Non-fungible tokens (NFTs) refer to a type of non-replicated token. Isn't that amazing? Let's get it straight. Do you still remember our old school days when we ate Cheetos and collected Pokemon cards? Analogously, a Non-Fungible Token is a type of digital asset that is similar to the Pokeman cards.
A Non-Fungible Token (NFT hereinafter) represents real-life objects or digital works on the internet. It is metadata minted on a blockchain and stored in the form of a link. It is a certificate of ownership for a virtual or physical asset that represents real-life objects such as art, image, video, audio files etc. It is recorded in a blockchain.
The Blockchain
Blockchain is a public ledger. It is maintained by thousands of computers worldwide. Let’s take an example -
A bank records a customer’s activity and determines if he has enough balance left in his account. In the same way, the blockchain records all transactions and maintains a public record in a worldview. The interesting thing is - No valid record can be changed in the blockchain and anyone can verify the transaction that has been recorded.
The NFT
NFT is a piece of art. They give the owner exclusive protection that cannot be copied i.e. ownership of work. Anyone can buy the print or copy but only one person can own the original. Simplistically, NFTs are digital assets that can be purchased using cryptocurrency. An exchange may be possible between bitcoins but in the case of NFTs, it can’t be exchanged since each token has a unique value.
Laws governing NFTs
The law of Contract:
Prima facie, NFTs can be purchased using pre-defined platforms. These platforms facilitate the buyer to pay for NFTs either through purchase or through auction.
Then, Smart Contracts come into the picture. Before making any final purchases, the terms and conditions regarding copyrights, purposes, commercial factors etc. are made available.
Upon successful payment, the Contract comes into effect and the parties are bound by the Law of Contract.
The IP Laws:
Unless expressly agreed between parties, the copyrights usually remain with the creator.
Presently, there is no separate legal framework for NFTs. It is still governed by general principles of law. Although its popularity is increasing day by day, the government will have to wait and assess certain parameters to come out with the legislation. Hopefully, the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 will open more gates of possibilities and solutions for future legal chaos.