Non-Fungible Tokens, or NFTs as they are widely known, have been in the news on an increasingly regular basis. But, what are NFTs, and how do they work?
What are NFTs?
In a broad sense, an NFT is a token that is a completely unique unit of digital data, which is stored using blockchain technology. Blockchain is an unchangeable ledger of transactions, across a network of computers, which all have the same history of transactions. This ledger tracks any purchase or sale of the token in a marketplace. Once this transaction is completed the ledger is then updated.
Why are NFTs important?
NFTs have become increasingly popular, with many brands creating their own NFTs as collectibles. The company NBA Top Shot have sold highlights of the most memorable sporting moments in basketball as NFTs. With Facebook’s rebranding as Meta and the announcement of the Virtual Reality Metaverse it is possible that we will see a greater role for NFTs in a virtual marketplace. In fact, some luxury brands such as Gucci, Dolce & Gabbana, Ralph Lauren and Balenciaga, have already launched their very own NFT collections in the Metaverse.
How does the law relate to this?
There are a number of legal challenges that will arise when dealing with NFTs. There are currently no regulations in place which deal with this area, and it is difficult if not impossible to apply current regulations to this novel technology.
There are some commentators who believe that blockchain technology can provide significant data protection to users. However, it is worth noting that blockchain does not provide complete privacy. The level of protection depends on the way the technology is used. The GDPR, which is lauded as the gold standard for data protection, was drafted and implement prior to the rise of blockchain. As a result of this, there is significant conflict between the principles of GDPR and blockchain technology.
Generally, the NFT itself is not protected by copyright law. However, it is not clear what sort of title the purchaser of NFT holds. Do they have the right to sell or transfer the ownership of the NFT? Are full ownership rights being bought? Are they just purchasing a licence to reproduce? In a recent case in England, the court held that NFTs are property. This case concerned Boss Beauties NFT collection, where two NFTs were stolen. In this case the court held that the NFTs were properties, and as such assigned rights to them. However, there is no equivalent case in Ireland and it is unclear how they would be treated in this jurisdiction.
Another area to bear in mind is consumer law. The protection of consumers in a digital, and potentially Virtual Reality, setting is yet to be regulated and, in the absence of regulation, issues will be difficult to navigate when they inevitably arise.
Markets in Crypto-Assets (MiCA) Regulation
Like any innovation in technology, it can take a number of years for the regulatory framework to catch up. In March of this year the European Parliament adopted the Markets in Crypto-Assets (MiCA) Regulation. This regulation aims to provide a legal framework for regulating crypto assets which are not addressed by existing legislation. It will be interesting to see how this new Regulation once adopted with interact with technology at that time.
NFTs in the news
Just a few months ago Instagram announced that the platform will begin testing NFTs with certain content creators in the USA. The idea behind this is that creators who are part of this test can share NFTs that they have made or bought. Similar stories made the headlines last year when the NFT of Twitter founder Jack Dorsey’s first ever tweet was sold for $2.9 million. It has been reported that the new owner of this NFT just listed it for sale for $48 million last week. Late last year Banksy’s 2005 piece “Love is in the Air” was segmented into 10,000 NFTs, with each NFT representing a section of the painting. The auction was held in early 2022 where collectors could purchase a segment of the painting for approximately $1,500. Those involved in this industry see NFTs as a way of democratising the ownership of fine art and luxury goods.
NFTs have made the news in the UK courts recently. In the case of D’Aloia v. (1) Persons Unknown (2) Binance Holdings Limited & Others the court granted service of papers by way of NFT.
If you would like to discuss any of the points further or require more information to help your business please contact Cian Clinch, or Ciara O’Brien from the Commercial and Business team.Back to Full News
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About the Authors
Cian is a partner in the Commercial & Business team at Hayes solicitors. He predominantly specialises in commercial litigation and dispute resolution and has acted for a variety of companies and financial institutions in contract, debt, insolvency, restructuring and recovery matters.
Ciara is a solicitor in the Commercial and Business team at Hayes solicitors. She advises on a wide range of commercial, regulatory and contractual issues. Ciara also practices general litigation and dispute resolution with a specific interest in defamation and intellectual property matters.