative industries.

But first, a quick bit of background for anyone getting up to speed on the blockchain generally. Here’s what it is, in a nutshell.

Distributed Trust. All successful transactions between two or more parties require some level of assurance or trust by both parties. For many financial transactions, the assurance is provided by third parties such as banks. For other types of transactions, governmental institutions may fill that role. There are other mediators of trust as well, too numerous to name.

The blockchain eliminates the need for third-party-mediated trust. Transactions facilitated by blockchain technology are automatically verified by a multitude of computers owned by many parties. The transactions are recorded in a digital ledger that exists on all of those computers simultaneously; a ledger that grows with each additional transaction, and thus can be used to confirm not just the most recent transaction but all of those historically on the chain.

The term “blockchain” derives from the fact that transactions occurring on the system during a particular timeframe are gathered into a block of transactions then placed into the chain of such blocks.

For Bitcoin, its public blockchain is validated by a network of “miners” — computers that compete with each other to solve cryptographic puzzles and earn new Bitcoins. Other blockchain efforts may use a different system of distributed validation (that is, a different consensus mechanism). Indeed, “distributed” does not have to mean “public”; private blockchains — and even hybrid public/private blockchains — have been proposed and have been the focus of recent, intense attention from investors.

Distributed Transparency. Think of a prisoner exchange on a bridge in a B-movie: the assurances are provided by an understanding that if one side tries to back out of the deal, it will be immediately apparent. Similarly, blockchain technology theoretically resists virtually all attempts to falsify or manipulate records, because the entire transactional history is, again, distributed over thousands of computers, and prior to new transactions being made the system checks that the local version of the blockchain is the same as all of the others throughout the network.

One key aspect of distributed ledger technology is that the blocks in the chain can include other information, which allows a large number of additional applications to be built on top of the blockchain. Already, numerous companies are offering products that piggyback on the Bitcoin blockchain, while other companies and institutions are building their own independent blockchains. As just one example, NASDAQ is exploring blockchain technology to facilitate trades without the need for brokers and clearing houses. Instead, transactions would occur directly between parties, with lower costs and lower counter-party risk. But the possibilities are nearly endless.

Of course, this oversimplifies the technology, and then some. Below are some recent “explainer” articles that go into a bit more depth. For a more complete understanding, try Michael Casey and Paul Vigna’s book The Age of Cryptocurrency.

Next up: Why blockchain technology will matter to industries outside of finance.

Blockchain “explainer” articles:

Wall Street Journal

The Economist

The Financial Times

In-depth reading:

The Age of Cryptocurrency

FIRST PUBLISHED August 2, 2016 (Medium)

Author’s Note: I am in the process of moving my older work to Mirror. This was a post I wrote at the request of Jesse and Denis at Mediachain, exploring the use of blockchain for media, and in particular how it could incentivize the sharing of content.

Summary: A brief look at the history of the “commons” helps explain the power of sharing creative output, and points towards how new technologies like blockchain can further “light up” this communal resource.

Why do we create?

Why did humans, millennia ago, begin forming sounds into alphabets and words, or decide to pick up chalk to draw pictures on rock walls?

Certainly, one reason was to communicate information to each other. A drawing might indicate food is here, danger is there, delivering crucial information in compact form, potentially to many people all at once.

As time passed, words became stories and song and performance. Stories became novels, performance became dramatic theater, songs became symphonies. We began to conceive of concepts such as “art” and somewhere along the line, humans began to think of the things we create from our intellect as having value. Some stories bore repeating. People who told better stories drew crowds, developed reputations, even fame.

But back to that question of why we create. If you ask a dozen people this question, you may get a dozen answers. For my fans, a musician might say. Or: to get more followers. To make money. For posterity. To change the world. For my children. Because I must. For the sake of art. To see my work spread far and wide. For the common good.

Notice that “making money” is only one answer among many. This post — in conjunction with a companion post hosted at the Mediachain Blog discussing the possibility of a new, Creative Commons-style “Gratitude” license — explores the history of the cultural commons, and what we might do to enhance it.

Creative Works as Property

Even with a multitude of reasons for creation, modern content industries have primarily been built around the proposition of judging the value of creative work by its revenue-generating capacity . That is, its value as property — a value that is unlocked when we allow someone else access to it. In other words, the value of such works has for the most part been treated as a product of their scarcity.

