NFT-related disputes: How do you resolve them?

NFTs (Non-Fungible Tokens) are an exciting phenomenon. Only recently, an animated Gif of Nyan Cat (2011) was sold for USD 500,000. In March 2021, the first Twitter post ever was sold for USD 2.9m. Meanwhile, the biggest football clubs are making millions selling their fan tokens, while the NBA has tokenised the best dunks, moves and other memorable plays, offering them as digital collectibles.

What are NFTs?

A fungible asset is an asset that can be readily interchanged. A EUR 100 bill is a EUR 100 bill no matter when or where it was printed. The same is true for digital currencies. One bitcoin is always equal to one bitcoin regardless of which blocks of the blockchain it represents. Cryptocurrencies are fungible tokens.

Non-fungible tokens constitute non-interchangeable pieces of data. Just like a Picasso painting is different from a Monet, even if they would be worth the same amount of money, one NFT is different from another. A non-fungible token is a digital representation of a unique piece of a digital or non-digital world. It can represent a painting, a football game or a historic social media post. 

Why are they so big?

NFTs create value. They allow content to be monetised that could not be monetised before (like a Twitter post) or to extract extra value from content that has already been monetised (like NBA highlights). Combined with current consumer trends, this provides an easy recipe for success. It is a simple case of supply and demand.

Disputes stemming from NFTs

Like many other technical developments, the emergence of NFTs raises many legal questions. These can be about their existence, copyrights, ownership, exchange and relationship to the actual piece of the digital or non-digital world that they represent. Clearly NFTs will be a major challenge for lawmakers and legal practitioners. This in turn will inevitably result in legal disputes.

These disputes may vary. They may relate to claims raised by owners of the underlying works on the one hand and the buyers of the NFTs on the other. They may concern privacy claims. Lastly, NFTs can also be a source of various regulatory issues.

Given the complexity and technical character of the issues connected with NFTs, it is of the utmost importance that any disputes be resolved by creative and open-minded people. Besides being legal experts, they must also possess knowledge of blockchain technology and the ongoing social processes that led to the rise of NFTs.

"Given the complexity and technical character of the issues connected with NFTs, it is of the utmost importance that any disputes be resolved by creative and open-minded people."

Consequently, the best answers to the challenges posed by NFTs seem to be provided by ADR mechanisms. They allow for the much-needed flexibility of the process and give the parties more control over it.

In the spirit of decentralisation surrounding blockchain, private dispute resolution seems to be the best way forward.

author: Paweł Bukiel