NFTs have become one of the most popular and trendy crypto assets. These non-fungible tokens are based on the blockchain and represent both digital and physical items, most notably works of art. These code chains have the peculiarity of granting ownership of the (digital) property of a certain work. The works mentioned can be designs, photographs, music, books, drawings, video games, and even software. In short, we could say that an NFT can be made of any creation that can be digitized.
This type of token, whose beginnings date back to 2017, was developed under the ERC-721 standard of the Ethereum network. What characterizes this technology is that it is not consumed with its use, unlike cryptocurrencies. Some compare them to physical trading cards or collector’s stamps, only they are digitized. The innovative thing about this cryptoactive is that through it you can demonstrate the authenticity and exclusivity of a digitized work of art, in addition to its ownership.
The legislation tries not to stay too far behind technological advances without much success, and that is why there are sometimes legal loopholes. This gives rise to many questions, and in the case of NFTs there are many legal doubts that users may have. Both intellectual property and copyright are issues that concern these tokens. A digital work of art is considered an intangible asset that must be protected with intellectual property rights. Now, an NFT, despite transferring ownership to third parties, does not transfer copyright in respect of the original work. In other words, unless expressly stated otherwise, it does not grant the owner the intellectual property of this asset that is represented.
The beauty of this technology is that works of art in the form of NFTs can be realized through so-called smart contracts. These are the ones that allow the management of the assets and the control of possible royalties or corresponding remunerations. The author can collect them automatically at the time of the transaction without having to carry out any other procedure. In other words, its very nature guarantees the authenticity of the object or work that the interested party acquires.
Now, what are the risks? Legally, copyright is granted to the author of the original work, thus protecting his personal interests and giving him the opportunity to exploit the work economically. In the case of NFTs, there are loopholes that leave room for infringement of these rights.
It is important to underline that an NFT does not generate proof of authorship itself, since the work is done prior to the creation of this token. What NFTs do is facilitate the commercialization of works when it is difficult to trace the ownership of them. Due to this, the generation of author proofs necessarily needs to be prior to the sale of the work. The problem? Sometimes some people have created NFTs of works without being properly authorized, either by copying the work or modifying it discreetly. Other people go even further, becoming capable of supplanting the identity of the creator of the work.
To issue an NFT, you do not need to have the author’s permission or prove that you are the author, which opens the door to certain infractions, such as violations of the licenses granted by the NFT or non-compliance with the terms. However, it should be noted that copyright laws allow creators to exercise the legal actions they deem appropriate if their rights have been violated, as occurs when there are cases of plagiarism or falsification. Yes, NFTs are a novelty, but from a legal point of view it is not so different from other more traditional forms of art. The difficulty comes because being something so new and specialized, it can be difficult to defend in case of litigation before the courts, mainly because the magistrates are not yet familiar with this type of technology. This is why it is important to use intellectual property records prior to creating an NFT, to prove authorship if necessary. If the courts decide that the information contained in the token is false, for example in a payment, the data in that chain of tokens can also be modified.
Another delicate and complex issue from a legal point of view is the exploitation rights of the NFts, which are causing a real headache for legislators. In the exploitation rights, the information about the acquisition date, the price, the seller, the buyer, etc. is determined. Although these rights do not say exactly what has been purchased, the possibility of linking information about the copyright through its own link is raised (without this information being altered at any time). These issues are still under discussion.
The European Commission has decided to step forward and adopt a Digital Financing Package with the aim of boosting the competitiveness of the crypto sector and fintech technologies. All this at the same time that the MiCA (Markets in Crypto Assets) proposal that will regulate the issuance of crypto assets is being announced. This seeks to regulate cryptocurrencies in such a way that common standards are set throughout the territory of the European Union. It is also interesting to clarify the nature of the tokens and standardize the licensing regimes required to operate within the Union.
Although there is no fixed deadline to implement the MiCA, it is expected to be ready for the year 2024. This proposal, in addition to regulating and classifying crypto assets, will include safeguards that avoid possible risks derived from fluctuations in the values of cryptocurrencies and stablecoins. Therefore, these policies are intended to help maintain a certain financial stability. Once this proposal is adopted, it will be applicable to all the countries of the European Union without the need for subsequent individual approval in the legislation of each member country.
The draft of this new regulatory framework will classify tokens into three types, depending on whether they are used as a means of payment or not:
Service or utility tokens or tokens: These assets give digital access to both goods and services. They are available in so-called distributed ledger technology (DLT) and are only accepted by those who issue that token.
Asset-Related Tokens (ART): These crypto-assets seek to maintain a stable value, their value is linked to fiduciary currencies of legal tender or basic products, and even to a mixture of different assets.
Electronic money tokens “e-money tokens” (EMT): Similar to the previous one with certain nuances, the crypto asset is used as a means of exchange. Some stablecoins would fall into this category. These tokens also try to maintain a value that is as stable as possible by referring to other fiat currencies.
It seems that we can conclude that blockchain technology is beginning to settle in Europe, and, although it is unknown what new technologies will derive thanks to it, the application of certain guarantees will prevent possible crimes of both intellectual property and copyright.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information set forth herein should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
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