The initials NFT correspond to the term “non-fungible token” or simply put “token”. Essentially it constitutes a digital, unrepeatable unit, equivalent to a tangible or intangible asset, which can be the object of transfer. Ultimately, it is the digital expression of ownership of an asset, whether tangible or intangible.
The first thing that springs to mind is that NFTs are works of art or artistic creations, in digital form, as this is how they first came to be known on the market; we might think of the cats (“kitties”) that came about around the end of the last decade or the monkeys (Bored Apes Yacht Club). Each one of said designs or creations is, in itself, a singular work and therefore non fungible, as an oil painting would be. It is also possible for a limited-edition series based on the same creation to exist, as happens with the reproductions of an original work, and always for a limited number, where each one of them is assigned a unique number.
The owner of the property of the asset is the holder of the NFT, who keeps it in their digital wallet (“wallet”), and in this way the token carries out the functions of a title deed. This digital title, as happens with physical title deeds, such as a public deed or a share, makes it possible to verify and accredit the domain of an object in relation to one or more persons.
The next thing to take into account when talking about the practical functions of the token is its type. Whereas physical deeds are rigidly limited to their contents (unless they undergo costly modifications), tokens are created and are themselves software creations, and therefore allow accessory or complementary rights to the mere domain over the item to be attached to them, such as, for example, intellectual and industrial property rights. And the same goes for obligations. However, the essential aspect of the token or NFT is the following: it allows the owner of an asset to be identified; which allows the instant transfer thereof and constitutes an incorruptible instrument, which can be traced from the moment of its creation.
The market could not exist without title deeds. And however more agile and simple the creation and transfer of titles may be, there are more possibilities to create new markets and business concepts. The NFT, as a title deed, allows itself to be transferred quickly, easily, and furthermore at a cost incomparably less than the transfer of traditional titles, all of which happens on a large scale.
Whereas in an analogue environment a title deed has a written format and is consigned to centralised registries which are dependent upon a public or private organism (the Land Registry and Moveable Property Registry come to mind), NFTs come into being and are conserved in a decentralised manner, thanks to block chain technology “Blockchain”. This digital document is capable of being transferred, which, given that it is created and exists within blockchain technology, it is not susceptible to forced alteration and furthermore, it also allows for tracing its chain of owners from the moment of its creation. The ease and speed of the transfer of the NFT in the market are characteristics, which, together with security and traceability, clearly indicate the infinite applications in commercial operations.
Naturally, those uninitiated with NFTs and Blockchain will raise the objection that this technology presents a high risk of fraud, by drawing a comparison to cryptocurrencies. But the case is in fact the opposite: security is one of the biggest advantages of NFTs. Blockchain is made up of an enormous number of decentralised “ledgers” (or registers), where transactions are made by the cooperation of anonymous computer terminals which solve problems or mathematical equations using cryptographic protocols to authenticate and store data. That is to say, there is no centralised server tasked with these functions, but rather they are made on the Internet and in a spontaneous manner, and driven by economic incentives (we call it “mining”). Let´s recall that each and every operation related to NFTs are accumulated and filed, in a way that is permanent and unchangeable, and carried out with the highest degree of security. It is true that the above process hinges on a fiduciary duty (of confidentiality) between market operators: an NFT will only be bought if it can be trusted that it constitutes an authentic and inalterable title deed to something specific. But that said, there is no reason to assume that an NFT has a lower fiduciary value than a conventional certificate issued by the Commercial Registry or the accounting entry of a financial institution.
An NFT could represent a title over either fixed or movable goods. It shall be recalled that in 2022 an auction took place in which the sale and purchase of a flat in the North American state of Florida via the acquisition of a Token was carried out; admittedly, the real estate itself was not sold, but rather a limited company which had previously bought said flat. Nevertheless, what is worth highlighting in this example is the speed with which the transaction was ultimately carried out, as well as the fact that the purchaser of the NFT became the owner of the company, and therefore of the real estate itself. This precedent demonstrates that trust in the token is not a mere fantasy, but rather a present reality, and that the real unanswered question relates to how to place tokens and the operation of their transactions within the current legal framework. It is very likely this requires fundamental alterations, yet avoiding the new direction and transformation of the market is unrealistic.
Having established that NFTs are authentic titles to property, which are easily transferable in the sphere of Blockchain, and which bring together several conditions of security which are practically invulnerable, it may be concluded that they permit the transfer of title to goods in a secure manner and without the need for intermediaries.
Technology has always preceded law, creating new and unforeseen situations in the legal code, for the simple reason that the legislator is limited to reacting to established circumstances. It seems clear that the market and society tend to the simplification and immediacy of commercial and civil transactions, in line with what occurs in human relationships. As a consequence, it does not seem reasonable to maintain that, with the existence of technological forms capable of dividing and transferring the property of tangible or intangible goods, at lightning speed, the transferal of a machine, a vehicle or of a piece of real estate must continue to entail a considerable number of procedures and associated costs, which at the very least limit and slow down the transactions. Market agents are constantly and spontaneously looking for new market ideas, and, therefore, in the same way that, today, the sending of letters by horse would seem outdated to us when there now exist means of telecommunication, it must be seriously contemplated whether to convert the current system of registration of movable goods (and immovable ones, in our opinion) into a digital platform, which would be much more agile and economical, whilst still keeping – thanks to technology – the capability of guarantee and authenticity which justifies its existence.
Eduardo Vilá
Vilá Abogados
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28th of June 2024
