NFTs are everywhere now. But how do they fit into the existing legal and regulatory structures?
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The other day, I sold a pair of tweets. This isn’t a sentence I’d have imagined writing a year ago, but, well, here we are. Non-fungible tokens (NFTs) have really taken off over the past few weeks. One of my favorite musicians has created NFTs, the Associated Press is selling an NFT, the National Basketball Association has made headlines selling NFTs and we’re even at the point where hackers are offering to sell 0-day exploits as NFTs.
Why it matters
NFTs are exploding in popularity, but it’s unclear how they fit into the existing legal and regulatory frameworks that govern the financial, technology and cryptocurrency industries. NFTs don’t behave like initial coin offerings (ICOs), so they can’t just be treated like a security. And while there are laws that govern the behavior of NFT activities, it’s essential to ensure consumers are aware of what they’re doing.
Breaking it down
NFTs are basically digital collectibles. They can represent things (like tweets, real estate, real-world assets, etc.) or they can be the things (like art). Their value proposition is that they are digitally unique, they exist on a blockchain (like Ethereum) and while anyone can copy and download video clips or image files, an NFT has a record saying that it has only one owner.
To be clear: You can still download the image file recorded in an NFT. If you sell a tweet, that tweet will still exist on Twitter, visible to all. So in that sense you’re not buying the tweet itself, but more a digitally authenticated note. Think of them as autographed football cards. You could print as many copies as you want but if the player signs only one, that’s the card that’ll likely have the most value. For example, an autographed Tom Brady card just sold for $1.32 million.
We might only be beginning to scrape the possibilities for what NFTs can be used, said Andrew Hinkes of Carlton Fields. At its core, an NFT can identify a unique financial asset, which can in turn lead to new efficiencies for current transactions.
Land ownership is one example: At present, people are dependent on land registries maintained by other parties, like a government agency, to record that they are the owners of a piece of land. Hinkes said an NFT could instead represent that land, letting an individual prove ownership using a cryptographically secured and signed digital token.
Daniel Rollingher, a real estate attorney with Fabrica, noted that real estate NFTs could also require consumers borrowing from…