Battle for authenticity heats up in world's most popular NFT collection

In a Discord post published on Wednesday, Matt Hall, the core developer at Larva Labs, the entity behind the popular CryptoPunks V2 and, initially, CryptoPunks V1 nonfungible tokens (NFT) collections, announced he would be "taking appropriate steps" in the following days regarding the alleged copyright infringement of "both the art and the CryptoPunks name" of the CryptoPunks V1 collection. Normally, this would amount to submitting a takedown notice under the Digital Millenium Copyright Act, or DMCA, to the platform responsible for hosting the content for auction.

Matt Hall discussing CryptoPunks V1 vs. V2 | Source: Larva Labs official Discord

In 2017, Larva Labs created the CryptoPunks V1 NFT collection containing a fixed supply of 10,000 items. However, users soon discovered an underlying bug within the project's smart contract that enabled the Punks' buyers to withdraw their Ether (ETH) post-purchase, resulting in theft. Larva Labs quickly deemed the collection inauthentic and launched CryptoPunks V2, also with a fixed supply of 10,000 images. The move came only after the initial 10,000 CryptoPunks V1 collection sold out however, so there are a total of 20,000 CryptoPunks in existence, with the authenticity of 10,000 of them disputed. On top of that, Larva Labs cannot simply destroy the V1 project as Twitter user @0xStroudonian allegedly pointed out that both the V1 and V2 smart contracts are intertwined as they point to the same file.

The issue remained under the radar as OpenSea previously banned the sale of CryptoPunks V1, even though users wrapped them as ERC-721 tokens to fix the underlying exploit. However, the wrapped collection's recent listing on LooksRare prompted OpenSea to rescind the ban. At the time of publication, the CryptoPunks V1 collection accumulated 12,069 ETH ($34.1 million) in total volume traded on OpenSea, while the CryptoPunks V2 collection accumulated 819,900 ETH ($2.22 billion) in total volume traded on the same platform.

Blockchain enthusiasts remain sharply divided over the authenticity issues of the V1 and V2 CryptoPunk collections. For example, Discord user Rufus Xavier#9449 wrote:

"Larva labs, you need to get your shit together. DMCA is not the way. Now you're doing it to your collection after you traded it? You're making the entire space look bad. Stop."

Meanwhile, Discord user mb#1510 expressed a different point of view:

"I just don't know if I can be ok with selling someone V2 knowing there is another token that might or might not have relevance to it."

In copyright law, the existence of counterfeits and diluted products can significantly affect consumers' confidence in the original brand and may cause them to drop in value. As the supply of CryptoPunks was suppose to be "fixed" at 10,000 items, adding another 10,000 into the collection by acknowledging their legitimacy leads to brand dilution, and could lead to a drop in the collection's value. However, there is no legal precedent as to whether or not the spin-off, resurfacing, and re-commercialization of an NFT art collection due to a smart-contract bug constitutes an act of copyright infringement.