Non-Fungible Tokens – big gains but also many issues…
Non-Fungible Tokens (NTFs) have risen to prominence over recent months although they have been around for some time. The news feeds have included stories about huge sums being paid at auction for digital artworks but NFTs have also been used for digital fashion goods (yes, digital only trainers by Gucci are a thing), trading cards, in connection with the release of new music and the BBC has reported in a recent “Click” broadcast, the funding of new films.
What is not clear to many people is exactly what an NTF is.
An NFT is a publicly verified record of authenticity in relation to the asset it represents. An NFT cannot be replaced or reproduced, as something that is non-fungible is unique. By using NFTs the authenticity of digital assets can be verified and protected.
Ownership of the NFT does not give ownership of the underlying asset. The intellectual property in the underlying asset will remain with the current owner. The terms of ownership of the NFT will be subject to a contract with the owner of the underlying asset which will set out the terms of rights granted – whether to display a piece of artwork, to reproduce it, commercialise it or use it. If considering buying an NFT it is imperative to look into the rights being granted so that you know what you are able to do and what is restricted. This will have a direct impact on the value of the NFT.
A record of ownership of each NFT is stored via a blockchain, which is a type of ledger or database, that is duplicated and distributed across a network of thousands of computers.
The market for NFTs is digital and at present buyer needs to use cryptocurrency for the transaction. This itself leads to issues as the market for cryptocurrency is volatile and a seller may not realise the anticipated value for the NFT. There have been recent reports of UK banks taking months to vet holders of crypto assets before they are allowed to open an account and convert their cryptocurrency into cash due to money laundering and tax concerns.
NFTs remain unregulated at present and it is likely that in future the financial institutions will take heed. There is some suggestion that NFTS should fall within the scope of online trading laws or regulated investments but this has yet to be determined.
If you have any questions about Non-Fungible Tokens (NFTs)…Talk to Tollers on 01604 258558 and ask to speak to our legal specialists in our Corporate and Commercial team who will be happy to help.