In our continuation of this two-part series, we discuss the legal implications for creators (or sellers) and buyers of non-fungible tokens (NFT) in Malaysia.
To paraphrase a famous line from Star Trek, NFT innovation is going boldly where no one has gone before. It is not just popular for digital art and in-game assets — virtually any asset type can be converted into NFT, from concert tickets to hotel suites, domain names to health records. Entire ‘metaverses’ are being created.
It is important to tread carefully because your rights are not as they seem, and you may find yourself with no remedies in law when things go wrong.
Disclaimer: This is our opinion for general information purpose. Please do not rely on it as legal advice.
1. NFTs cannot be used to raise funds
Based on the Guidelines on Digital Assets issued by the Securities Commission of Malaysia in 2020, the issuance of digital tokens by companies with the intent to raise funds is a regulated activity.
NFTs that are used for fundraising will have to go through recognised market operators such as Initial Exchange Offering (IEO) platforms. The issuer has to meet certain eligibility requirements under the Guidelines, and the sale of NFTs must take place only at the IEO platform and no other venue.
As for NFTs that are not used for fundraising, there are open questions: Can they be promoted to local Malaysians like a public token sale? Can they be priced in non-approved digital currencies and be resold to secondary buyers? And since the Guidelines are for companies only, can individuals start an NFT fundraiser ala GoFundMe?
2. You don’t own the intellectual property
One must distinguish between ownership of the NFT and ownership of the underlying intellectual property (IP).
The NFT buyer owns nothing more than a unique hash on the blockchain with a transactional record and a hyperlink to the file of the artwork. It is merely a tool to represent the artwork.
Essentially, the purchase of…
