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Permissible use of NFT: ‘One-of-a-kind’ digital assets
NFTs have not been legally defined in Indonesia, but several characteristics of NFTs can make them fall under a certain area of prevailing laws, such as copyright, crypto-asset as a derivate with its value derived an underlying asset, digital goods and/or simply electronic information.
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Smart artwork: People interact with an NFT artwork by German artist Mario Klingeman during Art Basel 2021 at Miami Beach Convention Center in Miami Beach, Florida on Dec. 2, 2021. (AFP/Eva Marie Uzcategui)
O
ne blockchain application allows its developers to tokenize assets existing in the blockchain network to create new values and unlimited option uses for monetizing digital assets in the digital economy. Interestingly, there is a digital asset that completely exists in the blockchain, worth more than millions of dollars. A non-fungible token (NFT) is a one-of-a-kind thing whose value and potential options are to live up to all the hype.
In March 2021, artwork depicting a collage of photographs, called Everyday: The First 500 Days, was sold as an NFT for almost US$70 million at Christie’s Auction. That digital artwork entirely exists in the digital world, and some people wonder how that artwork, which is represented as a digital asset that is easy to duplicate, can be worth millions of dollars.
It turns out that you might buy an art NFT because you like it, not because you are waiting for NFTs to become useful as a medium of exchange (hbr.org, "How NFTs Create Value", 2021).
While the original concept of NFTs has been around for seven years, Indonesian regulators took some time to regulate NFTs transactions. At this time, NFTs have not been legally defined in Indonesia, but several characteristics of NFTs can make them fall under a certain area of prevailing laws, such as copyright, crypto-asset as a derivate with its value derived an underlying asset, digital goods and/or simply electronic information. When people want to purchase NFTs, they should understand the context of NFT trading in light of those laws.
Whereas there is no official definition of an NFT, we consider NFTs to be digital assets implemented using cryptographic techniques that can algorithmically prove the provenance of such assets in relation to the blockchain platform on which they have been issued. For some blockchain enthusiasts, NFTs are also defined as digitized specific workpieces, works of art and goods that are uniquely identified using Ant Blockchain technologies, including digital images, music, videos, 3D models and other forms of digital collections. The most common types of NFTs include artworks and collectibles, objects in virtual worlds and digital characters from sports and other games.
An example is CryptoPunk, 24x24 pixel art images depicting (among others) punky-looking guys and girls, which are generated algorithmically on the Ethereum blockchain. The market of CryptoPunk started in early 2017, and since then, the character images of such NFTs have been trading for $50 to $100 each until around April 2020, before their value grew to between $20,000 and $100,000 (Downling, "Is NFT pricing driven by cryptocurrencies", 2021). For more examples, visit opensea.io, arguably the world’s first and largest NFT marketplace.
Before a deep-dive into NFTs' legal aspects, we look at NFTs by their sole name, which refers to the term “fungible”. In business and economics, a “fungible” asset embodies individual units that are substitutable with one another (Merriam-Webster). It is also identical in value, while a “non-fungible” should be understood as an asset that is unique and whose units are non-interchange with one another. A non-fungible token can be thought of as a certificate of ownership (Chohan et al., Business Horizons, 2021).