Yet the concept of scarce property rights for the products of human intellect — “intellectual property” — is a relatively new one in human history. Just three centuries ago, the Statute of Anne was passed in England — the world’s first public copyright law. The astounding aspect of that early statute is that in service of the idea of fostering knowledge, it provided for a 14-year copyright term to the creator of a work, after which the work passed into the public domain. In short, the law recognized a limited-in-time monopoly as vesting in the author of a creative work in order to serve the public interest*.*

That same concept is enshrined in the Copyright Clause of the U.S. Constitution:

To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.

This common interest is served in several ways: By encouraging creators to immediately bring their works to the public and not rigidly control physical access, and also by increasing the public domain by guaranteeing that works will become free to use by the public within a limited time span.

To put it differently, the Constitution’s Copyright Clause (and previous laws) **codified scarcity **as a legal matter, by giving the creator an enforceable right to exclude others from using the work.

Missed Opportunities?

The copyright ownership ecosystem has proven to be a remarkable one. Literally billions of dollars in trade can be traced to creative works, worldwide.

Given the stakes, it is hardly surprising that the great copyright legal struggles over the past few centuries, and in recent years, typically can be traced to a push-pull between creators (or those who have purchased the right to use their works, often large corporations), and those who want to more freely use such creative works (often represented by large platforms that aggregate massive quantities of individual works). On the one hand, efforts to strengthen legal protections for owners, and on the other, efforts to treat creative works as part of the human “commons.” These issues often emerge in fights over “fair use.” The financial stakes, of course, can be enormous.

Too often lost in this titanic seesaw battle are the wishes of individual creators themselves, who may have an interest in sharing their work freely, as well as individual members of the public who want to use content, often for personal, local, or other small-scale purposes, and especially for social media and blogging.

Also overlooked is the fact that today, we are all creators. We create when we publish a status update, compose a tweet, share a photo or upload a video. Not everything we create is interesting, let alone profound, but we are all continuously involved in the act of creating and almost all of us opt to share our creativity openly on social media without any financial incentive whatsoever — and never before in history has it been so easy for an individual to reach a wide audience on the internet.

Often the interests of creators and consumers sync up, and that’s why licenses like those promulgated by Creative Commons, which permit open re-use of creative works, have been so successful in fostering open sharing of content. Giving creators new tools for sharing has proven incredibly empowering.

Blockchain and related technologies offer another robust set of tools for sharing, and for “lighting up the commons.” As mentioned, a companion post on the Mediachain Blog explores a proposed “Gratitude” license, which is inspired by the possibilities this technology might afford. These new tools — at least for now — can live alongside the existing copyright pay-for-access regime.

And it all goes back to the original notion of why we create: We create for myriad reasons, and our legal structure should recognize and enable all of those reasons.

FIRST PUBLISHED August 2, 2016 (Mediachain Blog, Medium).

Author’s Note: I am in the process of moving my older work to Mirror. This was a post I wrote in conjunction with Jesse and Denis at Mediachain, exploring the use of blockchain for media, and in particular how it could incentivize the sharing of content.

Silent gratitude isn’t much use to anyone.— G. B. Stern

A few weeks ago Jesse Walden of Mediachain Labs asked me a deceptively simple question:

What would a Creative Commons-type license look like if in addition to requesting attribution (as is required by many open licenses), the license also required licensees to let the author know about any re-use?

We can call usage information “gratitude” — that is, in exchange for allowing use of a work for free, the user (or the platform on which the work is published) thanks the author by letting them know where the work is being re-used. In turn, the author would be able to connect with their entire audience, anywhere their work is shared. This article and draft license are the initial results of that conversation.

This exploration is a thought-piece, designed to spur discussion around new technology and the commons. Nothing I say here has been endorsed by the Creative Commons (“CC”) organization, nor am I advocating adoption of any specific new license by that organization. We are simply using the existing public models as a leaping-off point.

We are calling the license Gratitude 1.0 and while I’d urge you to read through the background information first, if you want to jump to the license itself, you can read it in full here. All comments and criticisms welcome!

A Shared Vision

Creative Commons has been a tremendous success story in providing tools that help creators and the larger public freely share media online.

In most countries, the act of creation results in a copyright interest that allows the author to strictly control re-use of the creative work. While theoretically this right exists in order to enhance the cultural commons by encouraging authors to bring works to the public, because copyright by default restricts all use, it often unnecessarily limits sharing even where the original author might favor free use the content. This may actually diminish the commons. *(****I explore the historical background of copyright and the cultural commons in an *accompanying post on Creative Blockchain.)

