Why the Yuga Labs buyout of CryptoPunks is splitting NFT land apart

Earlier this month, the NFT world was convulsed by a megamerger: The company behind the most valuable NFT collection acquired its closest competitor. The deal was Yuga Labs, creator of the Bored Ape Yacht Club tokens, acquiring the intellectual property behind CryptoPunks from its creator, Larva Labs. In a world focused on decentralization and seemingly limitless growth, this consolidation came as a shock to the system.

After the confusion wore off, however, the markets gave their verdict: volumes and prices for both Bored Apes and CryptoPunks soared over 10% for both collections in the 24 hours after the deal was announced. Some $25 million worth of the tokens changed hands in the same period, a tenfold increase over the previous day, according to Decrypt.

But beyond the hype and price action, a deep tension in the NFT world was laid bare. It was best summed up by the widely followed trader and CryptoPunk holder who goes by DC Investor. “I am done building identities and brands which corporations can buy and sell without paying me, and for me to be expected to go along with the ride because my identity is attached to them,” he tweeted to his 189,000 followers as news of the deal broke.

What the Yuga Labs deal exposes is a tension at the heart of the burgeoning non-fungible token economy, between the tokens themselves and the intellectual property underlying them. The central question is which of these is more important? What restrictions or rights should token holders have, compared to the companies that commissioned, distributed, and continue to build products around these characters?

How IP works amid the possibility of endless digital reproducibility and distribution is a question that has existed since the dawn of the web itself. The answers so far have already catalyzed major shifts on the web. Now blockchains, as mechanisms for digital scarcity, have a shot at ushering in another new era.

Creative Commons and the remix

One of the dividing lines in the NFT-IP rights debate right now is something called CC0, a “public domain dedication tool” that essentially grants holders unrestricted rights to use intellectual property as they see fit. Some projects have embraced themwhile others (including CryptoPunks) have not.

This tool has its roots in the Web2 world, from a time when the world looked on with optimism at the burgeoning social networks at the turn of the century. One of the promises of the early Web2 era was the notion that different creative properties would intermingle freely on the internet, legally yet unhindered by IP lawyers. This was the era of remixing, blogging, and mashups. It gave rise to the Creative Commons licensing frameworkthe brainchild of the Harvard legal scholar Lawrence Lessig and his collaborators.

The CC0 comes out of this framework, providing copyright holders a way to give others unconditional permission to distribute and build upon their material in any format or medium.

The legacy of Napster and iTunes

The flip side of all that IP availability in Web2 was piracy. Peer to peer networks like Napster and its descendants such as Kazaa, Limewire and Bittorrent, became ways for IP to be infinitely copied and distributed. Scarcity didn’t exist on the internet. Content wanted to be free.

Amid a flurry of legal actions from record labels, a startling innovation got a chokehold on the pirates, namely, iTunes. Giving consumers a safe, centralized walled garden and revamping the distribution model of pop music by selling singles turned the tide toward paying for music rather than pirating.

Later innovations like the iPod, iPhone and eventually streaming services like Spotify turned the once pirate-infested world of internet music into just so many branded, sanitized, corporate gardens. So, what will the trajectory look like for Web3, an effort to get away from walled gardens?

Digital scarcity, blockchains and Bored Apes

The pendulum swung from open season on IP to tightly regulated, but comfortable and convenient, corporate fiefdoms in the era of iTunes and Spotify. Now, blockchains have come along.

Blockchains, at their heart, introduce digital scarcity for the first time. A unit of cryptocurrency can be proven to be unique from another. Digital scarcity spawned the NFT boom as we know it today: Bored Apes, CryptoPunks, and their ilk, only change hands for millions of dollars because they exist as independent digital objects on the internet.

And with those high dollar amounts potentially at stake, NFT traders are now zeroing in on the old fights over IP and the Creative Commons framework. DC Investor, our NFT patron, for example, has pledged to only support projects with a CC0 license.

One twist playing out today is that disputes over rights need not be handled not by legal academics or courts, but can be taken care of by smart contracts arbitrated on a blockchain. This is why CC0 NFTs have super-powers compared to Web2’s digital distribution: they have ownership encoded directly into the digital objects themselves.

People have decried the possibility of reproduction harmonizing original art at least since theorist Walter Benjamin famously opined that the era of mass production would diminish a unique objects’ aura. Yet blockchains may have solved a fundamental riddle of digital objects by enabling the unfettered use of a digital artwork, while retaining the authenticity of an original.

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