NFTs And The Law

Luxembourg-born Laura Beatrice Zanella is today a sought-after legal advisor for art NFTs (Photo © Tabulia)

Most people active in the NFT field will be aware that minting an NFT is about more than generating revenue. What are the most surprising NFT use cases you’ve seen out there?

I think that the first and most interesting example relates to the juxtaposition of physical art and the digital world. For instance, during the pandemic several art institutions were suffering from the consequences of the lockdown. In this context, online sales and virtual visits contributed significantly to keeping businesses in the art world “afloat”.

Going back to NFTs, in addition these have also given art institutions the possibility to create a bridge between the cultural and the digital milieus and incentivise the much-needed support during the crisis. One example was the Uffizi in Florence which created NFTs of several art pieces, one of which was Michelangelo’s Doni Tondo. I think this was a beautiful and successful attempt to intertwine technology and tradition.

Another example of NFT use case has been giving the artists the possibility not only to be recognised for their digital creations but also – and here I would not want to over generalise – to explore an alternative canvas in which they are now able to express the aspects of their creativity which in the past were constrained by impracticalities. This latter example is the reason why it is such a pleasure for us to accompany Sumo in his transition into the digital realm: precisely because we see in him this thrive to create and persevere in this new world.

What are the benefits beyond art?

Beyond art, NFTs may also control the access to real life benefits.  One example I like to bring back, which I think always provokes a smile, is that of the Flyfish Club, [editor’s note: a member’s only private dining club]. Indeed, when discussing real life benefits NFTs have been inherently present in the contexts of events, concerts, sport competitions or even exhibitions.

The fourth example is of course that of the Metaverse. Yugalabs [the creator of Bored Ape Yacht Club] created Otherdeeds in which the NFT confers the ownership of a piece of land within this Otherside metaverse. Once you buy the NFT you will thus receive a plot of land which you may use at your discretion. Of course, the question which may come to mind is “how can one benefit from a plot of land in the metaverse”. Well, that will depend on a number of factors, including, who will be your digital neighbour.

Last but not least – and here I am being quite frank – there may be a society-oriented rationale behind purchasing NFTs. The same way having a Salvador Dalí at home may confer a certain status within the physical world, it appears that having a world-wide recognised NFT will do the same in the digital world. I believe that there are a lot of parallelisms that may be drawn between these two realities, the secret is to look closely.

“When discussing NFTs we are uncertain as to the extent of applicability of these legal frameworks and standards.”

Laura Beatrice Zanella, Co-founder of Tabulia

What would you say are the key pain points that you keep coming up against?

I think that one of the most inherent pain points in the NFT realm is connected to the practice of centralised access. In other words, although the NFT and its smart contract will always lie on the blockchain, the metadata – which determines the properties of the Token- is often stored within centralised platforms. 

The implication of such practice is that the information behind the NFT – and thus what confers legitimacy to the Token – may disappear and possibly even cause a significant loss in value in case the centralised infrastructure collapses.

Although from a technical perspective pre-emptive solutions may be implemented – for instance using a decentralised archive – IPFS- or storing the data directly on the Ethereum blockchain as a “storage” variable in the smart contract – from a legal standpoint things remain uncertain.

Indeed, the first thing needed is establishing a level of certainty in which the parties to the transaction will know what to do and how to operate in case things go wrong. This of course is best achieved by introducing an element of “knowledge”/” awareness” to the transaction: not only by indicating to the respective parties all of the information stored in the Smart Contract and Metadata but also by coordinating the legal and the technical component so as to determine ab initio where, how and when liabilities will lie in the event of problems arising.

I imagine knowhow among consumers is also another issue.

Absolutely! I have come across several individuals, casual buyers and even investors, who were making semi-informed purchases – to use a euphemism. For instance, not being aware of what the Metadata and Smart Contract of that particular NFT entailed. Now of course, this is not an uncommon practice, we all know that seldom do we really read all the fine print.

However, the main difference between the market of NFTs and the “traditional” ecommerce (buying a tv online for instance), is that the latter incorporates legal frameworks that not only regulate the activity overall but that also establish the standards of consumer protection. When discussing NFTs we are uncertain as to the extent of applicability of these legal frameworks and standards. Therefore, for the time being, it is necessary to look at the essence of these structures and attempt to transpose them into the world of NFTs. 

How do you think NFTs will be regulated?

Arguably the NFT market is being progressively regulated. However, such regulatory measures are being developed throughout a number of separate jurisdictions, each of which may adopt different standpoints and that are moving at different paces. Given that the NFTs market, similarly to the art market, operates globally, what must be defined is the way in which these jurisdictions will interact in the future. Arguments are being made that the decentralised nature of the NFTs market ought not to be interfered with, however I believe that this has become inevitable from the moment NFTs have started to interact with regulated markets.

This article was first published in the Silicon Luxembourg magazine. Read the full digital version of the magazine on our website, here. You can also choose to receive a hard copy at the office or at home. Subscribe now.

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