While most people believe the NFT is the image itself (ie the Bored Ape image), the NFT is an Ethereum smart contract recorded on the Ethereum blockchain that indicates ownership, among other simple contract terms. The token’s ownership, transfer history, purchase price, and other basic data related to the digital asset are recorded on the public blockchain in a secure and immutable way. NFTs solve a previously unsolved set of problems and create ownership and transfer opportunities that did not exist previously.
Before NFTs, there was no easy way to gauge the authenticity or scarcity of digital works on the internet. Since digital works (whether photos, art, videos, text, etc.) are so easily copied and pasted, knowing who created the original work and who currently owns it has been difficult, if not impossible. NFTs allow one owner to create a chain of titles back to the original owner/author/creator. For each ‘Bored Ape,’ there is one owner. NFT smart contracts can trace authenticity back to their origins. Any digital file can be stored as an NFT to identify the original. NFTs are typically scarce items, either one or a limited series. They’re like any other collector’s items that can be authenticated and ownership proven.
There are an endless set of legal issues related to NFTs. Because they are new, there are some risks that are still unknown. Some common issues involve:
What is a non-fungible token? contracts recorded on the etherium blockchain. Bored Ape’s are each unique (or a limited series of) non-fungible tokens. Non-fungible tokens are unique because they add unique contract terms linked to the token.
A fungible token is like a stock certificate. Fungible tokens are all the same. Bitcoin and Etherium are fungible tokens. Each token is identical.
Ethereum is decentralized open-source ledger software that securely executes and verifies application code, the smart contracts referenced above.
An initial coin offering (ICO) is an event where a company sells a new cryptocurrency to raise money. Investors receive cryptocurrency in exchange for their financial contributions. The primary difference between ICOs and IPOs is that IPOs involve selling highly regulated securities overseen by the Securities and Exchange Commission (SEC). There are significant disclosure requirements and investors must be qualified, typically having assets worth more than $1,000,000. ICO’s are currently not regulated by the SEC, although regulations are likely coming for coin offerings that are considered securities. Many crypto companies identify their tokens as ‘utility’ tokens in order to avoid regulatory oversight. Our attorneys expect a growing number of lawsuits and litigation around ICOs.
A token is an abbreviation for a ‘token contract’ and is the information recorded on the Ethereum blockchain. Smart contracts are applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third-party interference. The blockchain runs on large numbers of decentralized computers and therefore never shuts down unexpectedly or becomes unavailable. The contracts recorded in the token cannot be changed, hacked, or manipulated.
The Attorneys at Traverse Legal have been globally recognized for their experience and results. We can provide legal expertise for variety of industries and practices areas such as blockchain, cryptocurrency, NFTs, and smart contracts. Contact our team today!