Non-Fungible Tokens For Lawyers

During 17- 20 February 2022, digital image of two old paintings namely ‘Coquette’ and ‘Reclining Nair Lady’ of Raja Ravi Varma were auction-sold as NFTs for $74,999 and $63,999 on RtistiQ. These probably were the first NFTs that fetched huge amount in India but there are many NFTs that have fetched much more amount in other countries like the US and Europe. Some of them are ‘The Merge’ which was sold for $91.8m and is the most expensive NFT of today. Another digital artwork ‘Everydays: the First 5000 Days’ sold for $69.3m. ‘Clock’ created by Pak and Julian Assange is yet another example of NFT which was sold for $52.7m. The list is huge and is expanding. Though, this kind of news intensifies the interest of people towards NFTs but vague government stand on NFT and lack of clarity discourage them to come forward. 

Non-fungible Tokens (NFT)

Let us understand what Non-fungible Token (NFT) is. Like Cryptocurrency, Non-fungible Token (NFT) is also a digital asset and works on “Blockchain” technology which distributes identical information on digital ledger across the user’s network to avoid fraud. Blockchain cannot be tampered with or hacked as information is recorded in a distributed fashion. Like any other currency, Cryptocurrency also has fixed economic value and is fungible. NFT on the other hand though has economic value but is Non-fungible. The reason why it is called Non-fungible can be understood with an example. Take a banknote of value 100. You can exchange that banknote with another banknote of 100 or two banknotes of 50 or any other combination worth 100. This means the banknotes are fungible. Now, suppose you have another banknote which has an autograph of a celebrity that makes it unique. Since it is special and unique, you would not like to exchange it with any other ordinary banknote so it becomes non-fungible for you. You may like to sell it for the value of your choice provided somebody likes it and willing to buy it for more. So the uniqueness makes it non-fungible. Now if you upload its digital image on Blockchain, it will become Non Fungible Token which can be sold for the value of your choice. 

Non Fungible Token can be defined as a piece of digital art uploaded on Blockchain. It can be Artwork, image of Furniture, image of Equipments, Music, Video or even an image of a document etc so NFT can be uploaded in the form of JPEG, MP4, or PDF etc. If NFT is on sale, its value shall be dependent on demand and interest of buyer who is normally called collector here. A huge number of NFTs are being traded on Blockchain every day and the volume is increasing day by day. The NFT business has grown to $41 Billion in 2021.

NFT for Lawyers

NFT is getting attention of various segments of society so as Lawyers. This new technology shall push legal practices forward on multiple fronts. To be able to succeed, lawyers will have to understand this technology thoroughly. The main ingredient of NFTs is its ownership and there is no mechanism in the hands of intended buyers or collectors to ascertain the authenticity of the owner of digital artwork which is put on auction so there are high chances that the person who is conducting auction of a certain NFT is not the real owner of that digital artwork therefore there are high chances of litigation over this issue alone.  

Suppose digital artwork is created on one software and it is auctioned as NFT on a Blockchain which is using another or different software and this lead to technical glitch. Take another scenario when the Blockchain server fails during auction. This will also lead to litigation with regard to the rights of NFT creator. Lawyers having sound knowledge of NFT technology shall be preferred to contest these types of cases. 

Lawyers practicing Cyber laws, Intellectual properties laws, Trade Mark laws, Copyrights laws may get benefitted the most. Litigation pertaining to money laundering through NFT shall be yet another aspect of law where lawyers shall be engaged. As the NFT business is touching Billions of dollars and is increasing day by day, Lawyers dealing with Taxation & Accounting shall also be in high demand. Lawyers will need to have better understanding of NFT trade practices also. 

The NFT clients may belong to various segment of society and may include celebrities from the field of films, music, sports etc. they can either be NFT sellers or collectors or both. With the growing NFT world, legal issues shall definitely follow. Lawyers need to understand how they can fit themselves with the new area of practice. Already large international law firms have shown interest in this field. Once regulatory clearances are in place, it is highly expected that big funds organizations (including mutual fund managers) may also start trading in NFTs in future. So legal professionals having sound knowledge of NFT technology shall be hired by big financial institutions as well. 

Not only litigation, lawyers can also use it in their chamber practice, even they may create and sell their own NFT on Blockchain. There are certain legal documents which are needed frequently by various corporate and government offices these documents include various agreements e.g. joint venture agreement, distributor agreement, sale and service agreement, non-disclosure agreement etc. Some of these are stereo type while others are case specific. One has to go to a lawyer to get it done. Once it is finalized, lawyers can use this technology to store digitally signed legal agreements in the form of Smart Contract. Since the smart contracts are stored on distributed ledger these are accessible to all the parties and leave no room for surprises or misinterpretation regarding its ownership. Automation drastically reduces the drafting time of legal documents and increases data integrity. This technology can safeguard any legal document without interfering with the judicial authority. Lawyers may also create template agreements as NFTs and sell them on Blockchain. Those lawyers who embrace it first shall have an edge over other lawyers; however, they will need to update their knowledge on new regulations that regulates this business.