A lawsuit filed against Kevin McCoy, the artist who minted the first NFT, was dismissed by a federal judge this week. File Photo courtesy of Kevin McCoy/Sotheby's
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 technology entrepreneur Anil Dash in 2014, was sued by the Canadian company Free Holdings, according to court records obtained by UPI.
]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 rise of the NFT bull market.
Free Holdings' argument centered the question of ownership on the coding of the blockchain on which the NFT was first minted and the preservation of records related to the existence of the NFT.
McCoy had minted Quantum on the blockchain Namecoin, a cryptocurrency platform that forked from Bitcoin in 2011.
Namecoin required users to maintain their records every 200 days or so, which Free Holdings argued McCoy had failed to do.
"McCoy subsequently let the record for the Namecoin blockchain containing Quantum expire," Free Holdings wrote in the complaint.
"This left the Quantum Namecoin 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 that the record for the original was destroyed when the Namecoin registration lapsed.
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 artwork, there are three schools of thought. The judge's ruling this week could help clear up the differences in the three interpretations.
Namecoin would 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 similarly split the digital asset into the artwork itself and the receipt for it.
Some believe the token itself, the digital manifestation of the artwork, is the asset requiring ownership and that minting it on another blockchain is simply the creation of a new receipt while others believe the receipt is the asset with a new artwork being created when it is re-registered.
The third group takes a blended approach, believing a new registry establishes the creation of a new NFT that retains the history of the prior registry.
Judge James Cott with the U.S. District Court in Manhattan appeared to stand with the second school of thought, stating that Free Holdings "demonstrated nothing more than an attempt to exploit open questions of ownership in the still-developing NFT field to lay claim to the profits of a legitimate artist."
"We are pleased with the victory and its significant impact for digital artists and marketplaces," Sotheby's said in a statement to The New York Times.
Moish Peltz, a lawyer for Free Holdings, said that the company is "evaluating its options" after the conclusion of the case.