Non-Fungible Tokens – 3 Legal Considerations

By Joseph Cheah


On 11th March 2021, Mike Winkelmann – a digital artist more popularly known as Beeple, has sold his artwork ‘Everydays – The First 5000 Days’ in an auction for $69.3million. The auction house that sold this artwork, Christie’s, said that this makes him the top three most valuable living artists.

What’s interesting is this – it is not a physical paint or art, it is a digital form. The sale was made possible using NFTs.

NFTs have been making headlines recently. It is a new concept of acquiring rights to a digital art and making trades using blockchain. With all new things, the law has been unable to keep up with trends.

In this article, we breakdown the concept of NFTs, the legal issues surrounding them, and what the future may hold for NFTs.



NFT stands for ‘non-fungible token’. The token runs on blockchain, just like Bitcoin.

The difference is this – while 1 Bitcoin equals 1 Bitcoin, 1 NFT does not equal to another NFT. The value of the NFT is determined by the value of the item.

NFTs have been used to serve digital creators. It acts as a smart contract to help people to own a particular digital item. For example, Adam creates a digital art called ‘PCA Law’. He decides to sell PCA Law in the online NFT marketplace. If people are interested, they can bid for and own a piece of PCA Law. The transactions are then recorded on a blockchain.

While people can still download, view or print out ‘PCA Law’ on their computer or phone, only a few actually own or claim to have right to that exact piece.

Why would I want to pay someone to own the art, if I can view them on Instagram for free?

Some people see NFTs as financial investment or a way to collect sentimental items. It is similar to how people collect stamps, Pokemon cards or sneakers.



Intellectual Property

The biggest issue in respect of NFTs is the underlying Intellectual Property rights of the art. If someone purchases some NFTs of PCA Law, does actual ownership and IP rights of PCA Law gets transferred to the buyer?

The law is unclear and remain to be tested.

Generally, a copyright owner has exclusive rights to the work. When a piece of painting is bought, the buyer acquires the rights to display the painting only, and not to reproduce or distribute copies of the painting. The underlying copyright of the painting is only transferred when there is written evidence between the copyright owner and the buyer that the rights are transferred as well.

Similar concept may apply here. It ultimately depends on the platform in which the trading of NFTs occur.

For example, in the NBA Top Shot platform, the operator has made it very clear that buyer of NFTs does not have the right to reproduce, distribute or otherwise commercialize the purchases without prior consent.



In a world where any digital art can easily be duplicated by screenshot, it is difficult to identify whether the digital art that you intend to purchase is being offered by the artist who has the rights to it.

Some platforms are solving this issue by taking several measures such as verification checks to ensure that the work and the artist is legitimate.

However in most cases, the platforms provide a general disclaimer that the buyer ought to first conduct their own research before purchase.


Subsequent Deletion or Duplication of the Art

If you purchased an NFT of PCA Law, and Adam subsequently deletes the same, what is the implications thereto. Can NFT owners sue the artist for purported loss of investment? There is no definite answer (yet).

Alternatively, a scam artist may duplicate many identical versions of PCA Law, which may affect the value of the ‘real’ PCA Law to be devalued. In such a situation, the law is also unclear whether the NFT owners would have any legal recourse against the scam artist OR the platform that hosts the duplicate PCA LAWs.



Many artists are jumping on NFTs as they are now able to monetize their digital arts like never before.

However, the uncertainties of NFTs have led many to believe that this is yet another bubble. Many arts are being sold at wildly high prices, and valuations will eventually have market corrections.

Potential future use cases include purchase of physical tickets, where the NFTs can be verified to avoid counterfeits. A bigger proposition is that people can also use NFTs to purchase a share of a property.

The reason why examples above are possible is because NFTs are testing the mechanism of a smart contract using blockchain. Conventional black & white hardcopy documents are riddled with human errors. If the smart contract technology works and improved on, this would pave the way for more adoption of smart contracts.


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