2022.12.13
A Brief Introduction to NFT (II)
- What other issues are there regarding NFT?
- Although an NFT stored on a blockchain is unlikely to be hacked or corrupted, that may not be the case for the associated artwork file. To elaborate, NFTs that represent digital art generally do not store the associated artwork file on the blockchain due to the large size of such a file and the limited processing speed of blockchains. Such a token functions like a certificate of ownership, with a web address that points to the artwork. This, however, makes the art itself vulnerable to data corruption.
- And there are environmental concerns. NFT purchases and sales are enabled by the high energy usage, and consequent greenhouse gas emissions, associated with blockchain transactions. The proof-of-work protocol required to regulate and verify blockchain transactions on networks such as Ethereum consumes a large amount of electricity. There are conceptual questions, such as whether the carbon footprint estimate for an NFT purchase should incorporate some portion of the ongoing energy demand of the underlying network or just the marginal impact of that particular purchase.
- Although an NFT stored on a blockchain is unlikely to be hacked or corrupted, that may not be the case for the associated artwork file. To elaborate, NFTs that represent digital art generally do not store the associated artwork file on the blockchain due to the large size of such a file and the limited processing speed of blockchains. Such a token functions like a certificate of ownership, with a web address that points to the artwork. This, however, makes the art itself vulnerable to data corruption.
- Any legal issues regarding NFTs?
- Because it hasn’t been that long since NFTs grabbed our attention, there are numerous legal aspects that need to be discussed and defined.
- To list a few for the consumers, the copyright issue may arise. An NFT solely represents proof of ownership and does not necessarily imply that the owner possesses intellectual property rights to the artwork unless it is explicitly transferred. Someone may sell an NFT that represents their work, but the buyer will not necessarily receive a copyright to that work, and the seller may not be prohibited from creating additional NFT copies of the same work.
- Also, in Korea, if an NFT is classified as a virtual asset under the Act on Reporting and Using Specified Financial Transaction Information, incomes from transferring or lending the NFT can be taxed under the amended Income Tax Act starting next year.
- In addition, if foreign exchange transactions, payments to, or receipts from foreign countries are made through NFTs, there may be problems with registration and reporting obligations under the Foreign Exchange Transactions Act.
- Because it hasn’t been that long since NFTs grabbed our attention, there are numerous legal aspects that need to be discussed and defined.
- Then, how about legal issues regarding NFTs for businesses?
- If an NFT is classified as a virtual asset, the NFT trading platform will be identified as a virtual asset services provider under the Act on Reporting and Using Specified Financial Transaction Information. This would mean that the platform provider must register with the Financial Intelligence Unit (FIU) and secure real-name accounts, as well as bear various anti-money laundering obligations.
- Also, if an NFT is considered as securities by the government authorities, the issuer may be subject to the securities issuance regulations under the Financial Investment Services and Capital Markets Act, and NFT exchanges may be considered as operating investment trading and brokerage business without due approval.
- These are just a few of the possible legal issues that may arise from running an NFT business in Korea. I highly recommend you seek legal advice before starting an NFT-related business here in Korea.
- If an NFT is classified as a virtual asset, the NFT trading platform will be identified as a virtual asset services provider under the Act on Reporting and Using Specified Financial Transaction Information. This would mean that the platform provider must register with the Financial Intelligence Unit (FIU) and secure real-name accounts, as well as bear various anti-money laundering obligations.
- If there are that many legal uncertainties about NFTs in Korea and elsewhere, why should we bother with NFTs?
- Within a single year, from June 2021 to June 2022, NFT sales hit 29 billion dollars. Besides the size of the market, there are other positive aspects of NFTs. The NFT industry powers a new creator economy where creators do not need to hand ownership of their content over to the platforms which they use to publicize it. Ownership is ingrained into the content itself.
- When the content creators sell their content, funds go directly to them. If the new owner then sells the NFT, the original creator can also automatically receive royalties. This is guaranteed every time it’s sold because the creator’s address is part of the token’s metadata that can’t be modified.
- Furthermore, the ease and reliability of registering an artwork would significantly contribute to the flourishing creativity in the world of art.
- Within a single year, from June 2021 to June 2022, NFT sales hit 29 billion dollars. Besides the size of the market, there are other positive aspects of NFTs. The NFT industry powers a new creator economy where creators do not need to hand ownership of their content over to the platforms which they use to publicize it. Ownership is ingrained into the content itself.
