THE AUTHORS:
Anita Grigoryan, LL.M., PhD Candidate, Resolve Academy’s Researcher.
Dr. Tatevik S. Karapetyan, PhD, Director of Resolve Academy, Arbitrator.
In March 2021, the realm of digital art witnessed a turning point: Christie’s auctioned Beeple’s purely digital artwork “Everydays: The First 5000 Days” for a staggering $69.3 million, making it one of the most expensive works ever sold by a living artist and placing non-fungible tokens (“NFTs”) squarely in the global spotlight. Suddenly, NFTs moved from niche blockchain circles into mainstream culture. Sports organisations, musicians, and artists started experimenting with this new medium by issuing NFTs linked to brief video highlights, digital trade cards, and music recordings. Examples include platforms such as NBA Top Shot and NFL All Day, as well as projects and initiatives involving Disney and Dapper Labs, professional athletes, Kings of Leon’s album release, and high-value digital art sales such as Dmitri Cherniak’s “Ringers”.
At their core, NFTs are unique digital identifiers recorded on a blockchain, as described in the Handbook of Digital Currency (2nd ed, p 562). Unlike cryptocurrencies such as Bitcoin or Ether, which are interchangeable, NFTs are non-fungible: each token is distinct, representing a one-of-a-kind claim, This distinction is also emphasized by Davik in the Art of NFTs: Copyright, Contracts, and the Fallacy of Ownership (pp 214-215) and by Kevin Roose in “The Latecomer’s Guide to Crypto: What are NFTs?” published in The New York Times. NFTs serve as digital certificates of authenticity that link to a specific asset, as noted in discussions of how NFTs raise novel and traditional IP and contract issues often a digital file such as an image, video, or piece of music, though they can also be associated with physical goods.
There are several unique features that distinguish NFTs from other blockchain-based assets. As mentioned above, each token is unique and carries its own identifier and metadata. Unlike cryptocurrencies, NFTs are indivisible, meaning they cannot be divided into smaller units and must be transferred as a whole. The same USDC overview notes that NFTs are not ordinarily divisible in the way fungible crypto-assets are. They also derive value from scarcity, as creators can issue only a limited number of tokens associated with a particular work. This feature is discussed in commentary on NFT smart contracts, which explains that scarcity may be embedded through limited issuance. Moreover, the blockchain maintains an unchangeable record of provenance and ownership, making it possible for anyone to track an NFT back to its original creator and follow its entire chain of ownership. This traceability is likewise highlighted in USDC’s overview. Lastly, and importantly, NFTs are programmable, enabling creators to embed smart contract functions such as automatic royalties on resale, which can provide artists with continuing financial benefits long after the initial transaction.
These attributes have opened new opportunities for creators to monetize digital works and maintain a degree of control over their future use, while assuring collectors that what they own is not only unique but also verifiable within a decentralized system. Yet, this innovation also raises unresolved questions and legal concerns. As contractual relationships are involved in the creation and sale of NFTs, among the most important legal concerns pertaining to NFTs is their interaction with contract law.
In NFT transactions, creators, buyers, and intermediaries enter into contracts over digital assets and the rights that go along with them. These contracts fall squarely under the purview of contract law, which governs legally enforceable agreements between parties, laying out the rules for how contracts are formed, interpreted, carried out, and enforced, as well as the remedies available when obligations are breached. Therefore, evaluating the legal soundness of NFTs requires also an understanding of them via the prism of contract law.
Contract Formation in NFT Transactions
From the outset: According to contract law, an offer and acceptance must be made in order for a contract to be enforceable. This principle is reflected both in Davik’s the Art of NFTs: Copyright, Contracts, and the Fallacy of Ownership (p 31) and in the Restatement (Second) of Contracts Section 22(1), which recognizes mutual assent through offer and acceptance as the basis of contract formation. The act of listing a token for sale in an NFT marketplace is typically regarded as an offer, and the buyer’s choice to proceed with the purchase is considered acceptance. This understanding also appears in legal commentary on NFT transactions, including the Rise of Non-Fungible Tokens (NFTs): Legal Considerations. Even though these components are similar to conventional online transactions, the analysis is made more difficult by the blockchain setting. For instance, it is unclear whether parties can be bound when they may not completely comprehend the extent of rights or constraints incorporated in the code or marketplace terms of service, and if automated smart contract executions accurately reflect consent.
Contractual terms
Beyond formation, the substantive terms of NFT agreements are critical. The main query is how many rights are transferred when an NFT is purchased. According to the Non-Fungible Tokens and Intellectual Property: A Report to Congress (March 2024, p. 6), Most of the time, purchasing an NFT yields a token that certifies ownership of a distinct digital identification associated with the underlying work rather than copyright or intellectual property rights in that work. Buyers might not have the legal right to duplicate, distribute, or use the item for profit unless specifically mentioned. This divergence between technological ownership and legal ownership highlights the widely discussed and suggested need for explicit terms and conditions that clarify what rights, if any, are conveyed.
