The word “non-fungible tokens,” or NFT, has been talked about a lot these days. While most people have heard of NFT, few may know what it is exactly.
NFTs are essentially packets of data that can be stored and processed digitally, recorded on a blockchain that has until now been considered to represent digital creative works and files such as videos, audios, photos. NFTs can also be referred to as digital representations of real world objects such as art, music, game items, and videos. They are bought and sold online, mostly with cryptocurrency, and they are usually encoded with complex software. A great advantage is that anyone can verify the authenticity and ownership of the asset, thus creating clear titles for each NFT.
Midwest Tungsten, a supplier of industrial-grade metal, recently paired a blockchain with a 14.545-inch, 2,000-pound tungsten cube to produce a non-fungible token (NFT). Amitabh Bacchan’s Madhushala NFT Collection – his father’s poem, recorded in the superstar’s own voice, grossed a total of $ 756,000 or 5.5 crore in auction. Artist Beeple’s Crossroad sold for $ 6.6 million on Nifty, while a digital collage of images of Beeple sold for $ 69.3 million at a Christie’s auction in March!
Non-fungible tokens are an extremely valuable asset due to their unique nature. For example, a stock or a bitcoin is fungible – swap one for another bitcoin and you will get exactly the same. NFTs, however, are a “one of a kind” trading card, which doesn’t mean you can’t swap one NFT for another, of course. It just means that if you trade one NFT for another, you will end up with something completely different.
The introduction of NFTs and the millions of dollars they are traded for have raised concerns about their security, identity and authenticity.
However, given the huge sums of money flooded into the NFT scene, with cricketers and Bollywood icons such as Amitabh Bachchan and Salman Khan also launching their own NFTs for purchase, NFTs have gained legitimacy. over time. However, what is concerning is that there are still no laws or regulations governing NFTs and given the time it took to draft the cryptocurrency bill, an effective NFT law is still a long way to go.
Although India has laws dealing with cross-border transactions, such as the Foreign Exchange Management Act (FEMA), which oversees cross-border business activities in India, they might lack bite in cases where assets such as NFTs are concerned.
Under FEMA software and intellectual property laws, NFTs can be classified as intangible assets. However, since the specific location of crypto assets cannot be determined, the jurisdictional issue cannot be fully resolved.
Supporters of the NFT claim that due to the fact that the contractual obligations of smart contracts are executed automatically, these transactions should result in less legal disputes given the execution of the agreement.
That said, the lack of strong laws governing these digital or smart contracts, the digital exchange of assets that might not be stored in one place, possible breaches that cannot be found, is perhaps what still puzzles fans of NFT.
What are the legal problems that DTVs could create for their buyers?
The first concern with DTVs is the right that the buyer gets with the purchase. Because an NFT is a representation of an underlying work of art, its purchase may not transfer the underlying intellectual property rights to the buyer.
NFT buyers, in order to ensure that they have the license or right to use the “work of art”, must also obtain the appropriate licenses from the author or creator of that “work of art”. “. So even after purchasing a DTV, if the buyer does not get the rights to use the artwork, the intellectual property will still be owned by the original creator.
What is interesting is that most marketplaces for “NFT” transactions reserve the right to delete a user account or to remove an NFT “moment” from its application. In accordance with the laws in force, they cannot in fact be obliged to inform their users in advance.
Money laundering, fraud
Big money attracts criminals. India has experienced an increasing number of money laundering issues over the past decades. Given the exorbitant amounts invested in the NFT market, concerns have been raised as to whether they can be used to circumvent anti-money laundering regulations and find new ways to transact with money. money in an unknown way.
Due to their digital nature, NFTs can be stored anywhere, making their tracking and law enforcement quite difficult. Not only that, with the advancements in technology occurring on a daily basis, it would be difficult to predict if a person violating an NFT could actually be found or caught?
Smart contracts are digital contracts where clauses are written into code and are embedded in purchase tokens, with relevant triggers. Smart contracts usually work automatically when a predefined set of conditions are met. Because the contractual obligations of these contracts are performed automatically, it follows that in theory less legal disputes should arise over the terms and performance of the contract. However, there is still an ambiguity about the binding nature of smart contracts. Smart contracts govern NFT sales, making the transaction ambiguous and outside most existing laws.
The nature of NFTs and the lack of laws surrounding them seem to leave NFTs in a sort of regulatory blind spot. The legal implications of NFT ownership remain unclear, with respect to “ownership” under the law. In all likelihood, it will take some milestones and court rulings to help owners and enthusiasts navigate the waters.
(The author is Managing Partner, Verum Legal, a law firm)