The NFT space is commonly characterised as a ‘Wild West’, where anything goes and legal controls are minimal. A recent decision of the UK High Court suggests that the law’s lasso of control is at least starting to bring some order to the purported chaos.

In a case involving the alleged theft of two NFTs from the claimant’s crypto wallet, the court determined that the NFTs were property, and therefore capable of being the subject of an injunction. The decision is considered ground-breaking in that it is thought to represent the first judicial recognition of an NFT as property anywhere in the world. Given the centrality of the concept of property to so many areas of law, the ramifications of the ruling could be very far-reaching.

The NFTs in question were two digital works from a series called ‘Boss Beauties’ and belonged to Lavinia Osbourne, the founder of Women in Blockchain Talks. They had been traded on the Open Sea platform (the world’s largest NFT marketplace, hosted by Ozone Networks Inc.) and were allegedly stolen from Osbourne’s online wallet. This resulted in an application for injunctions to freeze the NFTs and to compel disclosure from Open Sea / Ozone of details of the individuals discovered to be holding the misappropriated NFTs.

Whilst undoubtedly highly significant, the ruling is not entirely a bolt from the blue. Court decisions, regulatory developments and governmental studies over the past few years have increasingly coalesced around a categorisation of crypto assets (and particularly crypto currencies) as property. In the important 2019 case of AA v Persons Unknown the UK High Court ruled that crypto assets (Bitcoin in this particular case) constituted property and could therefore be the subject of injunctions. The decision on this point aligned closely with the conclusions of the Legal statement on cryptoassets and smart contracts produced by the UK Jurisdiction Taskforce of the LawTech Delivery Panel, a body established by the UK Government in 2018 to facilitate the development of new legal technologies. The Law Commission is now taking this work forward in a broader study of digital assets. It will report its full findings later this year, but an interim paper published in November 2021 takes as read that digital assets are property, focusing rather on exactly what kind of property.

Perhaps, then, it was merely a matter of time before NFTs joined the wider digital asset family as a form of property – something which the recent High Court ruling has helpfully clarified. It will be interesting to see whether the same approach will apply outside of the arena of personal property law. Will we start to see the controls already being applied to digital assets more broadly (especially to crypto assets) increasingly extended to cover NFTs specifically? ‘Digital assets’ of course, encompass a vast array of materials, from crypto currencies to NFTs, domain names, databases and digital files. These all have very diverse properties and raise different legal questions. Thus, the application of rules applied to, say, crypto currencies like Bitcoin and Ethereum may not necessarily map neatly onto the NFT world. Whether or not such principles prove to be transferrable will most likely involve a case by case analysis. Ask a lawyer and you might receive the age old ‘it depends’ response – frustrating to some, but possibly quite justified in the current context! As ever, the devil will be in the detail but it seems highly likely that the trend towards greater control in areas such as financial regulation, taxation, anti-money laundering and consumer protection to name but a few, will extend to NFTs before too long.

Whether all of this is a good thing depends on your perspective, of course. Many of the crypto pioneers, a good number of them digital artists, had a vision of a decentralised, self-regulated community, free of gatekeepers and central control. No surprise, then, that the recent High Court decision has raised an eyebrow or two from some in the crypto community, who advocate a ‘code is law’ philosophy. On balance, however, a legal environment which supports fair and efficient trading and provides protection against misdeeds will hopefully pave the way for a sustainable and stable future for the NFT market in the longer term.

Image: Blockchain technology by TLC-kios, CC0 1.0 via Creative Commons