These sales are usually subject to standardized terms of service enforced by marketplace platforms. This point is also made in legal commentary, such as the Legal Aspects Checklist for an NFT Marketplace and by Joshua Ellul and Ioannis Revolidis in Non-Fungible Tokens (NFTs), Smart Contracts and Contracts: The Need for Legal and Technology Assurances (p 14). These agreements may include usage restrictions, payment schedules, and procedures for resolving disputes, including arbitration. However, issues of jurisdiction and applicable law are still up for debate because the NFT ecosystem is decentralized and global in scope. Parties from numerous jurisdictions, each with its own set of contract theories, consumer protection laws, and enforcement procedures, may be involved in a blockchain transaction.
Enforceability
NFT sales rely heavily on smart contracts, which are self-executing digital contracts with terms encoded directly into computer code and recorded on a blockchain. As Max Raskin explains in The Law and Legality of Smart Contracts (p 306), smart contracts are agreements whose performance is expressed and carried out through code. They automate processes like ownership transfer, purchase price payment, and even royalties paid to the original author when a product is resold. This automation boosts productivity and lessens the need for intermediaries, but it also poses legal issues. As long as the conditions of agreement and consideration are met, computerized or automated contracts are not necessarily prohibited by contract law from a doctrinal standpoint. This is reflected in Article 5(1) of the UNCITRAL Model Law on Automated Contracting, which provides that a contract should not be denied legal effect solely because automated systems were used in its formation. However, the interpretation of these coded arrangements by courts determines enforceability.
Enforceability remains the key challenge. Courts may have to decide if traditional contract fundamentals like mistake, unconscionability, or public policy apply if a smart contract contains an error or diverges from the parties’ intentions. Courts’ discretionary and interpretive powers may conflict with the rigid, deterministic character of smart contract code. Therefore, even if a smart contract technically completes transactions perfectly, it may not be legally enforceable and could be examined by judges to make sure the results follow accepted contract law rules.
Broader Implications and Conclusion
The interaction between NFTs and contract law illustrates both the adaptability and the limits of existing legal frameworks. On the one hand, NFT transactions can be examined using the well-known framework that contract law offers, with an emphasis on formation, terms, and enforceability. However, presumptions regarding consent, jurisdiction, and the protection of weaker parties are called into question by the global, decentralized, and highly technical character of NFTs. Buyers could erroneously believe that purchasing a token confers rights that actually belong to the creator if contractual clarity is not carefully considered.
Ultimately, NFTs illustrate how conventional contract law still applies but is required to be adapted to new situations. The law is being called upon to balance technological innovation with long-standing concerns for fairness and enforceability, decentralized marketplaces with territorial legal institutions, and automated code with human intention. Consequently, contract law will continue to be a key point of reference in determining the validity and stability of the NFT economy as legislators and courts continue to struggle with the aforementioned issues.
ABOUT THE AUTHORS
Anita Grigoryan is a legal professional specialising in international law with a focus on international dispute resolution and financial law. She is pursuing a PhD at Saarland University, where her research focuses on the resolution of cryptocurrency-related disputes within the framework of international investment arbitration. She holds an LL.M. with distinction from the Europa-Institut of Saarland University, and an LL.B. from the European University Viadrina in Frankfurt (Oder). In her current role as Legal Advisor at the Central Bank of the Republic of Armenia she is involved in shaping and implementing legal reforms in the financial and banking sectors.
Dr. Tatevik S. Karapetyan, PhD is an international arbitrator, with a distinguished career marked by excellence and unwavering dedication.
Currently serving as the Deputy Chair of Arbitration and ADR Commission of ICC Armenia, and Director of Resolve Academy, her contributions extend beyond borders as she fosters dialogue and collaboration within the arbitration community.
She has been listed arbitrator at International Commercial Arbitration Institute, eBRAM’s Panel, Dubai International Arbitration Centre and also has acted as an ad hoc arbitrator, in high-profile international disputes, specializing in commercial, construction, energy, oil and gas, IT, and IP law. Her expertise extends across the MENA region, Italy, Armenia, and Russia, where she is sought after for her strategic insight and extensive experience in resolving complex cross-border conflicts, spanning ICSID, ICC, LCIA, Swiss Rules, and UNCITRAL regulations.
*The views and opinions expressed by authors are theirs and do not necessarily reflect those of their organizations, employers, or Daily Jus, Jus Mundi, or Jus Connect.
