tldr;

• In a world where all assets are digital, you cannot enforce DRM (or very difficult to)

• Question is: how do you run a business in a DRM-free world?

• If there’s no enforceable stick, you have to create a desirable enough carrot. Answer: aligned structure where artists are willing to sell you their margin in exchange for your provenance.

When I was first introduced the concept of “Nouns” by Noun 40 and Yitong, my head immediately went to: “gotcha, it’s like Hello Kitty or Marvel, right? Build value in the brand and then drive revenue via licensing fee.”

“Except it’s all CC0”

Me: huh?

I must admit that my “tradfi” brain was not computing the Nouns “business model”, if it was even a one to being with so I thought to myself.

But as I pay more attention to the projects that comes to the Nouns ecosystem, I’m starting to appreciate this idea of provenance, that this might be the ultimate DRM experiment. Starting Nouns under the CC0 license might’ve been the catalyst to the most interesting DRM experiment since 1999.

History of DRMs

The inception of Digital Rights Management (DRM) dates back to the early 2000s.

Namely, Napster was founded in 1999, and within one year had over 70 million registered users sharing copyrighted music files. The Recording Industry Association of America (RIAA) estimates that music sales in the U.S. fell by 53% from 1999 to 2014, largely attributed to unauthorized file sharing. This prompted for the establishment of the Digital Millennium Copyright Act (DMCA).

Napster lost the lawsuit in 2001, which led to the eventual shutdown of their network. Over the years, other countries have established similar laws ranging from EU’s Copyright Directive to Australia’s Digital Agenda Act 2000 and Bill C-11 of Canada.

All with the motivation to: preserve artistic control, incentivize creativity, and ultimately provide financial fairness to all market participants - namely artists. This carried over to all forms of digital media from: music, content, to software.

But somewhat missed is that the ethos of the internet (and especially web3) has fundamentally altered the rules, meanwhile rules like DRMs are still trying to enforce the new world with old rules.

The digital world is fundamentally different, it is: permissionless, expansive, and interoperable.

Using DRM in the digital world is a bit like trying to stop a river with a fish net, no matter how many fishes you catch, it will keep on flowing.

The fully digitized world begs the questions of:

• How do you truly enforce copyright issues on easily copyable, non-tangible goods such as media and software?

• What does it mean to remix vs. originally? How do you differentiate the two?

• What does DMCA even look like beyond United States?

• Across multiple jurisdictions?

Protecting Provenance

Since the old days, protection of goods came in different forms:

• Protect the physical good - an artifact passed down, such as a jewelry or the Medici Bank ledger. You protect via guards and keys. Competition will send thieves and maybe an army.

• Protect the process - only pass the trade secret such as chocolate making or the Coca-Cola formula. You guard the secret… pass it down to 1 person at a time, or maybe broken up so not one person can compromise it. Your competition will send spies.

• Protect the raw materials - a special type of paper or ink to craft what you have made, a lot of physical goods followed this. Your competition will try to reverse engineer.

But with digital goods, the rules have changed.

All of this have fundamentally flipped on its head. The code and bytes, whether it be art, media or a piece of software are all fundamentally copiable. In fact, incredibly easy to copy.

Therefore, anyone can copy the art, copy the code, copy the media with a click of a button - marginal cost to copy is zero.

In a world that is permissionless, expansive and interoperable, perhaps the new method of protection is not via a stick (lawsuits, guards, vault), but via a carrot.

After all, the only unique element in a digital world is now the source. The provenance. But what is required to protect provenance?

Because whether you like it or not, in the last 12 months, there have been more remixes than ever before via technologies like OpenAI and Midjourney, Stable Diffusion.

Headless Brands

With every changing era, new conditions requires a new set of incentives to make everything work, it requires a new business model. A different way to capture value. The question here is: how does provenance capture value in a permissionless, interoperable digital world?

One potential answer may be: headless brands

If we take the premise that you cannot prevent people from copying your art or code, that any work online can always be forked with or without your permission. The only answer is designing a system such that there’s no reason to fork, but to collaborate.

Historically businesses, think of something like LV or Prada bags, the base cost is relatively small compared to the margin they take on something like a $3,000 handbag. But why are you paying so much for it? The brand value is what justifies their fat margin. But it’s not without good reason, after all, they spend the bulk of that margin on marketing: making the brand more attractive, paying for ads on billboards, and sponsoring media & events.

However in the digital age, where geographies and jurisdictions barrier are broken down, perhaps the marketing budget makes more sense in the hands not of generic Facebook and TV Ads but of long tail communities and users themselves.

In line with the permissionless manner of growing a brand, it perhaps requires brands to take a more grassroots and bottoms-up approach.

In such a world, it does not matter if you have DRMs or not. Even under something as extensive as CC0, where creators waive all their rights to their work worldwide, margin contribution flows back to the creators due to provenance.

The calculus for an artist to willingly contribute their margin back to the DAO is:

revenue ( your provenance + my art ) * margin split > revenue ( my art alone ) * 100% margin

The provenance is distribution power, and in this new digital world, the marketing budget can be captured by the community rather than an Ad Network like Google or Facebook.

While this might seem counterintuitive, it highlights a shift in the understanding of intellectual property. Rather than relying on restriction and exclusivity, the focus is placed on provenance – the origin of content becomes the core of its value.

Nouns: the Ultimate DRM Experiment.

Nouns has from the start announced it’s project to be completely CC0, genius or accident, it has perhaps launched the ultimate DRM experiment. It tests the fundamental premise of whether a project can accrue value back strictly due to provenance from incentive structures rather than legal means such as DRMs.

Can a project accrue value back to the source via provenance?

The bull case bet here would be that headless brands are able to penetrate many more communities, and therefore be able to accrue more value back to it’s original creators.

Will this work? I don’t know. Even as I write this out, I realize there are many leaps of logic here.

But I am definitely excited to find out and learn. We are seeing a once in a decade business model experiment done at scale.

The experiment: Prop #346

Droposal is a fantastic example of this experiment in action with Nouns. It’s a situation where artists:

• Have no legal obligation to attribute anything back to Nouns

• Better served if they kept all the upside (financially) for themselves

But, the creators did anyways because because the incentives created for a win-win. A situation where the EV of collaboration is greater than the EV of forking Nouns and doing it solo.

Projects like “This is Nouns” have shown early signs of validation, generating up to hundreds of ETH in sales. Rather than Nouns filing a lawsuit or pressing DRMs, there’s an economic incentive to collaborate. Forging an ‘official’ drop will create more upside for both parties than an unofficial one — no different from buying an official Prada partnership t-shirt vs. off the sidewalks of NYC — except this time, the artists will receive majority of the upside.

I’m pretty excited to see how this next experiment (Prop #346) with 12 official Noun drops coming will do. If you’re interested in participating, hit up Yitong on Twitter or yitong(at)voteagora.com.

Of course, none of this is proven yet. But by using CC0, Nouns is effectively forcing the issue of experimenting with an incentive models that is both attractive to the DAO and artists.