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NFT Market down: Legal perspective on NFT

NFT Market down: Legal perspective on NFT

The non-fungible token (NFT) market has fallen significantly in recent months, with trading volumes down by over 90% since their peak in January 2022. This has led to numerous concerns about the long-term viability of the NFT market and the legal implications of owning and trading NFTs.

There are a number of reasons for the decline in the NFT market – one of them is the overall downturn in the cryptocurrency market, which has seen Bitcoin, Etherium, Ripple and other cryptocurrencies lose a significant amount of value. This has made investors less likely to invest in NFTs, which are often bought and sold using cryptocurrencies.

Another reason for the decline is the increasing awareness of the risks associated with NFTs. These risks include the possibility of fraud, scams, and market manipulation. There have also been concerns about the environmental impact of NFTs, as the process of creating and trading them can consume a lot of energy.

Despite the recent decline, some experts believe that the NFT market still has a long-term potential. They argue that NFTs have the potential to revolutionize the way we own and trade digital assets. NFTs can be used to represent ownership of everything from digital art and collectibles to video games and in-game items.

However, there are a number of legal challenges that need to be addressed before NFTs can reach their full potential. The one that bothers legal community the most is the lack of clear regulation for NFTs. This makes it difficult to protect investors from fraud and scams. Another challenge is the difficulty of enforcing NFT ownership rights. This is because NFTs are often traded on decentralized platforms, which are not subject to the same regulations as traditional financial markets.

Here are some of the legal perspectives on NFT as of current reality:

  • Copyright and intellectual property rights: It is unclear how copyright and intellectual property rights apply to NFTs. When you buy an NFT, you are not necessarily purchasing the copyright to the underlying work. The copyright creator or the third-party seller can retain the right to copy, distribute, modify, and publicly display or perform the art. This could lead to confusion and disputes over who owns the copyright to an NFT.
  • Securities law: Some NFTs may be considered securities under securities laws. This means that they may be subject to regulation by SEC. This could make it more difficult to issue and trade NFTs, and could also lead to enforcement actions against NFT issuers and sellers.
  • Tax law: The tax treatment of NFTs is also unclear. It is not clear whether NFTs are taxed as capital gains or as income. This uncertainty could make it difficult for NFT owners to comply with their tax obligations.
  • Anti-money laundering (AML) and know your customer (KYC) regulations: NFT marketplaces may be subject to AML and KYC regulations. This means that they may be required to collect information about their customers and to report suspicious transactions to the authorities. This could make it more difficult for people to buy and sell NFTs anonymously.
  • Consumer protection: NFT investors may be vulnerable to fraud and scams. There have been a number of cases of people being sold fake or counterfeit NFTs. There have also been cases of people being hacked and having their NFTs stolen.

Notwithstanding the above mentioned the NFTs have the potential to revolutionize the way we own and trade digital assets in the ner future.

Today it’s difficult to predict for certain whether the NFT market will rise again and when will it happen. However, there are a number of factors that could lead to a resurgence in the market, including:

  • Improved regulation: As the NFT market matures, governments and regulators are likely to develop clearer rules and regulations for NFTs. This could help to reduce uncertainty and fraud, and make it easier for investors to participate in the market.
  • New use cases: As NFT technology continues to develop, new and innovative use cases for NFTs are likely to emerge. This could include NFTs for ticketing, gaming, and digital identity.
  • Increased interest from businesses: More and more businesses are starting to explore the potential of NFTs. For example, some businesses are using NFTs to create loyalty programs, reward customers, and sell digital products.

Of course, there are also some factors that could hinder the growth of the NFT market, such as:

  • Environmental concerns: The energy consumption associated with creating and trading NFTs is a major concern for some people. If this issue is not addressed, it could deter potential investors from participating in the market.
  • Lack of mainstream adoption: NFTs are still a relatively new and niche technology. It is possible that mainstream adoption of NFTs could be slow, which could dampen the growth of the market.

Overall, it is likely that the NFT market will continue to evolve and grow in the coming years. It is important to be aware of the risks involved before investing in NFTs so here are some tips for NFT investors:

  • Invest only what you can afford to lose. NFTs are a speculative asset, and there is a high risk of losing money.
  • Do your research before investing in any NFT project. Make sure you understand the project and the team behind it.
  • Invest in projects that have a clear use case and a strong community.
  • Do not hesitate to seek professional advice.

Mayon Solutions is always here to provide you with professional advice.

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