Tokenized: The Law of Non-Fungible Tokens and Unique Digital Property

Abstract

Markets for unique digital property—digital equivalents of rare artworks, collectible trading cards, and other assets that gain value from scarcity—have exploded in the past several months. At root is the next iteration of blockchain technology, unique digital assets called non-fungible tokens. Unlike Bitcoin, where one coin is the same as another, NFTs are unique, each with different attributes. An NFT that represented ownership of Boardwalk would be quite different from one that represented Baltic Avenue.

NFTs have grown from a few early breakout successes to a rapidly developing market for unique digital treasures. The attraction to buyers is that unlike digital assets like e-books or licensed movies, NFTs can be bought, sold, displayed, gifted, or even destroyed just like personal property. Yet law has not kept pace with demand for unique digital property. In particular, the rules designed for the 2000s internet focused on expanding intellectual property licenses and online contracts to the point that we are mere users, not owners, of digital assets.

This article proposes a clear path for the evolution of the legal underpinnings of NFTs. It argues that NFTs are personal property, not contracts (despite the “smart contracts” popular nomenclature) or pure intellectual property licenses (despite the currently governing law of digital assets like e-books). Because transactions in NFTs are in the form of a sale, the law of sales of personal property should apply. And finally, the article notes that NFTs will serve as a powerful grounding example of digital personal property, a legal form of ownership that is both sorely needed and has not yet been clearly established online. That example will ground others, and permit law to again characterize those who buy scarce and valuable digital assets as true owners rather than mere users.

Keywords: NFT, token, bitcoin, crypto, law, property, digital, virtual, cryptocurrency

JEL Classification: K11, K12