Web3 Series: Are NFTs and NFPs a match made in heaven?

Non-Fungible Tokens (NFTs) exploded in popularity in 2021. Fundraising teams within some charities and not-for-profits who were in the midst of pivoting their strategies because of COVID-19, took note of this demand and used NFTs to raise substantial sums for their causes. Today NFTs are a key way charities engage their existing donor base and attract new donors. In this article, the second in our Web3 series, we take a deeper look at what NFTs are, and the opportunities and risks NFTs present for the charities and social sector.  

What are NFTs? 

Non-fungible Tokens (or NFTs) are a type of digital property, or crypto asset, which takes the form of a unique cryptographic token recorded on blockchain. They attribute ownership over a piece of work by assigning a unique number and further data (such as a link to a digital artwork) to an owner on the blockchain.

An NFT is created (‘minted’) after the underlying code in an NFT (known as a Smart Contract) is stored on the blockchain. The blockchain permanently records the transactional activity of an NFT. NFTs differ from cryptocurrencies because NFTs are non-fungible. Regular cash is fungible, meaning one token of cash is the same value as another. In contrast, each NFT is unique and unreplaceable so unlike cryptocurrencies, an NFTs value depends on its relative scarcity. 

Many NFTs are bought and sold with cryptocurrency, however marketplaces are responding to the growing mainstream appetite for NFTs and are beginning to trade NFTs with fiat currency. NFT marketplaces are also offering more user-friendly interfaces which enable consumers not familiar with the technology to buy and sell NFTs. As the user experience and appetite for the purchase and sale of NFTs grows, the time is ripe for charities to think creatively about the applications for NFTs to further  their causes. 

Understanding the opportunities for charities  

NFTs are a new way for charities to fundraise and spread awareness in the digital space. They are also relatively inexpensive to mint, ranging from US$1-$500.  Often charities will auction off NFTs or partner with NFT marketplaces to raise funds. Charities also have the option of embedding resale royalty requirements into the underlying smart contract for an NFT, ensuring they continue to derive value from the NFT long after the initial purchase.  

Use in Australia 

Tokens for Humanity released the first Australian philanthropic NFTs in April 2021. Tokens for Humanity offer four families of animal artworks which are priced according to their rarity. For example, Tokens for Humanity released more Sally Seal artworks than Kenny Koala, thereby increasing the value in the Kenny Koala artwork. The charity intends to donate proceeds to animal welfare organisations, listing WIRES and The Lost Dogs’ Home as potential beneficiaries. 

Selling artworks and creative works 

There is potential for charities to ask artists to create an image for them with a view for selling it as an NFT. Philanthropists or high-net worth individuals can also liquidate their art or any other high value piece of art as an NFT. The underlying work does not necessarily need to be art. Founder of Twitter Jack Dorsey auctioned off the first ever tweet for US$2.9 million and donated the proceeds to charity GiveDirectly in March 2021.

The Ukraine Ministry of Digital Transformation and Ministry of Culture set up Meta History: Museum of War shortly after the commencement of the Russian invasion of Ukraine in 2022. This project initially exhibited and auctioned 54 NFTs. These NFTs were tweets from authorities published during the first few days of the war, layered on top of artworks commissioned by Ukrainian and international artists.  Since it’s first publication, the Museum has published many more NFTs which are available for auction. According to a tweet published by the Meta History account on 26 March 2023, the project has raised $1.3 million in donations. However, the project has recently run into issues, disclosing the former CEO had embezzled funds from the project.

Did you know?

The largest charitable donation relating to an NFT project in the world was made in Australia. Dutch artist Art Blocks donated US$3.5 million in Ethereum to Médecins Sans Frontières Australia in October 2021. Art Blocks has made over US$149 million in sales from their NFT project. The donation was accepted by the Australian branch of the international organization, as it was only Médecins Sans Frontières branch set up to receive cryptocurrency donations.  

Selling Moments 

In October 2020, the United States of America’s National Basketball Association opened Top Shot, an NFT marketplace where fans can buy, sell and trade NBA moments. The NFT product is a packaged clip which operates like a trading card. In April 2021, the NFT of LA Laker LeBron James’ Kobe Tribute dunk was sold for US$387,600. 

