The Legal Framework for Non-Fungible Tokens Under the European Union Regulation on Markets in Crypto-Assets

Abstract

Non-fungible tokens (NFTs) have witnessed a surge in popularity within digital marketplaces. In both commercial and legal practice, the prevailing view is that NFTs constitute a form of crypto-asset recorded on a blockchain as metadata associated with a specific physical or digital object. As NFTs are often linked to copyright-protected works, particularly works of art, it is unsurprising that their defining characteristics are uniqueness and non-fungibility. The growing popularity of NFTs, alongside the broader crypto-asset industry, poses a regulatory challenge within the European Union single market. In response, the European Union has adopted the Markets in Crypto-Assets Regulation (MiCAR), which seeks to harmonise the legal regime governing crypto-assets with a view to enhancing consumer protection and promoting transparency in the crypto-asset market and related activities across the Union. While this paper does not examine the relationship between the rights of NFT holders and those of intellectual property owners in the underlying works, it considers whether MiCAR applies to NFTs. It begins by defining NFTs and analysing the relevant provisions of MiCAR, before offering guidance for regulators and identifying circumstances in which MiCAR will apply. The conclusion assesses the de lege lata position and advances de lege ferenda recommendations.