Document Type : Research Paper
Author
Assistant Professor at the Law department, University of shahid madani
Abstract
Undoubtedly, the emergence and development of blockchain technology in 2009 has been one of the most significant transformations in various economic and social fields over the past two decades. Blockchain, literally meaning "chain of blocks," is an innovative system for recording data, in which information is stored on blocks with limited capacity. Once each block is filled, data is then recorded on the subsequent block, thereby creating a chain of blocks, which is referred to as the blockchain network. What makes the process of recording information on the blockchain unique is that it can operate in a decentralized manner, without the involvement of a central authority. The verification of data entries or changes is carried out by network users, which leads to the creation of a secure and cost-efficient network that can be used for a wide variety of applications, with the creation of cryptocurrencies and non-fungible tokens (NFTs) being only a small fraction of its potential uses.
The NFT market, which can be traced back to 2014, experienced remarkable growth between 2020 and 2021. The trade volume of NFTs surged to over $17 billion in 2021, representing a 21,000% increase compared to the total of $82 million in 2020. During this time, NFTs were increasingly utilized as speculative investments, drawing significant criticism due to the energy consumption required for their production and the carbon footprint associated with validating blockchain transactions. Additionally, NFTs have been repeatedly used in art fraud, prompting various legal analyses concerning the applicable legal regime for these tokens and the establishment of regulations for their creation and transfer.
Despite NFT proponents claiming that these tokens provide a clear certificate of ownership, the legal rights transferred through an NFT remain ambiguous in many cases. This ambiguity arises from several factors. For example, the transfer of an NFT does not necessarily imply the transfer of intellectual property or other legal rights to the buyer. Moreover, in many cases, an examination of the parties’ contract reveals that the intention was to grant a license to use the token, rather than to sell it. Conversely, even when the contract is labeled as a license agreement, the substance of the transaction may indicate the parties' intention to transfer ownership of the NFT. This issue becomes even more complex when considering that an NFT does not restrict the sharing or copying of the associated digital file, nor does it prevent the creation of other NFTs that reference the same file.
Hypothesis
The initial hypothesis of this article is based on the notion that non-fungible tokens (NFTs) fall under the category of digital goods. However, applying the legal frameworks governing intellectual property contracts to NFTs is not suitable, as it leaves many issues unresolved, including the formation, execution, and the legal rights transferred. This problem stems from the confusion between the NFT itself and the associated artwork. While NFTs can be examined as intangible assets, under Iranian law, the precise nature of an NFT must be analyzed independently of the artwork upon which it is based. Additionally, the legal transaction occurring during the transfer of the NFT must be clearly defined to establish an appropriate legal framework. It appears that the transfer of NFTs can be considered under the framework of a sales contract within Iranian law.
Methodology
The research method used in this study is the description and examination of the prevalent theories with an analytical approach along with the critique of these theories. Considering all the basic and effective elements in the nature of bargaining power and confronting abusive bargaining power, through a logical standpoint to the status of common law countries and the method of applying it in Iranian law.
Conclusion
The analysis revealed that NFTs have various forms and applications. The nature of NFTs is that of personal digital assets, which also possess characteristics of ownership under Islamic jurisprudence and Iranian law. Using the framework of a licensing agreement for the transfer of NFTs does not align with the rights and obligations of the parties involved in the customary practice of NFT transactions. A license cannot be considered a necessary element in the transfer of NFTs. In some cases, such a license may be issued, while in others, the transfer occurs without granting a license. Furthermore, in certain instances, the license pertains to the NFT itself, whereas in others, it relates to the sales platform.
The study demonstrated that, in Iranian law and jurisprudence, the term "property" in the definition of a sales contract is intended to exclude the sale of services from the scope of the contract. Given that the legislator has accepted the sale of intangible property in various contexts, there is no objection to considering the transfer of NFT ownership as a sale. Intangible property refers to assets that do not have a physical existence but are recognized by society and law. Legal scholars have expanded the scope of intangible property to include any type of financial right. Thus, all proprietary rights (excluding ownership, which is commonly associated with its physical subject matter), such as the right of usufruct, easements, debts, business goodwill, and intellectual property rights (including literary, artistic, and industrial property), as well as NFTs, are considered intangible property. In cases where the parties' intention is to sell the NFT, the principles of a sales contract can be applied to the transfer of NFTs in Iranian law, similar to the approach observed in U.S. law. By doing so, not only can the rights and obligations of the parties be clearly defined, but also various protective rules applicable to the sale of goods and services can be extended to these contracts. This approach is more consistent with the recognition of NFTs as personal digital assets.
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