Introduction

Digital asset refers to an asset that has been issued or transferred through a distributed-ledger technology like block chain rather than in a tangible form.¹ It covers all types of virtual and electronic assets and this includes cryptocurrencies, security tokens, utility tokens, virtual collectibles, and altcoins among others.² Digital assets can further be divided into two main categories namely backed digital assets and native digital assets.³ The value of backed digital assets is defined by the value of the underlying real world physical asset while native assets lack real world representation.⁴

The common types of digital assets are cryptocurrencies and Non-Fungible tokens (NFTs).⁵ Popular cryptocurrencies include Bitcoin, Ethereum, Cardano, Solana and also Dogecoin.⁶ Cryptocurrency has been defined as a virtual asset that is utilised as a form of digital currency.⁷ It is also not controlled by a governing body like the banking system but instead utilises a public transaction ledger which logs each sale or trade and is not monitored by a body or an organisation.⁸ NFTs on the other hand represent artwork and other content that have been presented in digital form.⁹ They grant their holders ownership of digital tokens of music, artwork, videos and other virtual collectibles.¹⁰They also have a unique identifier stored on a blockchain.¹¹

Digital assets involve both intellectual property and privacy aspects for instance among the concerns of intellectual property law is how digital assets can be copied and also be distributed without an owner’s consent.¹²Smart contracts on the other hand are useful tools in intellectual property that can aid in automating licensing, and they also ensure that creators are compensated for the use of their creations.¹³ Also, considering that digital assets use block chain technology, it is fundamental to analyse privacy issues associated with it. Block chain technology can store personal data like financial transactions, medical records and even identity information.¹⁴

It is therefore crucial to safeguard the data collected to prevent identity theft, fraud and other malicious activities.¹⁵Block chain transparency also poses a challenge to privacy because once data is stored on the block chain, it is visible to all participants and can cause sensitive data to be compromised.¹⁶Other concerns include smart contract vulnerabilities, taking advantage of pseudonyms to conduct illegal activities like terrorist financing and compliance with data protection laws in the context of block chain technology.¹⁷Further analysis of the intellectual property and privacy considerations is discussed below.

Unpacking Intellectual Property Dynamics in Digital Assets

Considering that digital assets are intangible and can be replicated easily, it is crucial to protect their ownership and rights to encourage creativity, investment and innovation in the digital sphere.¹⁸This is where intellectual property comes into play. Some of the roles that intellectual property rights (IPRs) play when it comes to digital assets include protection of creativity and innovation, digital content ownership, protection against digital piracy, NFTs and digital art ownership and finally, blockchain and provenance tracking.¹⁹ Concerning protection of creativity and innovation, the various IPRs especially trademarks, copyright and patents ensure that original works and digital innovations belonging to creators and inventors are protected from infringement.²⁰

Regarding digital content ownership, copyright plays a fundamental role in curbing distribution, illegal duplication and exhibition of digital works like computer programs or even musical compositions.²¹ Concerning digital assets specifically, IPRs promote a sustainable and equitable digital content system. This is possible because it enables creators retain ownership over their work.²²IPRs are also important in curbing digital piracy which may cause monetary loss for content creators and businesses. Additionally, IPRs play a key role in the NFT ecosystem especially when it comes to digital art ownership. The inclusion of copyright information terms on NFTs metadata enables artists to set boundaries on the distribution, display and sale of their work.²³

Blockchain on the other hand is a key component in digital assets since it enables the creation, storage, transfer and real time transaction of digital assets.²⁴Thus, the combination of blockchain technology and provenance tracking provides a trustworthy log of rights and digital assets transactions like music and digital artwork.²⁵Provenance tracking enables one to trace the origin and ownership of a digital item.²⁶It is a key feature in blockchain technology since it enables the verification of a digital item. IPRs rely on this system to establish authorship and ownership claims for creative works and works of art.²⁷ The same also applies to digital assets like digital artwork which enables producers to protect their intellectual property.²⁸