New tools were needed to address this inherent problem. The suite of CC licenses introduced in 2002 was intended to align the act of creation with the way we share information online.

CC licenses differ from traditional licenses because they are rooted in the notion that digital works are not, by their nature, scarce resources.

Instead, CC embraces the fact that digital media is infinitely reproducible, and thus can be shared and re-used very easily, creating enormous value for the public and creators alike.

For instance, the basic CC-Attribution license allows free use of a work for any purpose, so long as the licensee credits the creator. CC also provides guides to supplement the licenses, such as best practices for attribution; for example, the use of machine readable license terms to automate the licensing process.

Top social media platforms — including Medium, Soundcloud, YouTube, Vimeo, and Flickr— have embraced CC licensing, enabling their users to opt-in in their publishing flows.

Today there are over one billion licensed CC works. These adoption metrics validate an idea that would have been controversial less than two decades ago:

People have an insatiable desire to create and to share openly, even without monetary compensation.

Yet in the absence of a financial incentive, questions remain as to how to promote the sustained growth of the commons.

A Broken Loop

In October 2015 Creative Commons issued a five-year organizational strategy that reboots the organization’s mission statement. Central to that mission is a vision of why sharing is important:

Sharing is not a purely selfless act — while thinking beyond one’s own personal benefit is at the core of why we share, it also pays itself forward in reputation, and rewards us with good feelings and personal gratification. Sharing contributes to our individual identity — how we want to see ourselves, and be seen, in the world.

Successful social networks have long heeded this insight, rewarding sharing with feedback in the form of reputation (quantified by follower counts), gratification (quantified by likes, hearts, upvotes and reblogs) and profile pages that allow us to curate our digital identities.

These feedback mechanisms provide incentives for us to share more — a virtuous cycle that results in strong network effects, and one that is largely absent from the commons today. As CC’s strategy document aptly identifies:

“Adding a work to the commons is a huge gift, but contributors get very little in exchange — no feedback, no analytics, not even a ‘like’ or a ‘thank you.’”

Today the creator of a CC-licensed image published using 500px or a similar platform does not know that a blogger has re-used the image in a post on Medium. This is true even if the author of the post manually includes attribution.

To fix this problem, the CC board recognized a need to promote new ways of moving the existing model from a static one to one that is more dynamic:

The size of the commons is not as important as how (and if) the works it contains are used to achieve our vision and mission. This is most likely to come to fruition if the materials contained within the commons are easy to discover and curate, to use and remix, and if those who create feel valued for their contributions. To date, this has not been the case…

…The Web has obviously changed significantly since 2002 when CC launched, but the way the CC licenses work hasn’t. While most web services and apps are data driven and accessible via API, CC’s licenses are largely static…There are no services to enhance the user experience, or provide additional value and create connections. Users still have to manually provide attribution. There are no analytics about use or remix. While CC is integral to many kinds of creativity and sharing on the web, it has yet to capitalize on this influence to connect and light up the commons.

Our proposed “Gratitude” license primarily addresses the organization’s need to build “*a more vibrant and usable commons” *where “search, curation, meta tagging, content analytics, one click attribution are all examples of areas where improved discovery would support creators.”

The License

The core idea for this “Gratitude” license is to enable a more robust form of attribution than currently exists for CC licenses. Specifically, providing usage data back to the creator when works are used satisfies the organization’s desire for content analytics.

This is important because notifications of use allow a creator to connect with their entire audience and accumulate “Likes” (or the equivalent gratitude) as the work spreads.

We considered a number of approaches to what mechanism would work best to allow this “gratitude” to flow. We rejected those that would require technical specifications in the license itself, as this would break with the CC model and possibly limit adoption. Instead, we propose a handful of suggested implementations that we believe will enable the type of feedback to creators discussed above:

1. Licensees who use works under a Gratitude License must retain the contact information of the original author, if it is provided with the license;

2. Licensees must also retain the contact information of anyone in the chain between the original author and the licensee who has modified the original work (“adapters”);

3. Finally, licensees must provide information regarding the location where they publish the licensed material back to the original author and any adapters, using any reasonable means.

You can view the sample proposed Gratitude License in full here.

Compliance

While individual licensees using works under a Gratitude License might at first simply comply by providing usage information to the original author via email, ultimately platforms that host works under “Gratitude” licenses should be able to help facilitate compliance on behalf of their users by automating the tracking of a work and notification of the creator.

