Various artefacts that belong together (eg works of art or collectibles) are marketed in NFT projects. Like cryptocurrencies, non-fungible tokens (NFT) are created according to the blockchain principle, i.e. tamper-proof and transparent. However, unlike cryptocurrencies, NFT – as the name suggests – are not freely convertible, but linked to certain artifacts – whether they are virtual or real.
What legal problems and issues might there be?
1. Basic status of NFT
As a starting point, NTFs can be considered securities. Just as behind a share stands a certain share in a company, so NTF stands behind a certain share in an art collection, e.g.
In the US, the SEC (Securities and Exchange Commission) regulates securities trading. She has a very broad definition of the term “securities” that also includes NTFs.
In the EU, the MiCA Regulation provides a legal framework for crypto-asset markets, which include NTFs. This standard regulates the trading of cryptoassets. NFTs are therefore considered utility tokens if they offer access to goods or services, i.e. if they have real values behind them. In these cases, no license and no prospectus are required. You are also not obliged to identify and check new and existing customers (so-called KYC procedure, “know your customer”; in German: “know your customer”).
Once there is an investment opportunity behind the NFT, such as a share in a company, the token can be considered collateral to the extent that it reflects the value of the share (equivalent to a share).
2. Legal form
Founders of NFT-based projects should bear in mind that the legal form does not have an impact on all relevant regulatory issues, such as consumer protection laws. Instead, one must think about which are the most important target countries for the project, and then take all precautions to ensure compliance with the most important legal conditions. Anyone who wants to become active in e.g. Europe, it is well advised to familiarize yourself with German consumer protection legislation, which is considered to be one of the strictest in Europe. Thanks to harmonization in the EU, this should then be sufficient for all countries on the continent.
3. The importance of intellectual property
It is important to remember that ownership of NFTs does not automatically entail intellectual property rights in the underlying asset. Anyone acquiring, for example, an NFT based on a painting as a real asset, but also as a (possibly copyrighted) work of art, may have to take into account the artist’s legal position. Projects must first ask themselves what strategy they are pursuing in intellectual property matters.
Privacy is important, but also fairly easy to secure. The EU’s GDPR is decisive. This norm must always be remembered. Since most NFTs are sold through minting websites, the pre-existing e-commerce regulation applies, meaning projects need a privacy statement, for example. It can be useful to include all used tools, Discord, Google Forms, etc. in the data protection considerations from the start or to make them GDPR compliant to avoid problems.
Please note: The tax consequences for the company and for the NFTs may vary. Global NFT sales are difficult to handle for tax reasons. The tax authorities are currently assessing the transactions on a case-by-case basis. Accurate documentation of the sale is essential.
The contribution comes from our freelance writer Josef Bordat. It is part of our “Reports from the Parallel World” series. There, authors from other disciplines take a look at law in theory and practice. In contrast to our other professional articles, the articles therefore do not look at events and lawsuits from a legal perspective, but from a completely different perspective. From which it should be left to the judgment of the reader. We think it will always be interesting.