Federal judge dismisses lawsuit against artist who minted first NFT

March 25 (UPI) — A lawsuit filed against one of the two inventors of the world’s first non-fungible token was dismissed by a federal judge this week.

Kevin McCoy, the artist who minted the first NFT with tech entrepreneur Anil Dash in 2014, was sued by Canadian company Free Holdings, according to court documents obtained by UPI.

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]McCoy – who created Quantum with Jennifer McCoy — sold the digital artwork for $1.5 million at a 2021 auction held by Sotheby’s, which was also named as a defendant in the lawsuit, at the emergence of the NFT bull market.

Free Holdings’ argument centered on the question of ownership of the encoding of the blockchain on which the NFT was first minted and the preservation of records related to the existence of the NFT.

McCoy had the mark Quantum on the Namecoin blockchain, a cryptocurrency platform that spun off from Bitcoin in 2011.

Namecoin required users to maintain their records every 200 days or so, which Free Holdings claimed McCoy had failed to do.

“McCoy then allowed the record for the Namecoin blockchain containing Quantum to expire,” Free Holdings wrote in the complaint.

“This left Quantum Namecoin is record free to claim, and a cryptocurrency wallet controlled by Free Holdings, did so on or around April 5, 2021.”

McCoy minted the artwork on the Ethereum blockchain for the Sotheby’s auction, saying the record for the original was broken when the Namecoin registration expired.

Free Holdings argued that by purchasing the registration for the artwork, the company assumed ownership of Quantum.

When it comes to the public understanding of ownership of NFT artworks, there are three schools of thought. The judge’s ruling this week may help clarify the differences in the three interpretations.

Namecoin will assign a token created on the blockchain with a name that is associated with a public key that specifies the ownership of the digital asset. Other blockchain platforms divide the digital resource into the artwork itself and the receipt for it.

Some believe that the token itself, the digital manifestation of the artwork, is the asset that claims ownership, and that imprinting it on another blockchain is simply creating a new receipt, while others believe that the receipt is the asset of a new work of art that is created when it is re-registered.

The third group has a mixed approach, believing that a new registry establishes the creation of a new NFT that preserves the history of the previous registry.

Judge James Cott of the US District Court in Manhattan seemed to side with the second line of thinking, stating that Free Holdings “demonstrated nothing more than an attempt to exploit open questions of ownership in the still-evolving NFT field to claim the merit of a legitimate artist.”

“We are pleased with the win and its significant impact on digital artists and marketplaces,” Sotheby’s said in a statement to The New York Times.

Moish Peltz, a lawyer for Free Holdings, said the company is “evaluating its options” following the conclusion of the case.