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Legal risks and issues around NFT, here is a guide for beginners in navigating the legal landscape
NFTs or Non-Fungible Tokens are digital assets that have gained a lot of attention recently. These tokens demonstrate ownership of artwork or any other valuable item through unique identification codes. However, with this new technology comes a range of legal risks and issues around NFTs that creators and buyers must be aware of.
The unexpected, sensational evolution of NFTs raised concerns as they are indivisible, unique, and irreplaceable. Like Cryptocurrencies like Bitcoin and Ether, NFTs are stored in open and permissionless blockchains. Their potential to generate multiple revenue streams is appealing, therefore sellers and buyers should be aware of the risks inherent in producing and trading such assets. NFTs' legal risks and issues include intellectual property rights, ownership rights, risk of fraud, tax implications, security, etc. Let’s look in detail at five main legal issues and risks around NFTs
1. Copyright Infringement, Intellectual property rights
Copyright Infringement is one of the primary risks associated with NFT. The creator when selling a piece of digital artwork, they are selling the ownership rights to that artwork. NFT creators may not own the copyright of the artwork, if they sell without proper permission, it may infringe on someone else’s copyright.
2. Ownership rights
NFTs are often sold through small contracts which is a crucial component of the NFT agreement. Similar to the fine print of a contract, coding embedded in the NFT should also be looked to, such as royalties or commission on the future resale of tokens. If small contracts are not properly executed, disputes may arise over the ownership of NFT.
3. Risk of Potential Fraud
Scammers can easily take advantage of buyers as NFTs are new and lack regulation. In short, scammers can create a replica of artwork that does not belong to them, sell and can disappear with the money.
4. Tax Implications
There are potential tax implications associated with NFTs. Tax laws are yet to be implemented as NFTs are new technology. Thus, this lack of clarity can create confusion on how NFTs are to be taxed and further legal problems can come along the way.
5. Security
NFTs are poor at providing a satisfactory level of security to protect the users and sellers. Cyber hacking and attacks can threaten NFT security. Since their marketplaces are centralized and hosted on servers of third-party websites, NFT security risks are a genuine concern.