The emergence of Non-Fungible Tokens (NFTs) has created a fascinating interplay between technology, commerce, and law. NFTs, digital assets representing ownership of unique items or rights on a blockchain, have disrupted traditional notions of property, intellectual property, and ownership rights. Artificial scarcity, the phenomenon underpinning NFTs, is created by limiting the availability of digital assets, regardless of their replicability. While this scarcity fuels the economic value of NFTs, it also raises significant legal questions, particularly regarding ownership rights, intellectual property disputes, and their legal standing in jurisdictions like Pakistan.
Understanding NFT Ownership Rights
At the heart of NFTs lies the question: What does it mean to own an NFT? Despite the seemingly straightforward narrative of ownership, NFTs challenge traditional concepts of property rights.
- Ownership of the Token, Not the Asset
Purchasing an NFT does not grant ownership of the underlying digital asset or intellectual property. Instead, the buyer owns the token, a unique entry on a blockchain that serves as a certificate of ownership for the digital file or metadata it represents. The underlying asset—be it a piece of digital art, music, or other media—remains subject to copyright laws unless explicitly transferred. This distinction is crucial, as the token’s value often hinges on the assumption of broader ownership rights than legally exist. - Contractual Agreements
NFT ownership is typically governed by the smart contract associated with the token. These smart contracts may specify usage rights, resale royalties, and other terms. However, their enforceability depends on the jurisdiction’s legal framework. In jurisdictions like Pakistan, where the legal infrastructure for blockchain-based agreements is nascent, disputes over NFT ownership could be challenging to adjudicate. - Resale and Royalties
One innovation of NFTs is the potential for creators to receive royalties on secondary sales, embedded into the smart contract. While this aligns with intellectual property principles, enforcement remains uncertain in jurisdictions lacking robust NFT regulations.
Disputes Over Intellectual Property in NFTs
The explosion of NFT marketplaces has given rise to a new frontier of intellectual property disputes. These conflicts often stem from the blurred lines between the ownership of the NFT and the rights to the underlying asset.
- Copyright Infringement
A common issue arises when NFTs are minted without the consent of the copyright holder of the underlying work. For instance, artists have reported unauthorised minting of their artwork as NFTs, leading to complex disputes. While traditional copyright laws apply, enforcing these rights in the decentralised and pseudonymous world of blockchain can be challenging. - Trademark Violations
NFTs have also been implicated in trademark disputes, particularly when they incorporate logos or brand elements without permission. For example, brands have taken legal action against NFT creators for unauthorised use of their trademarks, arguing that such use could confuse consumers and dilute brand value. - Licensing Ambiguities
Many NFT transactions occur without clear licensing agreements, leading to disputes over how the underlying asset can be used. For instance, a buyer of an NFT representing a digital artwork might assume they can reproduce or monetise the work, only to find that such rights were not included in the sale. - Jurisdictional Challenges
Intellectual property disputes involving NFTs are further complicated by their global nature. Determining the applicable law and jurisdiction is often unclear, especially when parties are in different countries, and the NFT is hosted on a decentralised platform.
Do NFTs Have Any Standing in Pakistan?
In Pakistan, the regulatory and legal landscape for NFTs remains underdeveloped. This lack of clarity creates significant challenges for recognising and enforcing NFT-related rights.
- Absence of Specific Legislation
Pakistan does not currently have specific laws or regulations addressing blockchain technology, cryptocurrencies, or NFTs. While existing laws on intellectual property, contracts, and electronic transactions might apply to NFTs, they were not designed with such technology in mind, leading to potential gaps and ambiguities. - Digital Assets and Property Rights
Under Pakistani law, property rights are generally tied to physical or tangible assets. NFTs, as digital assets, do not fit neatly into these categories. For NFTs to have legal standing as property, Pakistan would need to either amend existing laws or introduce new legislation recognising digital assets as a distinct category. - Intellectual Property Protections
Pakistan is a signatory to several international agreements on intellectual property, such as the Berne Convention and TRIPS. These agreements provide a framework for protecting the underlying works represented by NFTs. However, enforcing such protections for blockchain-based assets would require updates to domestic intellectual property laws. - Regulatory Concerns
The State Bank of Pakistan (SBP) has expressed concerns about cryptocurrencies and related technologies, citing risks such as money laundering and fraud. These concerns extend to NFTs, which are often purchased using cryptocurrencies. Without clear regulatory guidance, NFTs operate in a legal grey area in Pakistan, limiting their adoption and enforceability. - Potential for Future Regulation
The global rise of blockchain technology and NFTs is likely to push Pakistan towards regulatory action. Countries like the UAE have already introduced frameworks for virtual assets, providing a potential model for Pakistan. By adopting such frameworks, Pakistan could position itself to capitalise on the economic opportunities presented by NFTs while addressing associated risks.
Ethical and Philosophical Considerations
Beyond legal concerns, NFTs raise ethical and philosophical questions about the nature of ownership and value in the digital age. Artificial scarcity, the foundation of NFTs, is a double-edged sword. While it creates value, it also perpetuates exclusivity in a medium that was initially celebrated for its democratizing potential. Furthermore, the environmental impact of blockchain technology, particularly energy-intensive proof-of-work systems, adds another layer of ethical complexity.
