Deciphering the Legal Enigma of NFTs

Abstract

Non-fungible tokens (NFTs) play a crucial role in supporting the decentralized applications of Web 3.0. Despite the enthusiasm of digital artists and NFT investors for minting and transacting NFTs, the NFT market faces persistent legal uncertainties, including issues related to fraud, money laundering, intellectual property (IP) infringement, and unfair competition. This chapter explores the evolving legal landscape surrounding NFTs, emphasizing the growing challenges and risks to NFT governance evident in the rising number of legal disputes. We provide an in-depth examination of the technological features of NFTs, highlighting potential sources of misunderstandings and conflicts among market participants. Additionally, we analyze the property and contractual characteristics of NFTs, aiming to untangle the complexities associated with their legal nature. Based on the technical and economic characteristics of NFTs, this chapter elucidates the illusory aspects of uniqueness and scarcity, underscoring the limitations of categorizing NFTs as conventional property. We then illustrate how misinterpretations of the technological and economic features of NFTs have resulted in problematic legal applications, particularly within IP law. Resolving these issues is essential for fully realizing and sustaining the economic value of NFTs in the evolving landscape of Web 3.0.