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NFT Legal Regulations: What You Need to Know

NFTs have taken digital wallets everywhere by storm 🌩. Everyone keeps talking about this new addition to the digital economy. Many businesses 😇 have embraced NFTs and even make several transactions daily because of their rise in popularity. But do they understand the legal regulations NFTs have to follow or are they headed for trouble? 

Many businesses don’t really understand legal issues ⚖ pertaining to NFTs. In this article, we won’t give you any legal advice, but we’ll talk about NFT legal regulations 👊. With a good understanding of intellectual property rights, financial regulation, and NFT scopes, you can keep yourself out of digital currency legal trouble. 

What Are NFTs?

NFT is an acronym for “non-fungible tokens.” You should also know that “fungible” means “mutually interchangeable.” A great example of a fungible asset is the dollar. You can replace one dollar with another dollar, and it makes no difference at all. 

Unlike most financial securities and cryptocurrencies within blockchain technology, NFTs aren’t mutually interchangeable🗣. You can’t swap out one NFT for another NFT. Instead, they help preserve the originality and authenticity of any digital artwork traded in the digital marketplace 👋.

Basically, NFTs are freely tradeable digital assets built on the Ethereum blockchain system. NFTs show ownership 💪 of virtual or physical artwork, and owning an NFT comes with some exclusive rights 👱. 

NFT Legal Regulations

Any party issuing, exchanging, or trading NFTs must comply with specific legal and commercial restrictions 🏌 that concern these pieces of art. Some of the most common legal implications surrounding NFTs are below.

Intellectual Property Rights

At first glance 👁, when someone sells you a claim to a given piece of content, it may seem as if they’ve assigned you its copyright ©. However, this is often not the case for a copyright holder. The issuer (original artist) retains the copyright and intellectual property rights to the given piece of material 🤝 when secondary sales happen. In other words, you can use it, but the artist still owns the artwork itself. However, for a physical object like a book or a limited edition print, the original author doesn’t retain much control over their secondary sales.  

As an NFT buyer, you’ll only have the right to display the purchased non-fungible asset. You do not become a copyright owner. During the transfer of NFTs in the token markets, the issuer needs to indicate whether a transfer of intellectual property rights constitutes part of the resale rights and other royalty payments.

Financial Regulation

With the rise of NFTs, issuers (digital artists) need to prove the “non-fungibility” of the digital tokens they intend to offer. If an NFT (non-fungible token) gets classified as a cryptocurrency or security token, it could encounter some financial regulation. Some of the financial regulatory issues regarding a digital token include:

  • Client identification and verification
  • Associated record-keeping 📁
  • Compliance obligations (anti-money-laundering regulations)
  • Monitoring obligations

Basically, businesses need to clarify 📝 whether a given non-fungible token stands as a regulated investment, payment instrument, or security piece of art. They must also establish if selling their NFTs or offering them to an exchange platform could lead to any activity related to financial regulation 📈.  

Stating the NFT Scope

What the heck is an “NFT scope”? This simply means the issuers must state whether selling the NFT shifts specific rights to the buyer 👏. Such rights could include intellectual property rights or the rights that prove ownership of an asset in the market for NFTs. They could also cover contractual rights like the freedom to receive or use a given digital content or virtual asset 🤓.

It’s important to clarify these issues upfront to avoid losing any unintended rights or potential claims 😎 in the subsequent sale. Also, stating an NFT scope gives the buyer a clear picture of the item they’re acquiring 🤗.

Data Security and ESG

When transacting on blockchain networks, the security of user data and privacy information 😏 is paramount. The responsible technical teams must determine the appropriate data security and data-sharing procedures 📜 to apply for a given piece of artwork. They must also pick the right blockchain protocol to deploy 📥 for every NFT-based artwork.

Additionally, you should develop a proper technical arrangement to guarantee the permanence of traditional artworks and other digital assets 🖥. NFT issuers must confirm whether they comply with the wider organizational environmental cost for public blockchains.

Do You Need Legal Help with NFTs?

NFT transactions involve selling and purchasing 💰 digital assets in the online marketplace. That’s why you need to understand the legal frameworks 🔨 that govern these transactions! With our social media attorneys 👥, you’ll get the legal help ⚖ you need regarding sales of NFTs. Just book ✍ a consultancy service with our expert talent team here to get started.