Understanding NFT’s – What You Should Know Before You Buy

AdobeStock_476679934-300x200NFT’s are a popular new digital asset. Here in Silicon Valley, tech-savvy business owners want to be at the forefront of this cutting-edge technology. Like an asset, however, it is important to understand the product before investing in it or pouring resources into it for technical development of some new business venture. Poor investments can leave business owners to answer to disgruntled shareholders, investors, employees, customers, and even government regulators, including lawsuits, class action suits, and regulatory or administrative investigations and action. Learn more about NFT’S – and what your business needs to do to invest in them safely.

What Are NFT’s?

NFT stands for “non-fungible token.” An NFT is a unique piece of digital artwork that is sold online. As with cryptocurrency, NFT ownership is recorded in a digital ledger on the blockchain of some type. NFT’s can be resold. Because of this, an owner can capture appreciation by reselling the NFT’s. NFT’s can also be used for secondary transactions and capturing royalty related to a piece of art or subscription.

Are NFT’s a Business Asset?

Businesses can purchase NFT’s as an investment in the same way that individuals do, subject to applicable federal, state, and international securities and commodities law. Most notably, the SEC and CFTC are the U.S. watchdogs that regulate securities and capital markets that includes oversight on buying and selling of NFT’s on different platforms. Like any asset, an NFT can decrease in value or be stolen. It is important for companies to use safeguards to protect their NFT’s as they would with any other business asset. Like other assets, it is also important to diversify your portfolio so that losses in one area do not bankrupt your business completely. NFT’s are relatively new and unregulated, which can make them a risky investment. It is a good idea to balance this risk with more stable investments in your company’s financial portfolio.

Can NFT’s Be Commissioned?

An investor can commission an artist to create a unique NFT. In this case, there can be legal issues about the intellectual property separate from the property rights that are recorded on a blockchain. A commission can even be attached to the file so that the original creator (or commissioner) is paid every time the token is resold. Be sure to consult with a lawyer about these issues. High-value NFT’s can result in costly litigation over unsettled issues of intellectual property, licensure, property rights, and financial agreements. A strategic ownership plan can help prevent these problems.

Are NFT’s a Good Investment?

Any asset will be considered a good investment by some and a poor investment by others. There is no single right answer about whether NFT’s are a “good” investment for a business.

The Right Silicon Valley Business Lawyers For Business Assets

Many entrepreneurs in Silicon Valley often attempt to corner the market by investing in emerging technologies with money, resources (development) and time, but such investments are not without risks. The Silicon Valley business lawyers at Structure Law Group can help your business identify, evaluate and mitigate risks in order to make prudent business decisions. Call (408) 441-7500 to schedule a consultation or contact us online.