With the innovative technological pace and the global move towards a cashless society policy, digital currencies and assets have evolved and found a recognition within our global economy in the likes of Crypto-currency, NFT (Non-Fungible Token) and CBDC (Central Bank Digital Currencies) and have found a place in the hearts of many even a country like China is moving towards this takeover trend. The interest of this article however, is the comparative analysis between NFT and Crypto Currency, their transactional and legal framework. What are these phenomena and how do they work?
A non-fungible token (NFT) is a unit of data stored on a digital ledger called a blockchain that certifies a digital asset to be unique and therefore not interchangeable. NFTs can be used to represent items such as photos, videos, audio, and other types of digital files. Access to any copy of the original file however, is not restricted to the buyer of the NFT. While copies of these digital items are available for anyone to obtain, NFTs are tracked on blockchains to provide the owner with a proof of ownership that is separate from copyright.
A fungible object is interchangeable and indistinguishable from another object. NFTs however, are non-fungible which means that they are totally unique. The NFT on BitClout is used to represent a user’s reputation which you could then monetise based on someone’s popularity. The more popular the user is, the more expensive their NFT is. The most expensive NFT on BitClout as of April 6, 2021 is @elonmusk, valued at a staggering US$87,407.61 ($117,212).
A Crypto-currency is a digital currency/asset created and designed to function as a medium of trade in which specific coin ownership records are saved and stored in a ledger prevailing in a form of a computerized database working on strong cryptography to secure transaction records, to verify the transfer of coin ownership and to regulate the creation of additional coins (mining). It is not a corporeal property i.e. it does not exist in physical forms such as coin or paper money and is typically not issued by a central authority. Crypto-currencies normally use decentralized control as contrasting to central banking systems and centralized digital currency. Each crypto-currency works through distributed ledger technology as to when it is implemented with decentralized control which is usually a blockchain that serves as a public financial database. There are a lot of similarities and interrelationship between NFT and Crypto, for example to buy an NFT right; you would need a crypto-currency wallet.
WHAT IS THE DIFFERENCE BETWEEN NFT AND CRYPTOCURRENCY?
It is possible one is left to think NFTs (especially the Creator Coin) sound a lot like cryptocurrency, the key difference between NFTs and cryptocurrency is fungibility- they are unique and cannot be replaced with something else.
Buyers may believe that once they acquire an NFT, intellectual property rights (IPRs) are automatically transferred as well but it is not that simple. Generally, when a buyer buys an NFT, he does not obtain the original work and IP experts are positing that what the buyer obtains is a copy of the work. Also, most of the creatives do not explicitly state that they have ceded their intellectual property rights to the buyer. Since most of the creatives still collect royalties from every transfer of the NFT, the inference drawn is that what they give to the buyer is a licence to use the NFT and not a transfer of the copyright. A crypto totally becomes the property of the purchaser upon transfer.
If you were to buy crypto-currency, you would essentially be exchanging currencies like you would at the money changer then, you could sell it in the future for a higher price to profit off the “exchange rate” on one of the many crypto-currency trading platformsmeanwhile, when you buy an NFT, it’s more like buying a mobile phone, but in digital form. Each phone has its unique IMEI number, phone specifications and features. This is why an NFT is thought of as an “asset” as opposed to a currency.
NFT IN NIGERIA
In 2021, there has been increased interest in using NFTs. Blockchains like Ethereum, Flow, and Tezos have their own standards when it comes to supporting NFTs, but each works to ensure that the digital item represented is authentically one-of-a-kind. NFTs are now being used to commodify digital assets in art, music, sports, and other popular entertainment. Most NFTs are part of the Ethereum blockchain; however, other blockchains can implement their own versions of NFTs. The NFT market value tripled in 2020, reaching more than $250 million. In Nigeria, creatives are already taking advantage of the NFT wave, with Jason Osinachi selling two NFTs for $16,227 (sixteen thousand, two hundred and twenty-seven US Dollars) and $23,633 (twenty-three thousand, six hundred and thirty-three US Dollars) respectively and the renowned rapper, M.I Abaga, revealing that his next album will be an NFT
LEGAL FRAMEWORK
Like NFTs, crypto-currencies are unregulated their value is almost solely determined by market demand, so both are extremely volatile in terms of value.However, there are pressing questions concerning the legal issues surrounding NFTs.
The SEC (Security and Exchange Commission) empowered by section 13 of the Investment and Securities Act 2007 as the capital market regulator in the country maintained a liberal stand on the use of crypto-currency by a statement issued on 14thSeptember, 2020 where it announced its intention to regulate digital asset inclusive of NFTs and Crypto, it hasn’t been fully recognized and regulated in Nigeria, although individuals can freely trade crypto and create NFTs.
Most NFT transactions are cross border, there will most likely be a conflict of IPRs and Laws in different jurisdictions as to how the IPRs are interpreted and applied to the NFT in question. Potential buyers have to carefully read whether the creator is transferring copyright or other IPRs to any buyer or simply licensing the NFT to them, and should take into consideration the IP laws of the different jurisdictions.
On social media, copyright frauds have been decried by graphic artists who have voiced serious concerns about how their works are taken from their social media accounts or their portfolios and are 'Minted' as NFTs. SuperRare, an NFT platform, notes that “it's clear that the crypto art movement has continued the practice of re-appropriating unoriginal content, often with a symbolic, transformative, or meme-worthy purpose.” The site warns that artists should never mint a work containing copyrightable elements of another's work unless they are authorized by the copyright owner or a valid fair use defense applies
The technological innovation in the area of finance is becoming a force that has come to challenge the orthodox positions and norms in transacting in the financial world and has necessitated the need to regulate the use of these digital assets like the intended CBDC which is traceable and easy to regulate.
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