It's always interesting when a tech concept truly takes off. Inevitably, the hare-like speed of development and the appetite for the technology greatly outstrips the slow-moving legal and regulatory tortoise. Such is the case with the explosion of NFTs, around which a buying-and-selling ecosystem has swiftly formed, consisting of the NFT creators, the blockchain (or other distributed ledger technology) platforms, the marketplaces, the traders ('minters'), and of course the consumer buyers.
You might reasonably ask why a rational consumer would want to shell out their hard-earned Ethereum for an NFT in the first place. The value comes from the ownership of a unique token tied to a particular real-world, digital or virtual asset. While the asset itself may or may not be reproducible by anyone, there is a unique record of your ownership recorded immutably on a distributed ledger. In this way consumers can enjoy the collectible nature and bragging rights associated with their NFTs, while creators get a chance to add an extra layer of monetisation to existing products via a new digital space.
And yet, for all the very tangible (not fungible) excitement, and despite the decentralised and immutable nature of the blockchain record, there remains many a pitfall for consumers when it comes to NFTs.
There are already numerous examples of unsuspecting buyers being defrauded, buying what they thought was a token for a valuable digital artwork only to receive an emoji from a scammer instead. Or NFTs being passed-off as belonging to a famous brand and bought by consumers who thought they were buying officially produced or licensed tokens, only to realise those rights were not in fact with the seller to begin with.
Seller anonymity, coupled with heavy-duty disclaimers of liability on the part of the marketplaces, and the usual principles of 'buyer beware', mean that a casual NFT consumer may be extremely exposed. So which of our existing consumer rights can be applied to the NFT marketplace?
When buying an NFT UK consumers acquire various rights. These apply whether or not the trader is based in the UK, so long as they are marketing the NFT to UK consumers. Some protections to consider include:
So NFT sales, despite sitting as they do on a decentralised distributed ledger like blockchain, are not exempt from consumer protections. NFT marketplaces should be aware that they are selling products that are covered by consumer regulations and should be prepared to act to support the enforcement of consumer rights. Not doing so may risk regulatory action, particularly as the consumer regulatory spotlight begins to shine on the sector.
Katie Fry-Paul looks at the tightening regulation of cryptoassets and at the position of NFTs.
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Clare Reynolds looks at the benefits NFTs can bring to real-world assets, particularly if legal issues can be resolved.
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Our international team looks at how brands can protect and exploit their IP rights in NFTs.
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Debbie Heywood looks at the latest ASA advice and enforcement action on advertising cryptoassets.
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Calum Parfitt looks at the disruptive growth of P2E gaming.
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