Non-Fungible Tokens (NFTs)
NFTs
Non-Fungible Tokens (NFTs) are unique digital assets that represent ownership or proof of authenticity of a specific item or piece of content. Examples of NFTs include:
Unlike cryptocurrencies like Bitcoin or Ethereum, which are “fungible ” and can be exchanged on a one-to-one basis, NFTs are unique, and it is not possible for them to be exchanged on a like-for-like basis.
NFTs are stored on a blockchain , ensuring that the NFT not only retains its uniqueness, but in order to provide a transparent history and ‘chain’ of its ownership.
Practical considerations for organisations
Organisations looking to engage with NFTs should consider the following:
Data security and privacy
- Blockchain technology: NFTs are stored on blockchain networks, which offer a high level of security through decentralised ledger systems and cryptography. However, organisations will need to ensure that the blockchain platform they choose to store their NFT is both secure and reliable
- Personal data: when creating, trading or investing in NFTs, personal data may be involved. Organisations will be required to comply with data protection regulations, such as the UK GDPR and Data Protection Act 2018 to ensure that personal data is appropriately handled
Intellectual Property (IP) rights
- Ownership and licensing: it is critical for organisations to be aware of the ownership and licensing rights associated with the creation and onward sale of NFTs. Any agreement for the sale of NFTs will need to accurately reflect whether the buyer of an NFT is acquiring the token itself or is acquiring the IP rights to the underlying digital asset (or indeed, both)
- Smart contracts: if a smart contract is embedded within an NFT, it is possible that licensing terms (ie how the NFT buyer can use the IP rights in the underlying digital asset) could be enforced without human involvement. Organisations will therefore need to ensure that any smart contracts accurately reflect the intended licensing position, or that this is documented in a separate written agreement
Regulatory compliance
- Legal framework: organisations should be looking to stay informed and up-to-date with the latest changes to laws, regulations and policies in a fast-changing legal landscape, in order to ensure legal compliance
- Other legal Implications: NFT transactions will attract other legal risk (for example, they may have tax implications). Organisations should consider the various implications of buying, selling, and holding NFTs
Technical infrastructure
- Scalability and performance: Choosing the right blockchain network and platform will be critical for an organisation facilitating NFT transactions. Organisations should take steps to ensure that the chosen platform/network is capable of handling a high volume of transactions without compromising its own performance
- Integration with existing systems: Organisations looking to integrate specific NFT functionality within their existing IT systems should consider the relevant technical requirements (for example, the development of bespoke APIs or similar interfaces)
NFT legal expertise
Our IT team can assist organisations in navigating the complex legal and regulatory landscape of NFTs by providing expert guidance on data security, intellectual property rights, and compliance with evolving regulations. We can help ensure that NFT initiatives are legally sound and technically robust, helping organisations mitigate risks and leverage its full potential.
Meet our team
Jaskeerat Sanghera
Managing Associate
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