JONES DAY PRESENTS®: Legal and Regulatory Considerations for NFTs
The nonfungible token markets posted nearly $40 billion in sales in 2021. Jones Day financial markets partner Mark Rasmussen explains what NFTs are, and how a coding standard that proves authenticity turned into an art and collectible digital market.
A full transcript appears below.
Because you're linking digital assets to content, whether it's music or art or the image of a famous person, all of that involves intellectual property rights and those who are creating NFTs, those who are selling NFTs have to be cognizant of intellectual property rights and make sure that they obtain the appropriate licenses. So IP is one big area. Any time you're talking about digital assets, you also have to keep in mind whether securities laws apply. Most NFTs that I've seen on the market today are linked to collectible items or things of immediate consumptive use and they're not being marketed in a way that would imply the securities laws but again it's computer code and things can change and people can use the technology for different means and so there's the possibility always that the securities laws could apply. The SEC has not come out and issued any guidance specific to NFTs, but that's something to think about.
Another area to think about is money transmitter laws and obligations under the Bank Secrecy Act because people can purchase NFTs using cryptocurrency and using wallets they don't necessarily have to reveal who they are. There's an inherent risk in the art market for money laundering and so I know the federal government in the United States is looking at whether to expand anti-money laundering regulations to cover the art market, could that one day implicate NFTs? It's possible.
Another area that we think about for this is sanctions and ensuring that we're not allowing people on the sanctions list to come in and purchase high value goods and then use that to transfer value from one person to another and get around sanctions laws. So there's a host of legal issues that you have to think through but unlike some of the fungible tokens that were being sold in 2017, 2018, I think a lot of the NFT projects have been able to launch with a little bit more certainty that a regulator is not going to come in and shut it down just because it's a simpler environment, simpler way to proceed to launch your product.
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