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A Study on the Legal Issues over the Non-Fungible Digital Tokens

  • Legal Theory & Practice Review
  • Abbr : LTPR
  • 2022, 10(4), pp.205-252
  • Publisher : The Korea Society for Legal Theory and Practice Inc.
  • Research Area : Social Science > Law
  • Received : October 9, 2022
  • Accepted : November 21, 2022
  • Published : November 30, 2022

Jongho Kim 1

1호서대학교

Accredited

ABSTRACT

As ‘non-fungible tokens’ called NFTs are gaining popularity around the world, the NFT market is also gradually expanding in Korea. However, there is no established government policy or legal regulation in this regard. Cryptographic assets such as Bitcoin are defined as virtual assets with the enforcement of the ‘Certain Financial Information Act,’ and legal definitions have been prepared, but NFTs have not yet been clearly defined. Unlike the situation in Korea, in Japan, in accordance with the revised Fund Settlement Act that took effect in April 2017, it is necessary to register as a crypto asset exchange business for the handling of tokens that are cryptographic assets (cryptocurrency). However, due to the high barriers to entry in this market, startups have to take a different approach in order to run a blockchain business. In other words, it is a common situation that they seek a business design that does not require registration of a crypto-asset exchange business. In this situation, the business dealing with NFTs as a blockchain business that does not require registration of the crypto asset exchange business has recently been attracting attention. NFT is translated as ‘non-fungible token,’ etc., and allows digital data with non-fungible and intrinsic value to be distributed all over the world using blockchain technology. It is often written in the standard called ‘ERC 721,’ a blockchain technical standard using the structure of Ethereum (ETH), which is the second most popular cryptographic asset after Bitcoin (BTC). Specifically, items and characters in online games are NFT Painting is a typical example of business, and in addition to that, it is being put to practical use in painting (digital illustration) and membership. In this paper, I reviewed outline information on various legal issues and discussions regarding NFT in Japan, where legal regulations and policies were prepared earlier Korea. This paper has reviewed a wide range of topics, from basic knowledge of NFTs to the benefits and future potential of using NFTs. Unfortunately, due to uncertainty in the domestic market, the review was conducted mainly in Japan. In my opinion, NFTs are mainly used in the world of art and games today, but the market is expected to expand further in the future. It is likely to expand into fields such as business in the future, and NFTs will be needed in our lives as well. Since many companies and celebrities have already entered the NFT market, it is not yet clear how NFT will be utilized in the future. Also, although NFTs have developed rapidly, legislation has not yet caught up with them. Even if NFTs are issued in a gray area, there are cases in which the law is not violated because the law has not yet been enacted. Thus, the likelihood of a trial occurring when an NFT-related issue arises is quite high. Legislation dealing with these NFT-related frauds will be a major issue going forward. I think that the interest of researchers and continuous research are necessary. Although our civil code stipulates that objects of rights are tangible objects, electricity, and other natural forces that can be managed, the right of ‘digital ownership’ is not granted to inanimate objects such as data. NFT is just a token issued on the blockchain, and transferring the NFT does not mean the transfer of rights outside the blockchain, that is, the establishment of an agreement (contract) between the parties. In the beginning, it is called ‘trading of NFTs’, but there are many cases where it is not even clear what (rights about) are being traded. As such, businesses using NFTs are rapidly developing, but the legal position of NFTs or the arrangement of legal regulations and legal relations related to NFT transactions are not sufficiently kept up. Therefore, it is expected that there will be great confusion in the event of an unexpected situation such as NFT hacking or disputes over the legal relationship between the author and purchaser of NFT art. Therefore, in this paper, the position of NFTs in judicial and financial regulation is summarized, and at the same time, the representative business model using NFTs is used as the subject matter, and practical considerations such as legal relations under the copyright law and other legal issues related to NFT transactions or precautions in contracts, etc. was discussed.

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