Can an NFT either be a property or security or both?
According to German civil law only physical subjects and so-called crypto securities are
subject to property rights. As NFTs usually represent no payment claims but other rights, in
particular the ownership of a valuable asset, they basically do not qualify as crypto securities.
As a consequence, they are not subject to property rights.
Regarding the qualification as a security, German law differentiates between civil law and
regulatory aspects with different legal implications. As already mentioned above, NFTs
basically do not qualify as securities from a civil law perspective. In general, the same
applies from a regulatory law perspective. Though the regulatory law definition is broader
than the civil law definition, NFTs usually do not meet its requirements either. As the
qualification as a security depends on the individual characteristics of the respective token it
is theoretically possible that a single NFT nevertheless qualifies as a security. However,
regarding the current practice it is highly unlikely to happen.
An NFT can potentially be both a property and a security, depending on the specific circumstances. As a digital asset, an NFT can be considered a form of property that is owned by an individual or entity. At the same time, an NFT may also be seen as a security if it is marketed or sold as an investment and provides the holder with certain rights or privileges. Whether an NFT is considered a property and/or a security is typically determined by regulatory authorities based on the specific circumstances of the NFT and the way it is marketed or sold. It is important to consult with a qualified attorney or financial advisor if you have any questions or concerns about the status of an NFT as a property and/or security.
For regulatory purposes, the classification of an NFT as a security will not depend on its
mere nomenclature, but on its function. In addition, the NFT may contain more than one type
of token, depending on the functions it performs and the rights attached to it. That being said,
we conclude that the legal nature of the NFT will depend on the purpose for which it is
Although the answer is still not determined in the U.S. and it seems that the answer may be different depending on the NFT. One fundamental and important regulatory issue that has not yet been addressed, but will, is whether and when a given NFT is considered a “security” and falls under the requirements and regulatory authority of the Securities and Exchange Commission (“SEC”). If a given NFT is regulated as a security, this would require compliance with securities regulations, such as the requirements to prepare a prospectus, rules about limiting sales to accredited investors, and the like. It would also expose issuers to potential liability for securities fraud.
Though SEC has not yet issued any formal guidance on whether and when NFTs are securities, the definition of “securities” set forth in the 1946 Supreme Court decision, S.E.C. v. W.J. Howey Co. and depends on whether there is “a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the effects of the promoter or a third party.” The SEC has – in 2019 – issued a framework for applying the Howey analysis of whether something is “a security” to digital assets. Specifically, the SEC framework explains that digital assets may be investment contracts where users (1) exchange some form of currency or consideration for the digital asset; (2) engage in a “common enterprise” through the digital asset; and (3) have reasonable expectations of profit derived from others’ efforts. As to the last factor, the SEC’s framework lists different characteristics of digital assets that could make them more likely to be investment contracts.
This question of whether and when a specific NFT is a “security” is also being litigated in the
pending class action suit, Friel v. Dapper Labs, Inc., whether the plaintiffs allege that the
defendants sold NFTs (in that case, NBA Top Shot Moments) to consumers in violation of the
federal securities laws.
In Poland, the legal status of NFTs is currently uncertain and the rights and protections associated with NFTs may be limited. NFTs do not fit the traditional definition of property as defined by the Polish Civil Code, as they are digital assets that do not have a physical form. However, it is possible that NFTs could be classified as a type of digital property in the future and certain rights associated with the property, such as the right to transfer ownership, could be extended to NFTs.
On the other hand, Whether an NFT would be considered a security under Polish law would depend on several factors, such as the specific terms and conditions of the NFT, the rights and obligations associated with the NFT, and the way the NFT is marketed and sold. If an NFT represents an ownership stake in a company or gives the holder the right to share in the profits of the company, it may be considered a security. Similarly, if an NFT is marketed and sold as an investment opportunity, it may be considered a security.