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NFTs – How Do They Work and Are They Legal?

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While it can be hard to quantify the market for non-fungible tokens (NFTs), some experts estimate that this will peak at a value of $80 billion by 2025.

The NFT market is also becoming increasingly diverse, with applications spread across the arts, sport and similar entertainment marketplaces.

But how exactly do NFTs work, and are they legal? We’ll explore these concepts in the article below.

What are NFTs?

Unlike inherently fungible assets such as fiat currency, NFT serve as unique digital certificates that cannot be interchanged with one another.

NFTs are registered on the blockchain, creating a transparent and immutable record of ownership that enables individuals to collect, share and monetise tokens online.

Aside from the fact that unique NFTs can’t be traded for another identical token, such assets are indivisible and cannot be either edited or deleted once they’ve been digitally minted and exist on the blockchain.

What are the Copyright Implications Surrounding NFTs?

While NFTs have been around since 2014, the market for this type of asset really exploded during Q1 2021.

Around this time, the original Banksy print ‘Morons’ (which was itself a critique of the art market) was burnt and destroyed during a live streamed video, before being sold in the form of an NFT for $380,000.

The original artwork has been valued at around $90,000 highlighting the scarcity associated with NFTs and their immense value in the current market.

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But what are the copyright rules around NFTs? Well, as with any piece of art or creative asset, the purchase of an NFT doesn’t necessarily transfer the underlying copyright to the buyer, as this remains off-chain and with the original creator.

The creation of an NFT can be categorised as a “copy or derivative” of the original work, and under existing copyright law in the UK and the US, the copyright holder should be the only individual with the autonomy to transform a piece of work into an NFT.

This is a key consideration, especially as the recent growth of NFTs and their increasingly lucrative nature has seen artists frequently subjected to instances where fraudsters offer their works in the form of NFTs without express permission.

The Last Word – Will the NFT Market be Regulated?

There are already some regulations in place with regards to NFTs, with the Money Laundering and Terrorist Financing organisation having amended its rules to compel providers of NFTs and digital assets to register with the Financial Conduct Authority (FCA).

The question that remains, of course, is are further regulatory measures planned for the future? The short answer is yes, particularly as they continue to draw attention (both good and bad) as the latest iteration of blockchain technology).

Certainly, while NFTs have the potential to revolutionise the creation and sale of art across the globe, there’s considerable scope for illegal activity and fraudulent use of copyright within the marketplace.

This means that regulation may be required to enable safe and sustainable growth, while this could also be said for the wider crypto marketplace as a whole.

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