If you have ever wondered what was wrong with the whole concept of NFTs, we think that the core dilemma at the heart of Non-Fungible Tokens (NFTs) is whether they truly confer substantial ownership or merely cultivate a perception of exclusivity based on artificially engineered scarcity.
From a rigorous legal perspective, one may argue that NFTs create an illusion of possession that far exceeds the actual entitlements conveyed to the buyer. While NFTs often come packaged with a purported certificate of unique “ownership” on a blockchain, the unchanging record typically confirms only the token’s existence rather than guaranteeing enforceable rights to the underlying digital file or intellectual property. This fundamental misalignment—between what is advertised and what is genuinely transferred—poses a serious question about the credibility and viability of the NFT model.
True ownership generally includes the power to utilise, control, and exclude others from enjoying the property in question. However, most NFT purchasers gain only limited practical freedom to do anything with the original work beyond claiming symbolic possession of a blockchain entry. The token itself is distinct from the creative expression that it is intended to represent, and unless the contract explicitly bestows the right to reproduce, profit from, or prevent others from exploiting the work, the buyer’s legal rights remain markedly narrow. Legally sound transactions typically demand clarity in what is being transferred—more than mere symbolism. Yet in many NFT transactions, symbolic ownership overshadows the substantive considerations that ordinarily underlie a genuine transfer of property.
Another issue arises from granting real-world monetary value to what amounts to a digital marker unsupported by tangible entitlements. In many instances, the much-discussed scarcity of an NFT is artificial: the same piece of art can be copied, stored, and shared endlessly, or might even be minted again unscrupulously. While the ledger claims singularity, the underlying digital asset itself is perpetually reproducible, undermining the NFT’s exclusive claim. This discrepancy is not simply a matter of intangible property; intangible rights are well established in intellectual property regimes. Rather, the problem arises when such rights do not grant meaningful control but are nevertheless presented as if they do.
Speculation further clouds the NFT marketplace. Rather than fostering genuine support for creative endeavours, NFTs often generate hype-driven bidding wars, with buyers gambling on perceived exclusivity rather than receiving a recognisable stake in the underlying artwork or media. The structure of this market can mimic historical financial bubbles, such as the infamous speculative crazes of the past, with values built more on sentiment and hype than on intrinsic worth. These patterns risk harming both unsuspecting buyers and the broader reputational standing of innovative technologies.
Environmental concerns also loom large when considering the energy consumption associated with many blockchain technologies. Numerous NFTs have been minted and transacted on networks requiring substantial computational power, creating a heightened carbon footprint. The question arises whether the resource-heavy processes justify the fleeting “bragging rights” and illusions of ownership that NFTs afford. Although more energy-efficient solutions are emerging, the broader system still faces scrutiny over its sustainability.
Disputes regarding copyright infringement, trademark violations, and consumer protection abound in the NFT sphere, as many tokens are minted without permission from the rightful holders of the underlying works. The decentralised and often pseudonymous nature of blockchain transactions compounds the difficulty of enforcing legal rights. This tension between the desire to empower creators and the unrestrained drive to monetise anything that can be tokenised only multiplies the market’s pitfalls. Respect for intellectual property involves legal frameworks obligating clarity and good faith, but NFTs, if not properly regulated and monitored, can readily become a vehicle for infringements.
A final and significant challenge concerns consumer protection and transparency. If an NFT provides authentic rights—licensing, reproduction, or some form of direct revenue stream—its purchase might be more akin to buying a legal interest in a creative work. However, in countless transactions, buyers acquire intangible assets with uncertain legal standing and questionable future worth. The same illusions of scarcity and exclusivity that amplify NFT prices also invite speculation and, in certain instances, manipulative or deceptive schemes. Without robust safeguards or legal guidelines, tokens can become little more than representations of intangible claims, with minimal recourse if the market collapses or the token’s legitimacy is undermined.
Hence the concept of NFTs stands on uncertain ground because it often packages a form of illusory exclusivity within an unregulated marketplace lacking comprehensive consumer protections, clear intellectual property boundaries, and adequate environmental considerations. NFTs may yet evolve into a meaningful tool for creators if reforms address the misalignment between representation and reality, protect intellectual property, and ensure clarity about the rights conferred upon buyers. At present, however, many of the fundamental principles of equitable commerce—transparency, fairness, and enforceable rights—risk being overshadowed by the hype surrounding digital tokenisation. Until these questions are resolved, the promise of NFTs remains entangled with legal grey areas and inherent structural flaws, demanding a significant recalibration for them to realise any enduring social or economic value.
Conclusions…
NFTs represent a bold new frontier in digital commerce, blending technology, art, and law. However, the legal frameworks needed to support their growth and resolve disputes remain underdeveloped, particularly in jurisdictions like Pakistan. As the technology evolves, so too must the legal and regulatory systems that govern it. For Pakistan, embracing NFTs will require a delicate balance between fostering innovation and addressing the associated legal and ethical challenges. By proactively engaging with these issues, Pakistan can ensure that it is not left behind in the rapidly evolving digital economy.
