Also on Instagram: The NFT hour has struck

After Meta CEO Mark Zuckerberg recently announced the introduction of an NFT feature for Instagram at SXWX in Austin, the NFT hype has grown even bigger.

What are non-fungible tokens, or NFTs? Answers vary... Some say that NFTs are unique digital assets that can be used to digitally represent, for example, images, videos and audio files, 3D clothing in the metaverse or even physical objects. Some even consider NFTs to be a kind of master key for any form of intellectual property. For others, often blockchain purists, an NFT is just a database entry, i.e. a script, in one of the many standard business blockchains (e.g. Ethereum, Solana, Cardano, Polkadot, Polygon and soon Lukso, and many more). Ultimately, an NFT can be many things, but it depends not only on the technology used, but also on the associated contractual environment.

Like cryptocurrencies, NFTs are secured via blockchains, which are difficult to manipulate because they are stored within a decentralized network. Most commercially available blockchains also offer the advantage that transactions and the control rights concerning the respective tokens, NFTs or smart contracts, can be securely proven and processed. So, if an NFT is used to transfer intellectual property rights, it can be used to map and track a chain-of-title more easily than otherwise.

NFTs already bring in enormous sums of money. In February 2021, the auction house Christies facilitated the auction of a work of art by the artist Beeple, which fetched 42,319,453 ETH (equivalent value approx. 69 million US dollars), to name just one example. The launch of NFTs on Instagram could now be the start of mass NFT application and abruptly expand the range of stakeholders.

Legal advice on NFTs raises copyright and similar issues: When NFTs are sold or exchanged, are other rights or permissions transferred along with the script? And if so, does this involve exclusive rights? In the case of NFTs, there are also problems concerning regulatory and capital market law, e.g. whether some NFTs are securities or financial instruments. If NFTs were to be traded on Instagram in the future, regulatory and financial law issues would also arise in this context, especially if the NFTs were to securitize a claim to future profits or profit expectations.

We have years of experience in providing legal advice on blockchain issues as well as on specific issues relating to the creation and sale of NFTs and the associated NFT platforms. This also applies to regulatory and financial law, the difficulties of specific general terms and conditions and also concerning the taxation and accounting in such modern circumstances. In addition, we are already advising on several proceedings on related topics in contact with BaFin, the German finance regulator.

 

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