The Legal Implications of NFTs In the Blockchain Ecosystem

This article explains the negative legal implications of NFTs in the Blockchain Ecosystem.

What Are NFTs

 NFTs or Non-Fungible Tokens are crypto-assets representing either a digital or real-world item in a way that allows its authenticity to be verified on the blockchain To better understand NFTs, let us take a closer look at the word ‘non-fungible’. Non-fungibility of any item means it is extremely unique and irreplaceable or interchangeable under any circumstance. Fiat is fungible, Bitcoin is fungible. This is because the same amount of Bitcoin or Fiat can be traded anywhere for another Bitcoin or fiat of an equal amount. Non-Fungible Token conflicts with this rule. NFT copies cannot be exchanged for originals. The ownership information of an NFT is stored by the blockchain, therefore, allowing it to be traded in place of the item it represents. NFTs became mainstream and attracted attention back in 2017 when an NFT cat collection produced by crypto kitties sold for over 100,000USD per cat NFT. Now we know Non-Fungible Tokens are awesome, mind-boggling, and evolutional as artists finally have complete ownership and control over their creation, but the legal issues and implications associated with NFTs cannot be overlooked. Below are some persisting legal issues of Non-Fungible Tokens;




Payment of Royalties



What are Royalties? Think of it as payment made to the original producer of an item for every copy of his/her art sold. In the NFT world, artists can also integrate royalties into their artwork. Another problem also arises, automatic royalty payments will not be made unless a copy of the artwork is sold on the same platform to which the artist originally credited. Also, market service conditions are taken into account. Confusion occurs when the written royalty payment codes are not in alliance with the terms and conditions of the Marketplace.



Data Protection Infringement

Countries around the globe are having their parliaments look into NFTs to find ways of turning NFTs into a legal framework. But
The immutable nature of a blockchain makes it difficult because NFT artists cannot correct any personal data when a mistake is made. Therefore, NFTs containing personal information may violate the laws of that country's jurisdiction (data protection laws) as they cannot be edited.

Authenticity Verification of NFTs|

Technically, Non-Fungible Tokens are connected to the original asset by a link. This is because the distributed ledger on which the NFT is hosted does not support large files since the underlying digital asset may be a large file. The only remaining choice is to connect the NFT via a link to the original asset. Here lies the risk; the server on which the original digital asset is stored could shut down due to machinery faults or power fluctuations. In a situation such, the authenticity of an NFT becomes unverifiable which leads to a huge loss of Investments. The fate of an incredibly expensive NFT lies on a link, provided the link is not deleted or changed.




Promotion of Illegal Acts


Because there are sellers and buyers of NFT, money laundering is encouraged. NFT serves as a new stream of money laundering; Illegal transportation of large sums of money between places.

Conclusion

I strongly believe NFTs have a great future and can influence all sectors of businesses greatly. NFTS is here for the long term because they help fix the problem of global asset shortage ingeniously.