Non-Fungible Tokens (NFTs) are one of the most popular buzzwords in the crypto community in 2021, with many headlines talking about NFT artists and traders making big bucks from NFTs.
NFT can be challenging to understand, and the market hype certainly doesn’t lend itself to rational analysis. When many of the loudest voices are financially involved in NFTs, it can be challenging to know who to trust.
Recently, we have observed that many people want to know why people buy NFTs and if it is illegal to buy them. In this article, we will be discussing why people buy NFTs and if it is legal.
Why Do People Buy NFTs?
An NFT is a cryptographic tool capable of proving ownership and authenticity of an underlying asset, typically in digital form. Similarly to their cryptocurrency counterparts, such as Bitcoin, NFTs are created (or ‘minted’) and recorded using blockchain technology.
There is a difference between downloading an NFT image and storing it on your computer or mobile phone and owning the original supported by NFT technology
The images or videos you download have no monetary or financial value, while NFT-backed images are the artist’s original artworks. Just as you can go online to download Mona Lisa images or even buy Mona Lisa posters, images and reproductions or copies will never be worth as much as a verified original. You can even download the image thousands of times, but none of that matters as you don’t own the linked version of the NFT that certifies that you own the original artwork.
Another reason is that they want to be one of the first to have this art. They believe it will be more valuable in the future and want to get to the bottom of it.
Eventually, some people will buy NFT artworks as an investment. They believe that art will continue to increase in value.
Legal Issues Related to NFTs
While non-fungible tokens have grown in popularity with each new release, there is no specific regulation on the legal rules for marketplace NFTs and what they represent.
From a legal point of view, NFTs are not complicated. Only NFT creators and actual NFT owners should be aware of some worrying signs and other legal issues. Some examples relate to privacy, copyright, financial liability, contracting, criminal issues, etc. In most cases, the U.S. SEC, which represents the Securities and Exchange Commission, classifies NFTs as securities.
Below are the most talked-about legal aspects of non-fungible tokens.
- No Intellectual Property Rights
- Just because NFTs are designed to showcase the underlying artwork, their authors or owners do not own the underlying intellectual property. An NFT holder must acquire a license for these fundamental rights from someone ⁴who once created a work of art to obtain the right to reproduce the original work themselves. Those with such rights may prefer to grant a license while imposing other restrictions on how and how the NFT can be used.
- What happens if you breach these terms? The NFT Marketplace reserves all rights to delete your user account or remove the NFT “Moment” from its application. They are not obliged to inform their users in advance. Sir Tim Berners-Lee has created many exciting NFTs and has sold the network source code NFTs for $5.4 million. He can offer NFTs at high prices. He owns the copyright, so there are no contractual or licensing restrictions. Sir Tim can reproduce the code while developing one of his NFTs.
- Thus, the owner who owns all the rights is the copyright owner. If this owner does not grant the exclusive rights to others, he prevents the unique NFT from distributing, modifying, publishing and displaying the work. Those who purchase the NFT receive it and the right to use the copyrighted artwork associated with the token for personal use. If buyers believe that rights have been violated or have suffered a loss in value, they can sue sellers of untrustworthy tokens according to a number of legal theories.
- NFT Fractions and Index Funds Can Be Unregistered Securities
- Today, many NFT markets are facing the fragmentation of non-fungible tokens to allow numerous traders to participate in an expensive offering. In this case, the non-fungible token portion described by NIFTEX is almost identical to the index fund described by NFTX.
- What do fragmented non-fungible tokens represent? This can be just a specific NFT or a bundle submitted by issuing a specific amount of ERC-20 coins. They serve like stocks but are traded as FT on DeFi or DEX.
- Not long ago, SEC Commissioner Hester Peirce classified fragmented, non-fungible tokens as unregistered securities. However, it is unclear whether others will support this view. Therefore, NFT investments could be at risk if local regulators take action. Still, the potential gains you can make are quite substantial, and it makes sense to dig deeper into NFT-related topics and give them a try.
- Anti-Money Laundering (AML) Efforts Can Impact Your Activity
- Market participants in NFTs should not believe that NFTs beat all regulations just because they are innovative and unsearchable. NFTs have led to the creation of separate laws, an example of which is a recent class-action lawsuit. Currently, global regulations for artworks, digital assets, and antiques, especially anti-money laundering (AML) regulations have expanded.
- We mentioned earlier that the US SEC classifies NFT scores as securities, and AML regulators take heed. Here is an example. Given the high cost of non-compliance, market NFT participants involved in buying and selling these tokens, such as art dealers and brokers, will be ready to assess the risks they might face while navigating these uncharted waters.
- Data Hosting and Information Safekeeping
- It is recommended to store NFTs on the blockchain. It indicates the current location of the digital asset. Digital assets that reference NFTs are kept in different locations. See the NFTs for more information. NFTs connect to assets through links. If the asset is somehow removed, the NFT becomes unusable. Once the link is broken, the NFT will no longer be linked to the specific digital asset. NFTs are not backed up. Each NFT is original. Replacing one is impossible. Therefore, his buyers do not risk recourse. This can lead to data storage violations, failures and loss of important information.
- Data Protection Regulations
- Taking the European Union as an example, as recognised by the GDPR, for each item of personal data, there is at least one legal entity against which a data subject’s rights can be exercised (e.g. rectification or erasure of personal data).
- There is a similar law in the US: users can sometimes delete their private information completely. This is granted by some privacy laws, such as the provisions of the California Consumer Privacy Act or the EU General Data Protection Regulation.
- However, blockchain may prevent users from exercising this right due to some of the obstacles it may impose. It does not insist that users reveal their identity. For this reason, it is almost impossible for data subjects to exercise their rights. Non-fungible tokens containing private data may violate certain privacy principles.
- Due to privacy regulations, users can fix mistakes in their personal information. Again, blockchain technology can make corrections difficult or impossible. What does that mean? Personal NFTs involving private information may violate both privacy laws and privacy rights. The lack of regulation of the non-fungible token space raises many concerns.
The artworld is evolving. With the advent of blockchain technology, artists can create and sell digital artworks in non-fungible tokens (NFTs). These NFTs are unique and cannot be replicated, making them a valuable asset.