While considering the legal implications of NFTs, it is crucial to underscore that every ‘token’ is a representation of something. In the traditional legal sense, a registered and notarised title deed represents title to the house. In a similar fashion, a negotiable instrument represents a transferable debt payable to the bearer. Such examples tell us that ‘tokenisation’ already has a rich and variegated history which is not only recognised in, but sanctified by, the law.

With the rise of NFTs, tokenisation has simply moved into the digital realm. While the token itself is digital, it can be made to represent any real asset. For instance, the rules of title ownership in a hypothetical jurisdiction may mandate that property-registration occur on a particular blockchain once adequate consideration is transferred. Here, the NFT would merely represent ownership of a real asset which has been otherwise guaranteed and sanctified by the law. To say that NFTs themselves guarantee ownership of anything remains a dubious claim. Even in the case of digital assets, authentic NFTs are best understood as those which have been digitally signed by a recognised artist/issuer. In the cryptopunks example considered above, note that all the “unique attributes” are merely visual traits. As such, they can be (and in fact have been) easily duplicated. This implies that the “proof of ownership” a cryptopunk holder actually possesses is merely a claim to a token digitally linked to (or ‘signed by’) LarvaLabs.

As is evident from the foregoing, the most far-reaching legal consequence of NFTs lies in the world of intellectual property rights. Because of their ability to generate unique tokens, blockchains provide robust tools for digital rights management. This explains the eagerness of big brands, artists, media platforms and gaming companies, etc. to move into this space.