Sirwin
Sirwin
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Top 5 Legal Issues around NFTs


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NFTs are not now particularly regulated under the Markets in Crypto-Assets Regulation. Nevertheless, current rules and regulations will apply, and any company issuing, dealing, or exchanging NFTs would need to take into account a number of commercial and legal considerations. Hereby we listed out the top 5 legal issues around NFTs for your knowledge.

1. Defining the scope of the NFT

  • It is crucial that issuers make it clear which rights are “sold” with the NFT
  • For example, a right to receive or use a certain item or to access benefits could be a contractual right
  • Clarity up front will help the issuer avoid defaulting on unanticipated rights and potential disputes from buyers who claim the rights being offered were misrepresented
  • The buyer of an NFT must also be aware of what they are getting
  • Due diligence on the part of the buyer is required to ascertain the rights and liabilities being bought, especially if they could have an effect on the present or future value of the NFT and the underlying asset

 

2. Intellectual property rights

  • Issuers will want to strictly regulate how buyers use any IPR connected to an NFT
  • In most cases, the issuer will keep all copyright and other IPR, and the buyer will be given permission to show the underlying asset
  • To protect the issuer’s priceless brand, care must be taken in how and whether IPR is licensed through the sale and subsequent transfer of the NFT

 

3. Financial regulation

  • Businesses must determine if selling their NFT for sale is a regulated activity for the purposes of financial regulation and whether their NFT is a regulated investment
  • Although NFTs are not (yet) specifically regulated, they may result in national and supranational legal duties if they exhibit traits of other regulated investment units
  • Issuers must show that any NFT they sell is non-fungible in order to prevent it from being categorized as a security token or cryptocurrency and subject to financial regulation

 

4. Data security and ESG

  • Compliance with privacy rules will not be a significant factor in the sale of NFTs because it is unlikely that any significant personal data will be disclosed or traded
  • Data security and NFT transactions in general, though, will be of the utmost importance
  • Technical teams will need to decide which blockchain protocol will be used, as well as which security and data-sharing standards will be used

 

5. Contractual

  • To mint NFTs, issuers frequently work with a third-party technology supplier
  • The minting agreement must include assurances that IPR and confidential information will be effectively protected as well as a clear definition of the provider’s obligations
  • Businesses should think about getting an enterprise-grade crypto wallet because they will need cryptocurrency funds to mint NFTs
  • To ensure that there is sufficient protection available in case of loss or misappropriation of cryptocurrency assets in the wallet, thorough vendor due diligence will be required

   

REFERENCE:

  1. https://www.osborneclarke.com/insights/what-are-legal-issues-around-nfts

   

DISCLOSURE:

None of these articles constitutes financial advice. Articles are highly summarised to make it easy for the reader and save your time, so please DYOR further before putting your hard-earned money into any product mentioned.

Please note that the tech industry evolves rapidly and the info in this article is correct at the time of publishing. As Heraclitus said, “Change is the only constant,” so if anything sounds old or off, please holler on the socials or comment here so everyone stays peeled.

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TheNiftyRevolution
TheNiftyRevolution

Hi, I'm Mo and I'm an entrepreneur passionate about crypto, NFTs, and the blockchain. This publication aims to educate the masses on adopting Web 3.0 early before it's too late :) I'm here to write, if it takes off, thanks a lot fam, if not thanks still


theniftyrevolution
theniftyrevolution

Exploring creativity and the love of fancy things in life through Cryptoart or NFTs (Non Fungible Tokens). An important disclaimer before reading anything else. It’s kind of a must for crypto investment stories nowadays. Articles I publish are not financial advice, as I am not “paper qualified” to give away such advice. This is simply the humble adventures of a crypto and NFT enthusiast.

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