Models for inherent value and value extraction in CC0 NFTs
A detailed look at a curious movement and community sitting in a quiet corner of web3.
Unlike other creative commons licenses which provide a way for creators to grant the public permission to use their creative work/intellectual property (IP) under copyright law and under specific conditions (e.g. commercial or non-commercial use) while retaining their copyright, CC0, or “no rights reserved’, is a designation under which the creator gives up their copyright and puts their work into the worldwide public domain, allowing re-users of the work to distribute, remix, adapt and build upon the material in any medium or format, with no conditions.
Most NFTs are distributed either as copyrighted works with all rights reserved by the creator, or granting owners the right to only non-commercial personal use, or granting owners the right to commercial use, all while maintaining ownership of the underlying work by the creator.1 In all of these cases, rights (if any) are only granted in relation to artwork/content associated with the specific NFT that the owner owns, and not the entire collection, and often also not the brand or trademark of collection. The third option is particularly powerful if combined with a means to enforce and automatically pay creator royalties via smart contracts (which is still problematic today) because it enables the creator to automatically benefit from the growth in value of their work as subsequent owners develop increasingly valuable commercial uses for the work and the NFT changes hands. Generally speaking the right to commercialise is what’s perceived as valuable and worth owning.
CC0 puts all the material of the entire NFT collection in the public domain for holders as well as non-holders to use commercially. This gives rise to an interesting question: What does this mean for the value (and price) of the original NFT for the owner when ownership of the NFT is not necessary for creation of derivatives and commercial use? What is the appeal of buying and holding the NFT itself, instead of just freely using the CC0 art/content/work (without buying the NFT) to create a commercial derivative and making money from that?
Despite this conundrum, there’ve been a number of popular and successful CC0 NFT collections like Nouns, Chain Runners, Blitmap, Cryptoadz, Goblintown, Loot and mfers. Proponents of CC0 NFTs believe that CC0:
Enables the community to create new value without obstacles of copyright,
Allows permission-less and frictionless commercial use by anyone (not just the NFT holder), and
Encourages community-driven creation of derivatives that increase the value of the whole ecosystem (of all derivatives).2
Removing the need for permission can potentially lead to faster growth as compared to a rights restricted project (where managing permissions for use adds friction to the whole process), similar to how memes spread organically online. Through “meme-ability” and the creation and distribution of derivatives works, attention is brought to the original, with each additional derivative bringing more eyes to the original, helping to accelerate the growth of awareness and popularity of the collection and the underlying work. CC0 essentially encourages free marketing for the original NFT and collection.
But this is only useful if people recognise the legitimacy/provenance of the original (generally satisfiable through on-chain verification) and also believe that the original has some inherent value beyond the commercial use of its content (which is provided for free without ownership in CC0). If this can be satisfied, then it’s possible for demand to grow with the spread/notoriety of the derivative ecosystem, which will help the original accrue value.
Essentially, unlike today’s copyrights, where we said that the right to commercialise is what’s perceived as valuable and worth owning and the value of ownership is derived from value from commercialisation because ownership is required for commercialisation, CC0 separates value from commercialisation from value of ownership by enabling commercialisation without ownership while supposedly still enabling value creation and value growth. While there may be advantages to enabling permission-less commercialisation from an awareness perspective, this doesn’t necessarily mean that the original will always accrue value from this increase in popularity. Just because more people know about Nouns doesn’t mean that more people will want to purchase a Noun, so value growth through spread of the idea isn’t automatic.
Value growth is only possible if, as we said earlier, the original has some inherent value beyond the commercial use of its content, i.e. ownership must unlock some value beyond use and commercialisation of the content. So what are some examples of inherent value beyond value from commercialisation that CC0 can help drive?
Artistic/cultural/social significance
The original NFT can be inherently valuable as an artistic/cultural/social reference on which other valuable derivatives are based, with its value anchored in its artistic/cultural/social significance and the ability of the owner to flex/signal support, status and social capital associated with that significance. In these cases, people value the legitimacy/provenance of the original because only the original can signal that level of status, support for the project, its goals, and its community. Demand for the original NFT grows with the popularity/growth of the derivative ecosystem because as more people learn about and are attracted to the project, some percentage of them may desire the prestige of owning an “original” based on its “significance”, like how art collectors choose to own original paintings as opposed to prints, even if the copy is authorised and legal. People who want ownership can have the token, but the world can remix and use it. A meaningful example is the Mona Lisa painting, which is copyright free and in the public domain. All of the copies, derivatives and memes of the Mona Lisa over the years have increased the exposure and popularity of the original and have made the original more valuable simply because there is only one original (whose provenance, in the form of the actual painting, can be proven).3 Much then hangs on this concept of artistic/cultural/social significance. In the case of the Mona Lisa, one could say that this significance is derived from a combination of artistic merit/technique and organic growth in recognition of that merit and its importance in art history. In the NFT world, Nouns might have significance as one of the first CC0 collections, Chain Runners as one of the first NFT collections with on-chain art, Loot as pushing the boundaries of what a game means or could be, and mfers as representative of the die-hard degen movement.
