Before diving into the legal aspects of NFTs, we need to understand a very important concept.
Tokenize is to represent a right (personal or real, or on a tangible or intangible asset) in a private distributed registry (blockchain) for legal purposes in a public or semi-public way for technological purposes.
Such representation materializes in unit accounting entries called tokens.
The tokens will always be linked to a specific account (called, in blockchain jargon, wallet or purse) that will allow you to own and transfer the tokens.
Tokens are essentially transferable and, generally, their rightful owner is the owner of the wallet that stores and controls them.
To know the legal consequences of tokenizing a specific asset or thing, we must first know a series of questions:
- Attributes of the Tokens
- Utility: it must have an economic value.
- Substantivity: it must have an autonomous existence.
- Appropriability (physical or legal): it must be susceptible to legal submission to its owner.
- Tradability: considering the latest facts with NFTs, this feature seems obvious.
The tokenized thing: goods or rights
They can be tokenized:
- Due to its mobility, we find movable and immovable things:
- For instance, things or real estate defined as those things that cannot be moved or, at least, that is not their essential function.
Currently there are projects in different parts of the world that tokenize real estate.
- Things or movable property: they are all those susceptible of appropriation, that are not immovable, transportable or transferable.
- Due to its physical or legal quality, we find corporeal and intangible things:
- Corporal things: they are those that are perceived by the senses.
- Incorporeal things: cannot be touched; they are only perceived with the intellect. This category is where we find most of the rights, but also intangible assets such as a brand or a know-how.
And within the category of rights we find, among others, real rights and personal rights:
- Real law: it falls on a thing (relationship between person and thing). We can cite the property, the use, the usufruct, the pledge or the mortgage.
- Personal law: occurs between people. We can highlight the loan, the employment relationship, the lease or the sale, ecc.
Due to their substitutability – there are large gray areas- we distinguish fungible from non-fungible:
- Fungible things: they are measurable, substitutable. For example, we can highlight money or oil.
- Non-fungible things: they are not easily replaceable or interchangeable, sometimes becoming unique. For example, we can highlight a work of art.
The legal nature of the thing that the token represents – not the denomination – will determine its ownership, transferability or liability regime.
The token: legal nature and its characteristics.
- It is transmissible and appropriable: a movable thing.
- It is not a physically appropriable thing, it is incorporeal.
- Some are fungible but there may also be non-fungible tokens, such as the case of the work of “Beeple”.
Therefore, there is no doubt that tokenization opens the doors to an exciting, open, transparent and, above all, efficient world, but our current legal system is a complex and complete legal system.
This means that there are no situations of unlawfulness where, as an example in the case that concerns us, a token can avoid the application of a regulation.
In such a way that, at present, all the legal elements related to all kinds of tokenization, the legal nature of the token and, above all, the sector of activity must be thoroughly analyzed so that, after said study, it can be assessed whether said process tokenization provides legal certainty and, therefore, represents a real improvement of the current system.
With that said, it is recommended that anyone who wants to coin an NFT and sell it or who wants to buy an NFT do a study before acquiring or creating it to know what are the legal consequences that the transaction may generate.
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Until next time.