Social networks already track sharing within their networks quite well. When content is reposted within Twitter (retweet), the author is automatically notified, as well as any other user mentioned within the tweet. This is facilitated by the use of a single database to record all interactions within the network.

Further validation can be seen in systems for tracking the use of copyrighted works, such as YouTube Content ID and Facebook Rights Manager, which use content recognition technology to associate duplicate or derivative user-generated content with original, rights managed works by matching content based on the way it looks or sounds.

However, there is a massive problem that prevents these platforms from extending their existing systems to Creative Commons: These databases are proprietary silos. No information is shared across platforms, which is explicitly what CC licenses encourage.

A single database for the commons would ease the discovery of works, and provide a shared infrastructure to benefit all participants in the CC ecosystem.

Solutions Emerge

The idea of building a shared index of Creative Commons works dovetails with rapidly developing blockchain technology, first popularized by Bitcoin.

A blockchain is effectively a distributed database where maintenance is shared across a peer-to-peer network with a common interest in ensuring the upkeep of data, as opposed to being maintained by a single, central entity.

Not only could a blockchain-based solution help improve discovery by providing a single database of CC works, it could do so in a decentralized way that maintains the current structure of the commons: Data remains with the participants —the creators themselves or platforms where works are published — and the CC organization remains a neutral entity with no need to invest in heavy, centralized infrastructure.

Any platform that adopts such a protocol would be participating in a truly “commons” database and such collaborative infrastructure can be used to solve the problems identified earlier. First, attribution for creators can be automated since all data about works in the commons is now in one shared place. Additionally, creators can be notified of re-use of their work automatically by sending a ping-back to the network.

The result would be a much simpler mechanism to connect creators with new audiences, for audiences to discover more works by the same author, and for rewards that stem from reaching new eyeballs to flow back to publishers automatically any time media is shared.

Ultimately, one could imagine a system of certification for content platforms that would result in “Gratitude-Certified” platforms agreeing to best practices in providing such information to authors.

The vision is ambitious, but achievable. Mediachain, for instance, already is building open source technology to provide a blockchain-based, “universal media library.” Like Youtube and Facebook, Mediachain enables the use of content identification technology to connect a unit of media to relevant information, such as its author, its license, and the history of its re-use online.

In this way, a “virtuous loop” of rewarding contributions to the commons with gratitude and reputation could be completed automatically and reliably by platforms participating in the open protocol.

The Creative Commons vision helped rekindle the idea of a vibrant public domain just as the immense possibilities of the Internet were beginning to be realized. Now, 15 years later, new technologies and approaches are emerging that may help “light up the commons” in entirely new ways.

——

Lance Koonce* is a guest author on the Mediachain Blog. He specializes in intellectual property and technology law, and is the founder of Creative Blockchain. He is a partner in the New York office of Davis Wright Tremaine LLP.*

*This post is an accompaniment to a post on Lance’s blog which explores the history of copyright and its relationship to cultural commons. **Read more here * and if you enjoyed, please share, with gratitude.

FIRST PUBLISHED April 27, 2016 (Medium).

Author’s Note: I am in the process of moving my older work to Mirror, beginning with this post from early 2016, when it first hit me that the “Double Spend” problem in crypto paralleled the “first sale” doctrine (or lack thereof) for digital media. From that moment on, I was hooked.

For those interested in the evolution of digital currencies, I highly recommend Steven Levy’s “E-Money (It’s What I Want)” article from Wired way back in December 1994. It’s a great read, and presages many current developments.

One problem with cryptocurrencies that Levy just touches on briefly is the problem of the double-spend. In brief, when hard currencies are exchanged, the transaction can only happen in one place and at one time, but in the digital realm transactions do not involve the physical transfer of data. Rather, digital transactions technically involve the copying of data to another party, which leaves open the possibility that the original party can attempt to spend their digital currency twice.

Put differently, someone can potentially attempt to broadcast two digital currency transactions at approximately the same time, using the same digital coins, but the parties receiving the transactions have no incentive to agree that one transaction takes priority. Before the arrival of Satoshi Nakamoto’s Bitcoin, with its revelatory proof-of-work scheme, most solutions to the double-spend problem involved having a trusted third-party intermediary resolving double spends.

Interestingly, copyright law faces the same double spend problem, in form of the first sale doctrine.

The first sale doctrine allows resales of copies of physical works such as books, DVDs and CDs, which otherwise would be precluded by the Copyright Act as in infringement of the original author’s exclusive right of distribution. It is embodied in Section 109 of the Copyright Act, which says:

the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.

