Navigating the Non-Fungible Token

Abstract

$69 million, $7.58 million, and $7.57 million. These are the amounts associated with the three most-sought after Non-Fungible Tokens (NFTs) sold in 2021. Although NFTs were first created in 2014, 2021 saw an unprecedented rise in their global popularity. In fact, Google reported that in 2021, “How to buy an NFT?” was one of its most searched questions.

So, what is an NFT? NFTs can alternatively represent a collectible, a financial instrument, or a permanent record associated with a person, physical or digital object, or data — each presenting an entirely distinct set of legal issues. The lack of governmental expertise in this area accompanied with the absence of regulatory guidance has created a frustrating environment for innovators. Largely misunderstood, and neglected by legal scholars, NFTs with their attendant blockchain and smart contract technologies can create new paradigms around ownership and identification and inspire entirely new business models. In addition to clarifying what NFTs are, this article seeks to fill the gap in the legal literature by analyzing how the specific use of an NFT implicates different areas of the law. Examining the way NFTs function in sectors ranging from fine arts to finance, this Article suggests how tokenization law and policy must advance to leverage the incredible opportunities that NFTs present.

Keywords: NFT, Non-fungible token, digital object, blockchain, supply chain management, smart contract

JEL Classification: K00, K10, K11, K19, K20, K23, K29, K30, K39, K40, K49, L50, L59, L80, L83, L89, O34