How are NFTs created and sold, and what does the buyer really get?

Minting

Minting means creating a new NFT. The US Patent and Trademark Office and Copyright Office describe it as publishing a new token to a blockchain.¹ ethereum.org puts it simply: you tell the smart contract to give you ownership of a particular NFT.²

When an NFT is minted, it lands in the minter's wallet. When it is sold, it moves to the buyer's wallet.¹

ERC-721 does not say how minting must work. Each contract can do it its own way.³ But the contract normally reports a new NFT as a transfer from the "zero address", an empty address made of zeros.³

The creator of a contract can add rules, such as a cap on how many NFTs can ever be made.² Creators can prove they made a collection, because they own the wallet that deployed the contract.²

The creator decides what the token means

During minting, the creator chooses which asset or right to link to the token.¹ Nothing in the technology stops someone minting an NFT of artwork they don't own.¹

Provenance means an item's history, traced through who has owned, held and used it.¹ NFTs can help record that history. But commenters to the US offices warned of "garbage in, garbage out": if false details go in at minting, they stay false.¹ One commenter said some minting platforms first mint creators' works in their own wallets. So the blockchain shows the platform as the creator.¹

Marketplaces

An NFT marketplace is a website for buying and selling NFTs. People often use one to mint, too.¹ The US report sets out the usual steps:

1. The creator sets up a digital wallet and connects it to a marketplace.¹
2. The creator uploads the file. The NFT is recorded on the blockchain, either straight away or only once it sells.¹
3. A buyer pays, and the marketplace keeps a percentage of the sale.¹
4. The token moves to the buyer's wallet, and the buyer can resell it later.¹

Marketplaces generally do not check the assets linked to NFTs. Some people told the US offices that most marketplaces do not appear to check whether the art was copied.¹

Here is one example of a fee. A US appeals court said OpenSea, a large NFT marketplace, took 2.5% of each transaction at the time of its case.⁴ The same ruling said OpenSea itself did not buy or sell the NFTs traded on its site.⁴

What the buyer actually gets

Transferring an NFT moves a token. It does not necessarily move the linked work, or the copyright in it.¹

Owning a painting is not the same as owning its copyright. In the same way, owning an NFT and owning copyright in the linked work are separate.¹ To pass on any copyright or other rights, a separate agreement is normally needed.¹

Some creators do give holders a limited licence, often in a user agreement. For artwork, this is often a right to display it and use it commercially.⁵ The most common concern raised with the US offices was buyers being confused about which rights come with an NFT.¹