The Covid pandemic's impacts appear to have fueled interest in blockchain use cases and conversations. Blockchain appears to be of tremendous interest to Big Tech and the financial sector, and several institutional investors have amassed substantial cryptocurrency holdings.
Blockchain is an emerging financial technology that uses a decentralized database managed by computers in a peer-to-peer network rather than a central computer as in traditional databases to streamline the process of recording transactions and tracking assets. Blockchain is the technology underpinning Bitcoin and cryptocurrencies in general. A property or piece of land is an example of a physical asset. On a blockchain network, practically anything of value may be monitored and sold, lowering risk and increasing efficiency for all parties.
From clearing and settlement systems to cross-border payments, digital collectibles (NFTs), and more, blockchain technology is being actively studied and experimented with for application in almost every financial activity and institution.
An NFT (Non-Fungible-Token) is a unique, non-divisible token, often associated with an object (e.g. a collectable or digital art) and uses blockchain technology to track ownership and verify authenticity. Fungible tokens, such as Bitcoin, are not unique and therefore do not qualify as an NFT (trade one for another bitcoin, and you'll have exactly the same thing). An NFT, has a unique identification code and information that distinguishes it from other NFTs. It represents items on the blockchain that cannot be copied and practically, may be any file you can upload, from text to audio, video, and gifs. The majority of NFT markets now use Ethereum smart contracts. Ethereum's ERC -721 and upcoming standards like ERC 888, ERC 998, and ERC 1155 are examples of NFT tokens.
People are using digital art as profile photographs on social media, and even offering them for sale at Christie's and Sotheby's in the high arts sector. Mike Winkelmann's NFT (the digital artist known as Beeple) was sold for $69 million at Christies auction house in March 2021.
This technology lays the groundwork for creators to gain more control over the price and conditions of the sale of their digital creations and provide new avenues for the dissemination of works of art, access to performances, and other valuable assets.
The history of non-fungibles goes back to 2012–2013 with the Colored Coin era, and then again in 2016 with the Rare Pepes memes (NFT-like assets on Bitcoin Blockchain) on the Counterparty platform, to the famous Cryptopunks NFT project in 2017.
Further to the creation of digital art items with unique and exclusive properties, NFTs use cases currently expand to others in the supply chain, including gaming and real-estate. The uniqueness and traceability of the assets are being used by supply chain operators in the luxury goods (Prada, LVMH) and F&B sector, to assist, demonstrate origin and prevent counterfeit items from entering the market.
In the real estate industry, physical land or property can be represented on a blockchain as an NFT. This means that the digital token representing a piece of land can have a variety of properties such as location, price, and dimensions. Malicious actors would be unable to meddle with land ownership and other tangible assets linked with the land thanks to blockchain. When it comes to real estate trading, fractionalized ownership is also one of the most fascinating NFT use cases.
One of the greatest NFT use cases is in-game assets as non-fungible tokens, where players may build or acquire non-duplicable game items that can be stored in their own private wallets and transferred across games.
NFTs provide designers the ability to give digital assets physical characteristics like rarity, uniqueness, and proof of ownership. They've given rise to fresh ideas for making money off of previously useless goods.
However, because the NFT market is still in its early phases, the legal and regulatory framework around the issue is continuously evolving.
Although most governments do not yet have laws or regulations expressly addressing NFTs, a variety of current rules may nevertheless apply. This will be determined by the token's qualities and characteristics, as well as the actions carried out in relation to the token and the token's geographical scope.
Amongst others, intellectual property, privacy and AML are the main legal considerations regarding NFTs.
While the purchaser owns the unique digital version of the underlying work, an NFT does not represent copyright ownership of the underlying asset. Copyright to the underlying work, or property rights to a tangible underlying object, would be transferred if both parties agreed.
Additionally, NFTs may occasionally contain personal data, which makes the GDPR applicable and necessitates answering issues like who is the data controller and how the rights of the data subjects may be protected.
In fact, as more individuals and businesses recognize the impact that NFTs may have and begin to use them, the NFT ecosystem will continue to develop. Developers will continue to come up with new applications, and interoperable products will be a game-changer.
The future of NFTs is uncertain and is likely to depend on several factors, including the development of the underlying technology, regulatory developments, and the extent to which NFTs are adopted and used by individuals and organizations. It is likely that NFTs will continue to gain popularity in the coming years, but it remains to be seen how they will be used and how widely they will be adopted.
Published by Νομικό Βήμα.
Originally published 19 July 2023
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