The NFT Explosion – What Lawyers Need to Know
First there were CryptoKitties. Then came Digital art, CryptoPunks and NBA tokens. But when Beeple’s digital art piece sold at Christie’s for $69 million, the mania truly began. And as with any wave of media mania, also came the groundswell of negative media and hand-wringing about NFTs. Of course, NFTs are not all evil nor are they a panacea for artists and musicians. If properly issued and positioned, they can provide a win-win for both artists and collectors.
What are NFTs?
Non-fungible tokens (or NFTs) are a token issued on a distributed ledger like the blockchain. Similar to bitcoin, in that they can be identified individually and are authenticated through multiple nodes, they differ from bitcoin in that they are each unique and “non-fungible”. They provide a method of “provable uniqueness” for pieces of digital art, images, music and other content. NFTs are provably unique because each image/piece of content is linked to a single verifiable and unique token.
Why are people spending massive sums on NFTs?
NFT purchasers often are collectors who view NFTs as a way to support their favorite artists, actors, musicians, and athletes. As with collectors of many items (antiques, baseball cards, art) many collectors purchase NFTs because they hope they will increase in value and will be a good investment.
What laws apply to NFTs?
In the US, depending on how they are positioned, NFTs can a trigger a range of laws: securities laws, commodities laws, consumer protection, intellectual property, anti-money laundering and more. A team of our lawyers have prepared a high-level guide to NFTs that provides a legal perspective on these intriguing but controversial products. View our client alert here.