Legal Issues with NFTs: Risks and Challenges to Understand

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Bittime - NFTs or non-fungible tokens are unique digital assets and cannot be exchanged for other similar assets. NFTs can represent different types of assets, such as artwork, music, videos, games, or even tweets. NFTs use blockchain technology to record and verify ownership and authenticity of underlying assets.

NFTs: A New Phenomenon in the Digital World

NFTs became immensely popular in 2021, with sales volume reaching $2.5 billion in the first half of the year. NFTs are attracting the attention of many artists, celebrities, athletes, and investors who see the potential of NFTs as a new way to create, distribute, and monetize their work. Some examples of NFTs that sold for fantastic prices are:

• "The Merge", by digital artist Pak, sold for $91.8 million on Nifty Gateway in December 2021.
• "Everydays: The First 5000 Days", by digital artist Beeple, sold for $69.3 million at Christie's in March 2021.
• "CryptoPunk #7523", one of 10,000 pixel art characters created by Larva Labs, sold for $11.8 million at Sotheby's in June 2021.

NFTs: Legal Risks and Challenges to Watch Out For

While NFTs offer exciting opportunities for creators and investors, they also pose a number of risks and legal challenges that need to be understood and anticipated. Some of the legal issues that exist or may arise related to NFTs are:

Copyright, Intellectual Property Rights, Proprietary Rights 

One of the main risks for NFT buyers is an understanding of the rights they acquire. The purchase of an NFT does not necessarily mean the purchase of copyright or intellectual property rights to the underlying asset. NFT sellers can still retain those rights, unless they explicitly hand them over to the buyer.

Therefore, it is important for buyers to read the applicable terms and conditions before buying an NFT. On the contrary, NFT sellers must be careful not to accidentally lose their rights and make all requirements as simple as possible.

Privacy Protection and Data Protection Act 

NFTs use blockchain technology that is transparent and immutable. This means that every NFT transaction can be tracked and verified by anyone. This can raise privacy and data protection concerns, especially if the NFT contains personal or sensitive information about the creator or owner.

Data protection law, especially within the framework of the General Data Protection Regulation in the EU, tends to give individuals the "right to be forgotten" and the right to have or even delete their data from public and private businesses.

However, this is difficult to do in the context of blockchain, which is permanent and cannot be deleted. Therefore, it is important for NFT creators and owners to consider the impact of privacy and data protection before creating or buying NFTs.

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Money Laundering

NFTs can be used as a tool to conduct illegal activities, such as money laundering, tax evasion, or funding terrorism. NFTs have several characteristics that make them attractive to criminals, such as anonymity, liquidity, and high value.

NFTs can also be used to hide the origins of illegitimate funds by converting them into seemingly legitimate digital assets. Therefore, NFT platforms are increasingly scrutinized in relation to anti-money laundering (AML) regulations.

With the rising value of NFTs, concerns that bad actors could use them to circumvent laws like AML are also growing.

Conclusion

NFTs are a new phenomenon in the digital world that offer great opportunities for creators and investors. However, NFTs also pose a number of risks and legal challenges that need to be understood and anticipated. By understanding the legal aspects associated with NFTs, the involved parties can make wiser decisions and avoid future problems.

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Also Read:

What Is Charity NFT?

Get to know NFT Art: An Art Form in the Blockchain World

Get to Know Nifty Gateway and the Potential of NFTs

DISCLAIMER: This article is informational in nature and does not constitute an offer or solicitation to sell and buy any crypto asset. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices may change significantly from time to time and Bittime is not responsible for fluctuations in crypto asset exchange rates.