Q&As

What are non-fungible tokens (NFTs)?

read titleRead full title
Produced in partnership with Kelsey Farish of DAC Beachcroft
Published on LexisPSL on 02/07/2021

The following TMT Q&A produced in partnership with Kelsey Farish of DAC Beachcroft provides comprehensive and up to date legal information covering:

  • What are non-fungible tokens (NFTs)?
  • What is an NFT?
  • What’s the position on ownership of NFTs?
  • How is NTF value determined?
  • How are NFTs sold?
  • Storage of NFTs
  • What are the issues to be aware of?

What are non-fungible tokens (NFTs)?

What is an NFT?

A non-fungible token or ‘NFT’ is a unit of data, which certifies a digital asset as being unique. NFTs are stored on the blockchain, providing the NFT’s owner with traceable proof of ownership. See Practice Note: Blockchain—key legal and regulatory issues. Each individual NFT is inherently unique and irreplaceable and can, in some instances, be worth a considerable sum. It may be useful to conceptualise NFTs as digital collectables, much like any tangible piece of original art.

Cryptocurrencies such as Bitcoin and Ethereum are fungible, and therefore mutually interchangeable just as traditional currency. In contrast, each non-fungible token has a unique set of characteristics and cannot be exchanged like for like. NFTs can be used to represent a wide range of digital assets to include audiovisual files, photographs, music recordings, GIFs, documents, and memes.

NFTs were first used in 2014 and gained some mainstream attention in 2017. By mid 2021, there has been a significant increase in awareness due to certain high-profile sales (see Value, below).

What’s the position on ownership of NFTs?

Every NFT must have an owner. The record of ownership is a matter of public record and easy for anyone to verify because it is stored on decentralised ledger technology—the blockchain.

The NFT can represent ownership of any type of digital file. For example, in March 2021, the American

Popular documents