Top 5 Legal Issues around NFTs
NFTs are not now particularly regulated under the Markets in Crypto-Assets Regulation. Nevertheless, current rules and regulations will apply, and any company issuing, dealing, or exchanging NFTs would need to take into account a number of commercial and legal considerations. Hereby we listed out the top 5 legal issues around NFTs for your knowledge.
Defining the scope of the NFT
It is crucial that issuers make it clear which rights are “sold” with the NFT
For example, a right to receive or use a certain item or to access benefits could be a contractual right
Clarity up front will help the issuer avoid defaulting on unanticipated rights and potential disputes from buyers who claim the rights being offered were misrepresented
The buyer of an NFT must also be aware of what they are getting
Due diligence on the part of the buyer is required to ascertain the rights and liabilities being bought, especially if they could have an effect on the present or future value of the NFT and the underlying asset
2. Intellectual property rights
Issuers will want to strictly regulate how buyers use any IPR connected to an NFT
In most cases, the issuer will keep all copyright and other IPR, and the buyer will be given permission to show the underlying asset
To protect the issuer’s priceless brand, care must be taken in how and whether IPR is licensed through the sale and subsequent transfer of the NFT
3. Financial regulation
Businesses must determine if selling their NFT for sale is a regulated activity for the purposes of financial regulation and whether their NFT is a regulated investment
Although NFTs are not (yet) specifically regulated, they may result in national and supranational legal duties if they exhibit traits of other regulated investment units
Issuers must show that any NFT they sell is non-fungible in order to prevent it from being categorized as a security token or cryptocurrency and subject to financial regulation
4. Data security and ESG
Compliance with privacy rules will not be a significant factor in the sale of NFTs because it is unlikely that any significant personal data will be disclosed or traded
Data security and NFT transactions in general, though, will be of the utmost importance
Technical teams will need to decide which blockchain protocol will be used, as well as which security and data-sharing standards will be used
5. Contractual
To mint NFTs, issuers frequently work with a third-party technology supplier
The minting agreement must include assurances that IPR and confidential information will be effectively protected as well as a clear definition of the provider’s obligations
Businesses should think about getting an enterprise-grade crypto wallet because they will need cryptocurrency funds to mint NFTs
To ensure that there is sufficient protection available in case of loss or misappropriation of cryptocurrency assets in the wallet, thorough vendor due diligence will be required
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DISCLOSURE:
None of these articles constitutes financial advice. Articles are highly summarised to make it easy for the reader and save time, so please DYOR further before putting your hard-earned money into any product mentioned.
Please note that the tech industry evolves rapidly and the info in this article is correct at the time of publishing. As Heraclitus said, “Change is the only constant,” so if anything sounds old or off, please holler on the socials or comment here so everyone stays peeled.
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