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The High Court in the UK * has recently ruled that non-fungible tokens (NFTs) should be treated as legal property, which is likely to have a number of implications. In a court case in 2020, the court had ruled to "treat Bitcoin as ‘property'". Therefore, whilst English courts had given a degree of clarity for cryptos, this had not been the case until now for NFTs.
The fact that NFTs have been ruled a ‘property’ removes a number of uncertainties which have possibly held back those reputable owners of intellectual property, or IP (museums, art galleries, firms in the music and film industry etc), from commercialising the existing IP they own by issuing NFTs. This NFT ruling also provides greater certainty for regulated financial institutions looking to invest clients’ assets into NFTs, supporting legal agreements around the handling of NFTs, such as insurance, custody etc.
As Lavinia Osbourne, whose company brought this case to court, announced: “As this case, and the increasing number of hacks and scams in the NFT space shows, digital wallets and smart contracts aren’t infallible. Now that NFTs are legally recognised as property, NFT holders will finally be able to regain some control when things go wrong.” Furthermore, Racheal Muldoon, the barrister who helped obtain this ruling, said: “This case sets an important precedent in recognising that NFTs are property under the law of England and Wales, capable of being the subject of interim injunctions. It is a further example of the High Court leading the way internationally by assisting cryptoasset holders to secure the return of their digital assets”. So, will we subsequently see a reduction in insurance premiums? Ben Davis, a specialist insurance broker focusing on digital assets at Superscript, has reported: "This is a big step in the right direction for insurers to start looking at covering theft of NFTs as with more regulatory clarity comes more peace of mind for insurers."
Undoubtedly, NFTs are now being used for a wide variety of purposes. Some will have very little, if any, value and could be as simple as a ticket to an event. Other NFTs have been used to sell digital art, with the most expensive to date being Pak's, 'The Merge', selling for $91.8m. It was bought by 28,983 collectors. Gaining greater legal clarity around the treatment of NFTs ought to provide comfort for all those engaged in them although, given the copious ways that NFTs are being used, this will no doubt give rise to further court cases and potentially even greater scrutiny from regulators in various jurisdictions. The adoption of digital assets continues to rise in Europe, as can be seen from the recent survey carried out by Coinbase, which found: “Consumer cryptocurrency ownership levels in the UK are second only to the Netherlands (47%) in Europe; ahead of Spain (26%), Italy (25%), Germany (24%) and France (17%). Bitcoin (BTC) and Ethereum (ETH) remain the most owned cryptocurrencies at 75% and 52%, respectively”. Without doubt digital assets are popular, and the recent NFT ruling will help to support the interest in this way of owning assets.
*If you would like a copy of the legal announcement, please contact us.