Access to benefits or utility
Another form of inherent value is access to benefits or utility that only the original NFT provides. As an analogy, owning a music record doesn't stop a fan from wanting to see a band play their songs live because listening to the band play live provides a different kind of utility/enjoyment/experience. In the realm of web3, NFT collections have a range of utility they could deploy. Nouns takes this a step further by offering treasury governance as a benefit - owning a Noun allows you to make proposals and vote on how the ~$40M NounsDAO treasury, accumulated from the sale of Nouns, is deployed. The NounsDAO votes on whether or not to fund project submissions that are either derivatives or usage of the Nouns themselves, so a proposer can get paid to propagate Nouns, and NounsDAO is an example of a community funded mechanism to steer the overall brand and accelerate the growth of the Nouns ecosystem. While governance utility for Nouns ultimately resolves into helping to grow the derivative ecosystem (which may or may not make the original NFT more valuable), it's not unimaginable that NounsDAO could vote for and support projects that return financial value to the treasury and redistribute that value to owners as dividends or rewards of some form, which could create financial utility for the original NFT.4
Access to utility across a derivative ecosystem
Extending the above idea, the original NFT can also provide access to utility across a large derivative ecosystem, as in the case of Loot, where the CC0 nature of the concept enables creation of derivative games and apps, some of which require ownership of (the original) Loot to participate, thus driving demand for Loot. In addition, since many NFT projects earn ongoing royalties from secondary sales, third-party expansions and derivatives can become sources of revenue for the project by driving increased demand for the original NFTs (which are required to participate in the expansions/derivatives), and this revenue can be distributed to owners or reinvested in the ecosystem.
Ability to extract ecosystem value from growth of commercial derivatives
CC0 NFTs enable the growth of a large universe of derivatives that can proliferate quickly in a myriad of directions by betting on the creative forces of their community, leveraging a validated brand, active community, and high quality primitives, to create new valuable activities and drive outcomes they could not predict or do centrally, with value extraction in some circumstances. A final broader analogy is an open source operating system like Linux in which the OS is offered for free while developers create valuable new software and related services (webservers, databases, etc.) on top of it which require the OS to run, driving popularity to the OS and the collective ecosystem of compatible applications. As the OS and related applications become more desirable to use, some users require assistance, support or custom-built applications, while others might build commercial/paid applications, and this is where many open source operating systems (e.g. Red Hat Linux and Android) can extract value. CC0 NFT collections can similarly behave like open source platforms/ecosystems, provided there’s transfer of value back to the ecosystem and owners of the original have access to and are able to extract that ecosystem value. However, many CC0 NFT collections have no mechanism for this, e.g. no money from the sales of Nouns Vision (luxury physical sunglasses) goes back to the NounsDAO treasury, and there’s no compulsion to do this. Arguably, requiring this as a commercial term would add friction and go against the philosophy of CC0. It then comes down to the creators, individual owners or the collective DAO of owners to spin up value creating commercial projects themselves that can return value to owners through a mechanism of treasury accumulation and redistribution suggested above, thus increasing the value (and price) of the original NFT.
Many CC0 projects are still experimenting with the above models and we’re at an exciting time with a front row seat to see what role CC0 will play in the future of copyright in a decentralised digital world5, and how a culture of experimentation and recombination can grow the value of original IP without exclusive ownership of rights, because unlike conventional copyrights which grant exclusive commercial rights to copyright owners, CC0 NFT owners can’t exclude others from using the IP in their NFTs, which makes it hard for owners to build their own brands on top of the CC0 asset that they own. This means that CC0 is not about the owners, but about the ecosystem, and owners get value if the project/collection grows in value due to the ecosystem. In this way, they resemble decentralised franchises not owned by any one entity, and a CC0 project needs to be intentionally set up to benefit and help owners extract value from increased awareness, increased demand or increased utility.
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Some people argue that the law hasn't caught up with technology here, so a transfer of commercial rights over a blockchain is not legally enforceable. The argument here is that contracts are between two parties, and the rights and obligations of a contract do not transfer upon resale (through blockchain or any other means). E.g. If you buy a physical painting and the artist gave you the right to make derivative works, reselling the painting on eBay doesn't automatically give the new owner the right to make derivative works, unless they also have a contract with the artist. I think the jury’s still out on this one.
To encourage derivatives, it’s also important to provide source material (original layered graphic files, templates, music stems) in such a way that derivatives are easily created. e.g. WVRPS (not CC0) gives holders a piece of music and downloadable stem files for that piece of music along with full commercial rights, and Chain Runners XR (CC0) provides 3D models for their avatars.
A little twist: Exceptional forgeries aside, the experience of viewing a fine art painting in person is viscerally different in both quality and form from viewing a copy or print, whereas a copy of a digital artwork is 100% identical to the original, and therefore so is the experience. This is one of the arguments of the “Right-Click-Save-As” (RCAS) camp. So one would really need to believe in the significance of the original backed up by provenance.
Taking this idea of returning value to the original NFT collection a little further, could a token incentive network help to align and reinforce this? In a cryptocurrency protocol and community, participants build on the open source protocol to create new dapps (analogous to derivatives) that generate value often denominated in the base token or its token standards, so incentives for value creation are aligned through the token. Could a similar idea of incentive alignment via tokens work for CC0 NFTs and their derivative projects?
Chase Chapman suggests that CC0 could be a precursor to a future of more web3 native IP frameworks with built-in attributions, royalties, splits, contextual rights, etc baked into the platforms and protocols we use.