The evolution of technology has changed the way we generate, grow, store, and maintain value. The concept of an asset has evolved from physical commodities to digital assets such as cryptocurrency and non-fungible tokens (NFTs). While digital assets are becoming more popular, many experts are not convinced that they will become the future of legal tender. For instance, they are not convinced that NFTs are the future of the market. Although there is a lot of money at stake in the NFT market, many people are still very cautious when it comes to handling these opportunities.
Issues surrounding NFT offerings
NFTs have allowed people to turn their artwork, collectibles, and other original creations into revenue-producing digital assets. Due to the nature of NFTs, several jurisdictions developed their own rules governing their use, sale, and distribution. NFTs are often monetized depending on the terms of the deal and must conform to the financial, legal, and contractual guidelines of the deal. Some jurisdictions base their NFT copyright regulations on the ERC 721 rule (European Research Council n. 721) blockchain smart contract standard. This standard allows the creators and owners of crypto assets to verify the digital scarcity of their assets by recording it in the Ethereum public ledger where these unique crypto assets can be stored and transferred. The technology enables unique crypto holders to protect their artwork creations from unauthorized use. This includes protecting their rights in gaming collectibles with certain intellectual property rights protection and authority.
Some of the unanswered questions regarding NFTs are: How NFT transactions should be governed, taxed, and policed? Also, what is the relationship between an NFT backing an asset and the asset itself? Unlike cryptocurrencies, NFTs are not backed by any physical commodities or financial regulations. Instead, their value is appraised and subject to various consumer protection and legal regulations, in addition to IP and investment law:
1- How can an NFT’s investment value be differentiated from its intrinsic value, if possible?
2- How should the transfer of NFTs be regulated and treated for tax purposes?
3- What rights do NFT owners have towards the original art creation on which the NFT is based?
An experienced attorney can help you navigate the various responsibilities and jurisdictional issues involved in crypto transactions. A lawyer who specializes in crypto transactions and IP law is a critical resource for navigating the complex legal issues involved in handling transactions involving NFTs. They would advise NFT owners, licensees, and buyers on their rights and responsibilities.
Lexyom’s lawyers are experts when it comes to NFTs. They have the ability to make your life much easier when understanding your rights in NFT trading. They can also provide you with all the legal documents you need to protect yourself in no time!
By most reckonings, an NFT belongs to a person if he or she has been assigned or purchased it from a legitimate source. Note that the original creator of the artwork retains ownership rights over the collectible or the physical artwork even after someone else purchases the associated NFT. Here comes the role of licensing agreements which must clearly state what rights each holds has regarding the NFT, and what the NFT owners can and cannot do with a digital certificate. Most NFT licensing agreements include several clauses:
1- Whether the buyer or licensee may transfer the permissions to a third party, and if so, whether and how the original creator will be compensated?
2- How the NFT may be used, such as in ads, marketing campaigns, promotions, or merchandising?
3- If the NFT can be copied and sold. If so, how will the revenue be split between the licensee and the creator?
4- Whether the NFT owner can create modified versions, and how he or she can use them.
NFT licensing agreements are designed to protect the intellectual property rights of creators and enable them to make money from their artwork. Cryptokitties, which was one of the first to develop an NFT licensing contract, has already set the standard for future deals. The Cryptokitties licensing contract was created to establish a framework for developers to create sustainable businesses, and it provided them with a secure path to monetization, similarly to what App Store did for early third-party developers. The NFT License is surely the first step in identifying what does it mean to own digital assets.
NFT licensing agreements are executed and stored in blockchain-based smart contracts. These documents can be executed and used to manage money transfers and transactions. Some smart contracts call for the creator to receive a portion of the revenues from every sale. Doing so can be tricky, and parties should make sure that the terms of the license are clearly defined. The license should involve clear, legally binding language and that all parties understand the revenue-sharing or royalty model being used. An attorney experienced in blockchain and digital media can ensure everyone’s interests are addressed.
Know the Risks
As with virtually any investment, buying NFT licenses carries various risks. Some of these are related to the platform and the market:
1- Platform unreliability and inaccuracies
2- Tax liabilities stemming from NFT ownership
3- Potential for detrimental changes in blockchain, crypto, and NFT regulation
4- Token availability, storage issues
5- Market volatility
An experienced attorney at Lexyom can help you structure NFT licensing agreements. We provide our clients with NFT licensing agreements that will protect their interests and mitigate risks, all while protecting their interests, and creating licenses that clearly outline the rights and responsibilities of NFT minters and purchasers.
We are dedicated lawyers that will provide you with the support you need to succeed in complex and dynamic business environments while pushing the boundaries of innovation. Reach out to us today to discuss all your legal and business needs.