With the global market for non-fungible tokens (NFTs) exploding right now, it will be critical for lawyers to better understand the various issues associated with them, says one partner.
In conversation with Lawyers Weekly, Piper Alderman partner Michael Bacina (pictured) said that the popularity of NFTs is only likely to increase over time, and lawyers keen to involve their practices in such data units should be making time to better understand the blockchain space and how best they can upskill.
A non-fungible token, or NFT, he explained, is a “digitally unique token” which is not interchangeable – that is, non-fungible – with other digital assets.
By way of comparison, he noted, “each Bitcoin (or part thereof) is interchangeable/fungible with any other Bitcoin (or part thereof). They can be connected to a physical one-of-a-kind item, like a piece of art, or they can be attached to a digital artefact”.
The NFT market, Mr Bacina said, has reportedly grown almost 300 per cent over the past year, and offered an example of the presence that NFTs have in our national market at present.
“Australia has been home to the online game Gods Unchained for years and recently the makers of that game have launched an NFT marketplace, Immutable X, which saw 1.5 million NFTs listed for trade in its first 24 hours. Physical events have been starting up showcasing NFT art in Sydney in particular,” he said.
However, despite the simmering hype around such units of data, there are a handful of legal issues surrounding NFTs that lawyers must be aware of, Mr Bacina warned.
Firstly, he said one would have to know “what rights are transferring or associated with an NFT, that is what is the purchaser of the NFT actually receiving”.
“Most art-based NFTs are likely to carry a licence analogous to purchasing a print from an artist, but any rights can be set in terms of a licence,” he said.
Secondly, there are data issues at play, he continued, “because an NFT on a blockchain has a publicly verifiable chain of ownership – if Person B purchases an NFT from Person A, Person B will know Person A’s digital wallet address and can have visibility into what transactions have occurred in Person A’s digital wallet”.
Practically, he added, there are also issues in the event that an NFT, which uses a digital title, needs to be recognised at law for a real-world asset.
In order to navigate such issues for clients, if and where applicable, Mr Bacina suggested that lawyers gain an in-depth understanding of how NFTs work, and/or engage specialist counsel to assist.
“The blockchain space moves so fast and has such a technical barrier to entry that it is easy for something to be overlooked,” he advised.
This all said, there may also be opportunities for practitioners to grasp, he mused: “IP lawyers who are dealing with copyright and licensing will likely find close analogies with certain kinds of NFTs and platforms enabling sales of the same, as initial commercial contracts are likely to have similar themes.”
“NFTs are an extension of supply chain-style blockchain use cases, and are only likely to continue to rise in popularity over time,” Mr Bacina concluded.
“Lawyers wanting to get involved should be attending meet-ups, buying NFTs themselves to understand how they work, and learning a bit of coding skills.”