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Crypto Digest #3 NFT’s – A Nice to Have or A Must Have?

This is the third of our Crypto Digest blogs brought to you by Mezzle Law’s resident crypto lawyers. Subscribe to stay up to date with our short and informative blogs on all things law and crypto (lex cryptographia).

NFT’s can definitely be described as a ‘nice to have’ rather than a ‘must have’, although one could be forgiven for thinking they are a ‘must have’ asset, particularly when looking at global ownership. Current stats show that NFT ownership in the UAE is double the global average[1].

NFT’s (non-fungible tokens) are security tokens which consist of digital data stored on the blockchain. They are not a fungible asset (which really just means they are one-of-a-kind) and in that sense, they are unlike cryptocurrencies and other commodities such as fiat currencies and oil for example.

The details of ownership are stored on the blockchain, and with that, a digital trail of ownership is also stored. NFTs provide a certificate of authenticity and so this reduces the likelihood of fugazis when it comes to art or antiques for example. One can trade NFT’s on an NFT marketplace (usually where they authenticate the NFT and ownership so that the buyers can have peace of mind buying them), and facilitate this through the use of algorithms and smart contracts through the blockchain.

When buying an NFT however, one should be wary as ownership of NFTs does not necessarily confer rights of ownership over intellectual property or copyright. This means the original creator of the NFT could still technically create copies of the original NFT and sell those (but this all depends on the T&C’s applying to the NFT at the time of buying it). The copyright and intellectual property rights are other things to look out for and check when buying an NFT - what rights do you have as the owner to any of these? As this is a developing field, we will all have to see how any NFT ownership related disputes pan out in Court in due course.

The use of NFTs in digital art has seen a meteoric rise. NFT collections from Bored Apes, EtherRocks and CryptoPunks have become increasingly popular and have sold for millions of dollars (not only on the secondary market but also between collections, for example, Bored Ape actually acquired CryptoPunks earlier this year). Sports clubs have also been quick to enter the NFT space – FC Barcelona and AC Milan have released their own tokens. Liverpool FC have recently launched their own NFTs and in fact all English Premier League Clubs have stated that they are looking to launch their own NFT collections.

Anyone growing up as a young fan of sport, will understand the huge potential of NFT collections in sports (think about the Premier League football club badges and Panini sticker books, and baseball cards in the US). But it needs to be noted that NFTs are not only used for art. There are NFTs for example based on Tweets and/or gifs, and they have sold for millions. NFTs can be created from almost any digital thing and is just something that is one-of-a-kind.

Financial institutions are also offering loans based on using NFTs as collateral[1] so NFT owners can now leverage their asset for privately backed loans (and also evidences the value of an NFT as an asset). This is huge and allows an owner to use an alternative item for a security backed loan, without risking their home. It also allows them to retain their NFT without needing to cash out.

NFTs are certainly a status symbol and they are definitely nice to have, but with the increasing number of benefits holding an NFT can provide, some will continue to argue that they are a must-have asset in the digital world. Depending on the collection, some NFTs will provide holders with free tickets to music festivals or backstage passes, for example, others will provide them benefits in the project’s metaverse, exclusive access to certain parties in the metaverse (or even in real-life).

For this reason, people are certainly seeing the value of NFTs without actually understanding where it’s coming from. Bored Ape actually did an experiment whereby they created mirror copies of some of their popular NFT collections and saw that people preferred the originals. This means these NFTs not only have a monetary value, but also an intrinsic/sentimental one, which together can drive up their value even more.

Read our Crypto Digest #1 for a summary of the risks investors should be aware of before purchasing crypto assets, such as NFTs.

Whether you’re a company launching a new cryptocurrency, NFT, or metaverse, or if you’re an individual who wants advice in the crypto space, then speak to our specialists to see how Mezzle Law can help you.




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