In the past few years blockchain technology (the base of all crypto currency industry) has exploded in popularity. Its distributed ledger system is lauded for its security and immutability, and it has been put to use in a variety of industries.
Blockchain is particularly well-suited in digital asset management. In particular, blockchain can be used to create and manage so-called “non-fungible tokens” or NFTs. The world of non-fungible tokens (NFTs) is growing by the day. According to CoinMarketCap, there are now more than 1,600 different NFT projects in operation, with a combined market capitalization of over $240 million.
How do NFTs work? At a very high level, most NFTs are part of the Ethereum blockchain, though other blockchains have implemented their own version of NFTs. Ethereum is a cryptocurrency, like bitcoin or dogecoin, but its blockchain also keeps track of who’s holding and trading NFTs.
There are now hundreds of NFT projects on the Internet – and it’s easy for just about anyone to start one. So, why hire a lawyer? If you are thinking of starting an NFT project, it is important to consider reaching out to a law firm and seeking the advice of a lawyer. The legal environment for NFTs is still in its infancy. There is very little case law, but it is developing fast as the sector grows.
What’s worth picking up at the NFT supermarket? NFTs can really be anything digital (such as drawings, music, your brain downloaded and turned into an AI), but a lot of the current excitement is around using the tech to sell digital art.
Here are just some of the ways a lawyer can help you: Lawyers can help you understand the complex legal landscape surrounding NFTs. They can help you draft and review your project’s terms and conditions, ensuring that your users are protected. Lawyers can provide guidance on how to structure your token sale in order to comply with applicable laws and regulations. That’s why is good to get a blockchain lawyer!
As the Soleymani case illustrates, the NFT market is still evolving, and so are the legal and regulatory issues tied to digital assets, stretching from intellectual property law to estate planning.
NFTs raise some interesting legal considerations :
Copyright – When you buy an NFT, you are not purchasing the digital work itself. Copyright relating to the artwork does not automatically transfer with the sale of the NFT. The artwork creator or the third-party seller can retain the right to copy, distribute, modify, and publicly display or perform the art.
Security – Investors should be wary of the security threats posed by cyber-hacking and other online threats. An NFT and the asset it represents are typically stored separately. While the blockchain ledger is immutable, the digital artwork itself may not be as secure – for example, if hosted on the servers of a third-party website that is not secure.
Estate and succession planning – As with other digital assets, one question that will become increasingly important over time is how the UK’s legal framework can deal with NFTs on the owner’s death. Leaving digitally stored assets to the next generation can lead to difficulties for executors.
Money laundering – The value of NFT transactions and the widespread use of cryptocurrency inevitably raises concerns about whether these transactions are being used to circumvent anti-money laundering regulations.
Regulatory – NFTs are non-fungible. Unlike cryptocurrencies, they cannot be traded or exchanged at equivalency. They are not securities and are not subject to securities regulations in many countries. Unregulated NFT transactions, including “wash trading”, would be banned in traditional investment markets like equities because they give an artificial impression of demand for an asset.
Taxation issues – As with cryptocurrencies, the law has been slow to catch up with NFTs and taxation – with difficulties in determining where NFTs are situated for tax purposes. While HMRC has issued a manual HMRC Cryptoassets Manual, there has been no publically published guidance on their UK tax treatment, so NFTs fall into something of a tax black hole.
Privacy and data protection laws – Some data protection laws give individuals the right to erase their data. The immutable nature of blockchain technology might make this right functionally impossible to exercise. As a result, NFTs that contain personal information might violate data protection laws.
Property law – It is important to consider which legal system governs your ability to sell or secure an NFT. The asset’s location generally determines property law. However, NFTs represent a unique copy of the asset rather than the underlying asset itself.