Copyright infringement, wash trading and other minor to major issues have put NFTs in a gray-zone. Continuous legal problems may potentially cause a number of unfavorable effects on the growth of NFTs as well as their future.
Previously, the US-based NFT marketplace Cent officially suspended all transactions of blockchain-backed digital arts on its platform in an effort to control the recent increase of fraud across multiple NFT platforms.
As reported, scams and fraud recently became a common occurrence on Cent platform including activities such as fake NFT shops, phony NFT stores, fraudulent NFTs, scam airdrops and NFT offers, and social media rip-offs.
The Wild West for Copyright
Cent has witnessed over 150,000 users trading and making transactions as the space continues to grow. The platform is known for the auction of the very first tweet of Twitter CEO Jack Dorsey.
The NFT was amongst the early tokens making history after the sale point hit $2,9 million at the time. Cent had to shut down all the transactions; and despite the fact that it’s a temporary move, the suspension of sales is the red flag of legal issues on NFT marketplaces.
Many Cent users were selling NFT without authority, infringing artwork copyright and the worst part? Some even sold copies of authentic NFTs.
In the talk with Reuters, the CEO and co-founder of The Cents Cameron Hejazi said that: “There’s a spectrum of activity that is happening that basically shouldn’t be happening – like, legally.”
Art stealing never disappears, it has just revolutionized its form along with the evolution of technology. In addition to scams and counterfeits, wash trading is also the most significant case.
According to Chainalysis, the NFT space has seen an increase of activities linked to “legal” issues.
More Issues May be Coming
According to Hejazi, there are currently 3 types of problems in terms of NFT on Cent.
First, people sell others’ NFTs without permission. Second, people create copies of others’ NFTs to sell them on the marketplace. Third, those who are selling NFTs could be considered a form of security.
Many art pieces have been turned into NFTs without permission of real authors, then they are live on the online NFT platform.
While the art community is perplexed by the new kind of “stealing,” many people have begun Googling their names on famous NFT trading sites such as OpenSea, or Rarible to see if their work is for sale illegally.
Take Aja Trier’s case. The artist said that stealing art is not new in the industry, whether traditional or blockchain-based.
Stolen artworks lately show t-shirts, canvas and now under the form of NFT. NFT’s vulnerability causes many artworks to be stolen, sold for thousands of dollars without the owner’s knowledge.
According to the Verge, because the system of these marketplaces doesn’t require people to actually own the copyright to the work, the NFT is becoming a tool for scammers.
Law Enforcement is Catching On
The UK’s tax watchdog has today seized three non-fungible tokens (NFTs) for the first time in a £1.4 million (approximately $1.9 million) tax fraud investigation.
According to CNBC, Her Majesty’s Revenue and Customs (HMRC) government officials said the investigation resulted in the arrests of three people for allegedly conspiring to defraud tax officers and value-added tax (VAT) refund fraud.
These scams use a combination of identities, unregistered phone numbers, and fake invoices to conceal personal information.
According to HMRC, the scam encompassed 250 allegedly bogus firms. In addition, around £5,000 in additional crypto assets were seized.
NFTs are digital assets that are used on the blockchain to track ownership of virtual goods such as artwork or video game characters. Most major cryptocurrencies use blockchain as their underlying digital ledger architecture.
NFT demand has recently risen, with NFT sales expected to exceed $40 billion by 2021. This market, however, is prone to theft and fraud. There is concern that market manipulation strategies have fueled most of the trading activity in the NFT.