The first sale doctrine is why you can find used bookstores in every town, and buy used copies of the Purple Rain vinyl album on eBay or at a flea market.

In economic terms, physical copies are “rivalrous” assets — while being consumed by one person, it cannot be consumed by another person. By contrast, non-rivalrous goods — like broadcast television — can be consumed by many people at once.

In any event, while you can find used bookstores and music stores, good luck finding a used mp3 website. They don’t exist, or if they do, that site would be deemed to be engaged in copyright infringement. That’s because, as interpreted by the courts in recent years, the first sale doctrine does not permit resales of digital content.

Jack Browning recently posted a great analysis on this blog regarding whether a new technology like the blockchain could revitalize the first sale doctrine under copyright law. Jack used a terrific analogy to explain the first sale doctrine, from the Hugh Jackman movie The Prestige. In the film, in order to create the illusion of teleportation, Jackman’s character — who had access to a cloning device only (just watch the movie, okay?) — had to murder his own duplicate each time one was created, so that there was only one copy in the world at any given time.

In the digital world, the problem is that it is difficult to kill the original work when you sell the original version to a third party — you are not effecting a physical transfer of your copy. Instead, what really happens is that you are making a copy of the work on a new computer, and the only way to get rid of the original is to delete it from the original location. To make sure that occurs, some trusted third party would have to ensure that the original copy was truly wiped from existence.

Sound familiar? It’s precisely the same issue cryptocurrencies face, which was (many believe) solved by the blockchain. The only difference is that it the Copyright Act that prohibits making duplicates in the first, whereas when one double spends cryptocurrencies it is up to the market (or perhaps fraud or similar laws) to stop it.

In the Capitol Records, LLC v. ReDigi Inc. case, ReDigi had created a system whereby it attempted to act as a trusted third party intermediary to eliminate the double spend of copies of a copyrighted piece of music, and thus to allow its users to take advantage of the first sale doctrine. It uploaded a seller’s music file to a cloud service, and then eliminated the copy on the seller’s computer, after which the buyer would download a copy of the file from the cloud and pay for it.

However, the court did not buy this approach. The first sale doctrine, it said, does not allow this type of digital “transfer”, but rather only covers “material items, like records, that the copyright owner put into the stream of commerce.” The court believed that ReDigi was not distributing such material items but instead was “distributing reproductions of the copyrighted code embedded in new material objects.”

Jack’s analysis focused on whether the court in the ReDigi case would have reached a different result had the technology in front of it been based on blockchain technology, which arguably might provide a much more secure way of guaranteeing that multiple digital copies of a work are not in circulation. He concluded, I believe correctly, that this court would not have reached a different conclusion given the way the judge interpreted the Copyright Act’s language.

**But judicial interpretation is not the only path to change. **In fact, the ReDigi court also said the following:

At base, ReDigi seeks judicial amendment of the Copyright Act to reach its desired policy outcome. However, “[s]ound policy, as well as history, supports [the Court’s] consistent deference to Congress when major technological innovations alter the market for copyrighted materials. Congress has the constitutional authority and the institutional ability to accommodate fully the varied permutations of competing interests that are inevitably implicated by such new technology.” … Such defence often counsels for a limited interpretation of copyright protection. However, here, the Court cannot of its own accord condone the wholesale application of the first sale defense to the digital sphere, particularly when Congress itself has declined to take that step.

The question then becomes whether the blockchain, or some similar approach, might provide enough certainty around digital transfers to persuade Congress that the first sale doctrine can be extended to cover such transfers, at least under certain circumstances. (Of course, this also flags a larger policy discussion: Do we want a robust secondary market in digital copies? In a world where streaming has largely overtaken holding digital copies for many forms of content, would this mark an advance or a retreat?)

From a technological standpoint, however, the blockchain on its own cannot solve copyright’s first sale doctrine problem for digital copies. While a blockchain-based system can provide a potentially unassailable record of ownership of a particular copy of a work and the substitution of a second copy that for all intents and purposes becomes , some other system still has to be implemented to automatically remove or disable the prior copy, which still resides with the seller. Some entity still has to act as the ReDigi in the equation.

Unless, that is, we can come up with a proof-of-work type of solution for digital resales as well. Some way for a decentralized network of peers to verify the deletion of the original copy and the creation of the new copy that’s replacing the original, perhaps in a shared database?

Any budding Satoshis out there who want to take on this problem?