Non-Fungible Tokens — From a Legal Perspective
In 2017 it was all about the utility and security tokens. For the last year, it is about non-fungible tokens (or shortly NFT’s). There has been a lot already said about what they are, how we use them, are they really not fungible and what are their real-world implications, but not so much about how do they fit into a legal framework.
A few weeks ago an EU-based cryptocurrency platform Kriptomat has partnered with a gaming platform Enjin and created their very own and special Kriptomat Founder Tokens, which you can read all about it in this article: https://kriptomat.io/platform/kriptomat-enjin-collaboration/. I covered the legal part of the creation of the tokens.
This is a short piece that aims to put NFT’s in the legal perspective of the token ecosystem and explain the legal logic behind the tokens. It has to be noted, that NFT’s are still in the development phase and legal consequences are not yet clear, so in this article, I will explain an opinion from my own legal perspective. I invite you to contribute your own thoughts if you agree or disagree with me.
DEFINITION OF NFT’s
When we talk about non-fungible tokens, we must first understand what fungible tokens are.
Fungible tokens (FT) are tokens of such a nature that one part or quantity may be replaced by another equal part or quantity, meaning that they can be easily exchanged for another item or value. Every token is the same as every other token and is capable of mutual substitution. For example, if someone borrows 1 ETH (Ether is a cryptocurrency, necessary to have for operating on the Ethereum blockchain), he will most likely spend that 1 ETH and give back another 1 ETH of the same value. The borrower can also give back for example 0.5 ETH twice, which means that fungible tokens are divisible.
On the other hand, non-fungible tokens (NFT) are unique items that can’t be exchanged for the same amount of the same kind, because they are unique, possibly rare (scarce) and each holds…