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Your business may consider using non-fungible tokens (NFT). These digital tokens have exploded in popularity since the start of the COVID-19 pandemic. Broadly speaking, an NFT is a form of token establishing ownership over a digital version of something. This may include a virtual asset, a piece of artwork or photograph.
This article will explore the nature of NFTs and whether your business should get involved with them.
What is an NFT?
An NFT is a one-off digital certificate confirming ownership of a digital asset. So, ‘non-fungible’ essentially means that only one certificate exists worldwide. Holding an NFT is akin to ownership of a share in that your only real option is to hold onto it (and see if its value rises or falls) or sell it. Holding an NFT is similar to purchasing stocks or other investments. Many individuals purchase these items to sell them for a profit in the future once they rise in value.
Two Types of NFT
There are two main types of NFT:
- digital NFTs; and
- real-world NFTs.
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Why Are NFTs Attractive?
There has been a boom in NFT purchases since the start of the COVID-19 pandemic. This uplift in demand was mainly driven by the fact that most people could not collect or purchase unique items outside their household and, accordingly, had time to explore and buy NFTs.
Why Avoid NFTs?
Many individuals avoid NFTs as they do not fully understand how they work. Without proper knowledge of NFT markets, individuals can lose substantial sums of money very quickly, similar to the stock market. Therefore, if your business engages in selling NFTs, you may risk your reputation.
In fact, at present, there is a large amount of controversy placed on large companies looking to expand into the sale of NFTs, whether video game companies or sports teams. This follows stories of individuals purchasing NFTs for thousands (or tens of thousands) of pounds and then finding that the resale value is a fraction of what they spent. Unfortunately, many NFT owners learn too late that it is a high-risk gamble.
Furthermore, purchasing NFTs can be fraught with fraud risk, as it can be difficult to verify if someone online is the legitimate owner of an NFT. Furthermore, individuals may have fears concerning money laundering. Additionally, as with any new technology (including cryptocurrency), it can be difficult to determine the tax implications of the sale and purchase of NFTs.
Key Takeaways
Given the continuing uncertainty and controversy surrounding the sale and purchase of NFTs, as well as the environmental impact of owning an asset that requires a data server to be permanently connected to the internet, it is no surprise most businesses in England currently avoid them. Over the next few years, NFTs may become more commonplace and well-regulated, thus reducing their risk and controversy. Alternatively, they may become unfashionable and frowned upon. Therefore, it may be wise for companies to avoid them due to the difficulties of weighing up that investment. Furthermore, you can avoid the tax and intellectual property ownership issues that accompany NFTs.
If you need help handling non-fungible tokens, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
Then you may lose proof of ownership of the NFT (and the hacker may quickly try to sell your NFT art to someone else). It can be difficult to recover funds if the hacker operates outside English territory or is untraceable. For this reason, many analysts will advise companies and business owners to consider investing in physical artwork rather than digital assets.
Yes, but this is rare and depends on the contract wording and online marketplace. Unless stated explicitly otherwise, most prospective buyers should presume that an NFT does not include these legal rights.
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