The Digital Dilemma: The Legal Future of Non-Fungible Tokens

We have all heard the phrase, “once something is on the internet, it’s there forever.” Though this may be true, a new concern is not that an item is available in an easily accessible digital format, but more, who can say they own this digital format. As the world progresses and we change the way we trade, buy, and own items, a new way of owning and protecting digital objects has emerged. This new way is through Non-Fungible Tokens.

Non-fungible tokens (NFT) are a new form of digital ownership. According to Forbes, NFTs are “a digital asset that can come in the form of art, music, in-game items, videos, and more. They are bought and sold online, frequently with cryptocurrency and are generally encoded with the same underlying software as many crypto.”  Each NFT is one of a kind, and a lot of the appeal to buyers is knowing that you are the only rightful owner of a digital file, no matter how ambiguous the actual content may be. You may think the digital rights to an item that can be accessed at any time online for free must not be that valuable, however, you would be highly mistaken. NFTs are particularly popular in the art world, and many NFTs have been sold for millions of dollars. In fact, according to NFTNow, the second most expensive NFT ever was sold for 52.7 million dollars and was created by Pak and Julian Assange, simply depicting a live timer of the amount of time Julian Assange has been in jail. Sales like these show the power of NFTs.

However, with this new form of digital ownership, new questions arise concerning the legal aspects surrounding NFTs. One legal factor that quickly arises when discussing NFTs is copyright law and the restrictions on using the likeness of products in NFTs. Recently, there was a case concerning luxury brand Hermes and an NFT maker. The digital artist made an NFT version of the brand’s famous Birkin handbag titled a “Metabirkin” and he quickly found himself in legal trouble. The court held that this was an instance of trademark infringement. Further, when faced with $133,000 in damages, the defendant’s attempt to use NFTs as collateral was deemed “valueless” by the judge.

Another aspect that may arise is in international trading and commerce. Digital assets are significantly easier to trade and, in many cases, may just require access to the internet. With their high level of security, NFTs could be a new way to secure digital assets. However, since NFTs are so new, it may be difficult to determine their value in foreign markets. Further, other countries may not have any laws or landmark decisions discussing NFTs which could result in conflict. Overall, there is still very limited research on this topic.

Non-fungible tokens join cryptocurrency in what some may call the new age of trade. However, it is unclear how NFTs will survive in the legal sphere. Though critics claim that NFTs are already on their inevitable downfall, this is a topic that should certainly be observed, and lawmakers may need to be prepared for big changes in the future.

Article Written by Dachie Belony

Sources:

Kevin Roose, What are NFts? The New York Times (Mar. 18, 2022), Available at https://www.nytimes.com/interactive/2022/03/18/technology/nft-guide.html (last visited Jan. 19, 2024).

Robyn Conti, What Is An NFT? Non-Fungible Tokens Explained, Forbes (Mar. 17, 2023) Available at https://www.forbes.com/advisor/investing/cryptocurrency/nft-non-fungible-token/ (last visited Jan. 19, 2024).

Langston Thomas, The Top 20 Most Expensive NFTs of All Time (Jun. 16, 2023), Available at https://nftnow.com/features/most-expensive-nft-sales/ (last visited Jan. 19, 2024).

Moish Peltz, Hermès v. Rothschild: A Landmark Decision for Trademarks and NFTs, FRB Law (Fed. 10, 2023), Available at https://frblaw.com/hermes-v-rothschild-a-landmark-decision-for-trademarks-and-nfts/ (last visited Jan. 19, 2024).

Eugene Volokh, Want Collateral to Ensure a Judgment Can Be Collected, Your Honor? No Problem—Use My NFT!, reason, (Jan. 2. 2024), Available at

https://reason.com/volokh/2023/12/29/want-collateral-to-ensure-a-judgment-can-be-collected-your-honor-no-problem-use-my-nft/ (last visited Jan. 19, 2024).