Boris Ignachkov Have you ever encountered the term ‘non-fungible tokens’ (NFTs)? Why not supplement your commercial awareness as we guide you around the anatomy of this emerging topic?
What are NFTs?
In fact, NFTs date back to 2012 when they were initially launched. Several years later, the 2017 CryptoKitties by Dapper Labs became a landmark product of NFTs, which have only now begun to reveal their potential alongside the growth of crypto currencies. We will provide a balanced definition of the notion of NFTs that would be contextually comprehensive and concurrently succinct in length. According to Norton Rose Fulbright, the overarching definition of NFTs is that they are ‘unique digital representations with blockchain based transferability, authenticity, and ownership properties’.
In essence, if broken into segments, this means that NFTs are ‘not interchangeable due to their unique properties’ (as stated by Norton Rose Fulbright), i.e. they are units with authentic (non-identical) and irreplaceable IDs relating to certain assets. These tokens are based on different blockchains, such as Ethereum (which is currently the most prevalent one), Polkadot, Cosmos, Flow and others and use the so-called ‘smart contracts’ software to establish the main points of governance, rights, transfer, rules and pivotally what they actually represent.
NFTs can take place in a variety of shapes ranging from ‘collectible digital kittens, […] sport highlights, […] music albums’, as noted by Norton Rose Fulbright, to gaming skins and pixelized art as the one displayed above.
A Broken Token – Issues with NFTs
Clarity and certainty are two fundamental principles of law which NFTs are yet to fully reach a satisfying standard in. Osborne Clarke, one of the leading UK law firms, however, is concerned with the circumscriptions on what is definitively covered in a non-fungible token because its scope can be extended to incorporate ‘certifying ownership of an asset, a licence to use intellectual property rights (IPR), or even contractual rights’.
As such, with the apparent risk of potentially misrepresenting information to the purchaser, contract law students may already have highlighted potential problems with the contractual enforcement of NFTs. Once again ascending from Osborne Clarke’s expertise, our discussion will now focus on the ‘minting’ of NFTs. This will need to unambivalently outline the ‘scope of the provider’s responsibilities, as well as assurances that IPR and confidential information will be adequately protected’ as put forward by this leading enterprise. Clearly recorded contractual terms will regulate some intellectual property matters, e.g. the distribution of NFT copyright, plus data security queries, such as those relating to the ‘technical arrangements in place to ensure the permanence of NFTs and, crucially, any digital assets they represent’.
What Can We Expect in the Future?
To state the least, NFTs will inevitably draw disputes in situations with absence of clarification. However, looking at the matter from a purely business perspective, NFTs have already been utilised to some extent in providing legal services. Take the Bristol-situated law firm Stephenson Law, for example, which enables buyers to claim tokens for every hour of legal consultancy and directly access the firm’s founder, an idea other legal businesses can adopt in the future.