The idea charities could capitalize on viral moments to raise funds for their cause certainly has promise. For example, the Leukemia Foundation could mint a video of a celebrity participating in the World’s Greatest Shave and release it as an NFT. If the Leukemia Foundation integrated a clause allowing them a certain percentage of the resale profits then the Foundation could receive revenue even after the initial donation. Buying and selling a moment in time gives rise to new ways we can think about ownership in the digital realm. 

Using brand recognition

Many charities have powerful brand recognition. This can be exploited through NFTs without relinquishing any underlying intellectual property rights as the purchase of an NFT does not equate to an assignment of the copyright of the attached work unless there is a licence embedded into the terms of the Smart Contract.  

The World Wildlife Fund (WWF) built upon the goodwill of their brand and message in the creation of NFAs (Non-Fungible Animals). The amount of NFAs were limited to the estimated population of the animal still left in the world (for example, there is estimated to be 600 Amur tigers left, so WWF released 600 NFAs of the Amur Tiger). WWF collaborated with 10 artists, who were tasked with creating a digital artwork for one of the 10 animals most vulnerable to extinction. Creating value in the scarcity of an NFT through conveyance of a message is a skillful exploitation of the format. The WWF NFA campaign ran into several significant obstacles and was shut down after just 48 hours of being active, as discussed below.

Considerations for Charities 

Intellectual Property 

Charities should ensure any work they intend to mint into an NFT is within the terms of use of the agreement between the creator and the charity. If an artist wishes to relinquish copyright in the work through the NFT, the smart contract should be drafted to include that term. More information on intellectual property considerations for NFTs can be found in our article, ‘IP Commercialisation in the Virtual World: Part 1, Non-Fungible-Tokens (‘NFTs’)’. 

Consumers 

The purchase of an NFT does not equate to a copyright assignment unless a term stating as much is incorporated into the smart contract. Charities choosing to sell NFTs should be aware of this and ensure it is reflected in the terms of the sale on their retail platforms to protect themselves from claims of misleading or deceptive conduct.  

NFTs are a new technology and in some ways represent a new way of understanding ownership in the digital market. Charities wishing to get involved in the space should prioritise user experience on retail platforms where consumers can buy their NFTs, and should ensure they are clearly communicating exactly what a consumer is purchasing when they choose to buy an NFT. 

Environmental impacts 

Whilst WWF have enjoyed some success with the launch of their NFAs, the backlash from the environmental community over the carbon-footprint of NFAs should serve as a warning for charities and not-for-profits, particularly in the environmental conservation space. In the case of WWF, the charity was forced to shut down the NFA campaign after heavy criticism from environmental groups about the carbon footprint of the blockchain WWF used to mint its NFTs. Charities need to consider whether the release of NFTs is counterproductive to their cause and what the reputational implications will be.  Most NFTs use the Ethereum blockchain which requires an enormous level of computer power (and electrical energy) to operate.  

Save the Chimps and Greenpeace are just two environmental organisations which have raised concerns about fundraising with NFTs. Whilst Greenpeace determined to opt-out of the cryptocurrency market all together, Save the Chimps and WWF explored ‘greener’ options. WWF partnered with blockchain application Polygon, which enabled WWF to have fewer interactions with the Ethereum blockchain (though this still did not save WWF from taking on criticism regarding Polygon’s relationship with Ethereum) and Save the Chimps chose to list its NFTs on Truesy which trades on Tezos, a digital-currency network using a less-energy-intensive process than Ethereum. 

Counterfeiting

Regardless of whether a charity or NFP decides to enter the NFT market, all charities should be aware their brands are susceptible to copyright infringement and exploitation in this new digital space. Consider the case of the MetaBirkin, where artist Mason Rothschild released NFTs of the cult-favorite Hermés Birkin bag silhouette. Hermés have commenced initial proceedings against Rothschild, but the matter is a warning for all charities and NFPs to consider how protected they are in the digital sphere. 

If you want to learn more about how NFTs can benefit your organization, or you require assistance to better understand the regulatory requirements for integrating NFTs into your organisation, please get in touch with our specialist Charities + Social Sector Lawyers.