NFTs in Commercial Transactions

Abstract

In October 2021, the digital image of an ape with a wearied and uninterested expression—known as Bored Ape #8817—sold for an astounding $3.4 million in an online auction by Sotheby’s. Actually, it wasn’t really the digital ape that was sold. Rather, the auction was for a token representing the graphic. Although noteworthy for its price, this bored ape non-fungible token (NFT) was just the latest in the tokenization craze—the idea of creating a unique digital representation (a token) of a particular asset—that proponents assert will upend government and property law as we know it.

This Chapter, drawn in part from our earlier work, gets to the heart of the real question: What does it really mean to tokenize something under the law? In other words, what property rights does the owner of the bored ape token receive? Ownership? Some other kind of property entitlement? If the right is a property right, is it a property right in just a token, or is it some right in the Bored Ape image? Perhaps the owner receives a contract right. Maybe the owner gets only bragging rights. The answers to these questions have tremendous implications for just how revolutionary tokenization can really be.

Keywords: NFT, crypto, token, property, tethering, UCC, Article 12, controllable electronic record, commercial law, Bored Ape, platforms, blockchain