NFT and the legal system, part one
The growing interest in NFT is surprising in its scale. Just a few years ago, blockchain systems quickly invaded the lives of Internet users. All new financial instruments are being born based on blockchain technology, one of which is non-fungible tokens.
As we know, NFT is a specific kind of cryptographic token. NFTs are created on different blockchains and represent both digital and real objects. Their main property is the impossibility of replacing one with another, that is, the uniqueness of each token.
If we take advantage of the opportunities offered by the NFT technology, namely, tokenize any physical or digital object, then very interesting and even daring business processes open up before us. For example, you can tokenize a car and sell it using NFT remotely from anywhere in the world.
An interesting thought is that a person is also unique in the totality of all his natural and acquired qualities. Is it possible to tokenize a person, his personal brand using NFT technology?
At first glance, this idea seems a little crazy. But analyzing the trends in the development of human civilization, we see that this is possible.
It seemed to us that blockchain technology would break our conventional monetary paradigm. It seems that NFT can change the paradigm of the uniqueness of each person, making it more meaningful.
NFT ownership
However, on the way to the implementation of ambitious plans, many legal issues arise. With NFT, you can tokenize almost any object and prove your ownership of those objects, but then you need legislation that regulates this right. And this is where the real conundrum begins.
The fact is that the emergence of NFT plunged regulators in different countries into panic. They have not yet figured out what to do with blockchain technology and cryptocurrencies. How to check the cash flows transmitted through encrypted transactions, how to check the “purity” and there are many more questions to be resolved. But then another new financial instrument appears, in which seemingly incompatible is mixed — finance, technology, art, real goods. Regulators do not have the ability to quickly develop a legal framework for all these innovations and adapt to the flexibility of blockchain applications and new technologies. This is indeed a daunting task as the NFT covers legal areas including copyright, licensing, patenting and tax law.
Intellectual Property and NFT’s
Of course, intellectual property and copyright laws are not identical across countries. Still, the general concept is that the rights to a work or object belong to the person who created it. For example, in the United States, copyright law says that the creator of the original image in a work is its author. A person who has a copy of a work, for example, who bought a reproduction of a painting, can hang it on the wall or even sell it. But he has no right to publish and sell this reproduction, although the creator can. It happens that copyrights are sold along with the work, but this is a slightly different question.
Are NFT tokens intellectual property? Of course yes! Because in the classical sense, the object of creativity is, firstly, something created by the creative labor of a person. Secondly, the object of creativity is expressed in a certain form as a result of creativity. An author can have a monopoly on his work and transfer this right to someone else in full or in a certain way. If someone uses a copyright object without the permission of the author, the law offers a “redress” procedure.
It turns out, on the one hand, copyright is quite applicable to NFTs. However, in this case, in addition to intellectual property and copyright laws, there are many other factors to consider. For example, before purchasing NFT, carefully study the contract and the rules of the platform on which the object is being sold.
At the moment, there is a practice of concluding an agreement between the author of the NFT and his buyer. It is in this agreement that there are various nuances, and here the buyer needs to be very careful. The essence of the agreement can be stated not only in a separate document, but also included in the metadata of the token. However, some authors don’t bother writing legal documents for the NFTs they create. In this case, it is necessary to find out what rights and licenses the platform itself, representing the NFT, has. It is quite obvious that completely different, non-standard contracts can be used for different products, and this can sometimes complicate or simplify the buying process itself. Selling something as an NFT can be an attempt to dodge unnecessary bureaucracy (and the need to trust the relevant public institutions), or it can raise additional questions from regulators, such as whether NFT makes an investment tool out of a creative object.
The legal problems that arise for NFT are becoming a real mania. This covers all market participants. It is possible that in the near future the judicial system will have to face large-scale copyright restoration processes. But that doesn’t scare NFT enthusiasts in the least.
In the next part, we will look at the legal nuances of NFT trading on the example of specific cases — from digital art to attempts to sell real estate as NFT.
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