Legal Aspects To Consider When Launching An NFT Marketplace

While the initial coin offering (“ICO”) mania of 2017-2018 sputtered out in the face of government enforcement actions, a recent boom in digital assets is being fueled by a new rebound in the worldwide market for bitcoin and a new category of non-fungible tokens (“NFTs”).

Sotheby’s auctioned a masked CryptoPunk #7523 named ‘Covid Alien’, one of the rarest NFTs launched by studio Larva Labs, for $11.8 million on June 10, 2021, making it the best NFT to buy. Christie’s, another prestigious auction house, recently sold “Every day’s: The First 5000 Days,” an exclusive NFT-based artwork by Mike Winkelmann, popularly known as Beeple, for $69.3 million, which is the best NFT project to invest in.

With such a lucrative nature, NFTs are sweeping the market and some of the top celebrities have also begun to invest in them. However, you might still have some unanswered questions such as what exactly are NFTs? How is it possible that a digital signature might be worth millions of dollars? And what are the legal ramifications of NFTs?

ChainTechSource, a proficient NFT development company, addresses these questions and brings more clarity with regard to the legal aspects of NFTs and the NFT marketplace.

What are NFTs and How are they Different from Other Blockchain-Based Assets?

The term “non-fungible token” is an abbreviation for “non-fungible token.” An NFT can be “minted” using blockchain technology to document digital ownership of an underlying physical or digital asset and serves as a one-of-a-kind certificate of authenticity.

The blockchain-enabled distributed ledger technology’s protection and transferability. NFTs are digital collectibles that can represent everything from tweets to real estate. Other blockchain-based assets, such as Bitcoin, Ether, and Stablecoins, are identical, interchangeable, and ultimately fungible; however, NFTs are not. This is because non-fungible, divisible, and transferable units of ownership in separate assets are represented by NFTs.

What is Driving the Growth of the NFT Marketplace?

As the general public’s interest in NFTs grows, we’ve observed a surge in their popularity. In fact, online star Logan Paul made over $5 million selling NFTs in just 48 hours last month, while rapper Post Malone urged fans to play beer pong with him if they bought an NFT. Christie’s has become the first major auction house to offer a completely digital piece and the best NFT project to invest in.

It just sold “Everyday: The First 5000 Days,” a Beeple artwork, for a record-breaking $69 million, making the artist one of the top three most valuable living artists. Finally, devotees of the digital currency are looking for new ways to diversify their holdings following a 10x surge in the price of Bitcoin over the previous year.

The Legal Aspects Required to Launch an NFT Marketplace.

•  Company Formation:

It is highly suggested that you register your NFT development company before launching an NFT marketplace. A corporate entity provides the best liability protection and protects your assets from business obligations for business owners.

Having a corporate entity gives you more ability and credibility when seeking external financing, as well as more flexibility to handle growth. To take advantage of these features, your business must be properly founded and registered.

• Terms of Service:

The terms of service of your NFT development company are important legal documents that govern the relationship between you and your users. A well-written set of terms of service will protect your company from liability in relation to your users.

Furthermore, it will include provisions like disclaiming any warranties to users, limiting the company’s overall liability, establishing an indemnification framework to cover your company, and implementing an arbitration process in the event of any disputes.

• Community Standards:

Given the prevalence of user-generated content and user transactions in NFT markets, most NFT marketplaces should contain an additional layer of legal constraints in the form of community standards, also known as a code of conduct, to control interactions on your platform.

Community standards are useful for a variety of reasons. It can assist your NFT development company in determining the values and ethos that govern your marketplace. It can also help you create trust with your users, which is important if you want to grow your platform’s user base by providing the best NFT to buy.

•  Other Policies:

Given the unique legal issues faced by NFT marketplaces, having other stated policies, both internal and external, may be beneficial. External policies might help your NFT development company clarify its views on certain acts and behaviors. Internal policies can assist you in implementing and standardizing your organization’s response to compliance duties, external rules, and other legal obligations.

•  Intellectual Property Considerations:

When building an NFT marketplace, it’s critical to guarantee that intellectual property rights are properly and equitably distributed among creators/artists, purchasers/collectors, and any other parties involved. You risk damaging the credibility of your whole marketplace and your NFT development company if you don’t have an adequate distribution of intellectual property rights in place.

• Content Considerations:

Due to the predominance of user content and transactions, the need for authenticity, and the current limitations of the underlying blockchain technology, operating an NFT marketplace presents some unique content challenges. As a good NFT development company, you must lay out the content considerations to curb these limitations.

With the present NFT development and NFT markets, it’s evident that NFTs have the disruptive potential to allow artists and creators to monetize their work and establish previously unimaginable revenue streams.

NFTs have also been used by brands to unlock new digital products, distribution models, and monetization techniques. Others, on the other hand, see the present NFT mania as a bubble, with some buyers purchasing the best NFT project to invest in as a speculative investment in the hopes of quickly profiting by flipping the tokens at a much higher price.