Privacy Aspects in the Digital Asset Spectrum

Since digital assets leverage blockchain technology to execute specific functions, it is equally essential to grasp the privacy aspects that are involved. Blockchain data typically encompasses various types of information. This encompasses balances and transactions involving cryptocurrencies or digital assets, certification of ownership of NFT and other tokens, as well as membership in decentralized autonomous organisations (“DAOs”).²⁹ Additionally, the data may consist of other information, possibly encrypted, exchanged through transaction payloads resembling concise text messages.³⁰Classification of the above types of data raises the question of which category personal data belongs to. Personal data is embodied in several privacy laws across different jurisdictions. The Kenya Data Protection Act 2019 for instance defines personal data as any information relating to an identified or identifiable natural person.³¹

Frequently, data is pseudonymized to eliminate specific personal attributes or obscure personally identifying traits. However, even in its pseudonymous state, it still constitutes personal data, even if it cannot be directly linked to an individual without employing additional identifiers.³²Consequently, personal data that is encrypted or hashed in the blockchain will be considered pseudonymous.³³The Kenya Data Protection Act 2019 has defined pseudonymisation as the processing of personal data in a manner that the personal data cannot be attributed to a data subject without the use of additional information.³⁴Encrypted personal data may still be traced back to an individual with the expertise or access to decryption keys. Thus, encrypted data retains its classification as personal data rather than anonymous data.³⁵ Therefore, privacy laws will still be applicable to some of the data involved in blockchain systems.³⁶

Further, it is crucial to identify the roles of the various parties involved when evaluating data protection compliance issues. This involves identifying the data controllers whose main purpose is determining the purpose and means of processing, and data processors, who are responsible for processing data at the instruction of a data controller.³⁷Applying this to blockchain is not straightforward since blockchain networks comprise various types of systems that operate uniquely and involve different types of participants that conduct distinct activities.³⁸
Participants who contribute personal data to the blockchain platform will likely be considered controllers, as they determine the purpose (such as executing transactions) and the technical and organisational aspects of processing at the application layer. On the other hand, nodes and miners, who primarily process data on behalf of users at the infrastructure layer, arguably serve as processors rather than controllers, as their role mainly involves facilitating the network’s operation.³⁹

Data protection principles also play a fundamental role when leveraging blockchain technology. To evaluate the data protection principles applicable, it is essential to identify the key attributes of blockchain since they are crucial in determining compliance. Blockchain exhibits two main features namely, data passing through the blockchain is visible to every node and once data is added to the blockchain, it cannot be removed.⁴⁰ These attributes are contrary to the data protection principles of minimisation and storage limitation. These principles are encapsulated in the Kenya Data Protection Act 2019. According to the Act, the principle of data minimisation requires data controllers or data processors to ensure that personal data is adequate, relevant and limited to what is necessary in relation to the purposes for which they are processed.⁴¹On the other hand, the storage limitation principle entails storing personal data in a form which identifies data subjects for no longer than is necessary.⁴²Making data visible to every node might be deemed excessive, while maintaining the data on the blockchain indefinitely goes against the storage limitation principle.⁴³

The transparency nature of blockchain technology enables all transactions to be visible. The benefit of this is that it hinders tampering of transactions, changing the money supply or adjusting the rules mid-game.⁴⁴In the context of cryptocurrencies, it enables anyone to view the transaction history of any wallet address and it also deters fraud and fosters accountability within the network.⁴⁵However, public dissemination in blockchain technology can present difficulties, particularly concerning the safeguarding of trade secrets, disclosure of proprietary business data or exposure of personal data.⁴⁶The transparent nature of blockchain also poses a challenge to the purpose limitation requirement⁴⁷ since data entered into the blockchain will be visible to all participants with no restrictions on further processing.⁴⁸

In conclusion, the above analysis provides a general overview of the intellectual property and privacy considerations in the realm of digital assets. Notably, specific intellectual property rights applicable to the main types of digital assets have not been analysed in this article. However, by acknowledging intellectual property rights, embracing data protection principles and safeguarding the privacy of individuals, a trustworthy digital assets ecosystem can be created. Finally, as digital asset ownership gains popularity, it is incumbent upon policy makers to formulate comprehensive digital asset laws that embody intellectual property and privacy aspects to protect both creators’ rights and users of digital asset platforms.

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