Introduction
A non-fungible token (NFT) is a digital asset that is unique and cannot be replaced or exchanged for another of the same value. NFTs are created and stored on a blockchain which is a distributed ledger that records transactions and ensures security and authenticity. NFTs can represent any kind of digital asset (eg, art, music, videos, games and collectibles). NFTs give the owner of the digital asset the evidence of ownership, and the ability to sell or trade it on various platforms. NFTs are different from cryptocurrencies such as Bitcoin, which are fungible, meaning that they can be exchanged for other identical units of the same value or for fiat currency (such as dollars and euros) at the prevailing market rate.
Considering that there are no specific Spanish legal rules governing the transfer of NFTs, their purchase and sale will be subject to the broad rules of the Spanish Civil Code which requires both a contract between the parties and the delivery of the NFTs to the purchaser.
These rules are in article 333 of the Civil Code. According to this rule, NFTs are “things” that can be the object of appropriation and will be considered as a type of goods and chattels or intangible rights (article 1526 Civil Code). Article 609 CC provides that the contract plus the delivery of the object is required for acquiring a legal title. Under Spanish law 59/2003, the agreement to transfer an NFT must take the form of an electronic document to be signed digitally by the parties, in accordance with a system of recognised certified signatures, to adequately identify the parties. This process does not need a Spanish certification. As to the delivery, the delivery of a certificate of ownership to the purchaser or investor would be treated as a deemed legal delivery, so that the requirements of article 606 CC would be considered duly fulfilled.
Aside from the provisions of law 59/2003 on digital signature, the transfer of NFTs, since they are not wet ink documents, will not require notarial formalities or the incorporation to a public register (which in any case does not exist in Spain).
It is also worth distinguishing between the transfer of title effects of NFTs and rules about the governing law of the transaction. In accordance with the conflict of law rule of article 10 title, NFTs will be governed by the “lex situs” to the extent they can be assimilated to goods and chattels. Of course, another line of thought would be to consider that the NFT transfer took place in cyberspace, but it is understood that the acquisition of any rights, even if they are characterised as immaterial, must be carried out in accordance with the law of a given country.
But contrary to other jurisdictions, Spanish courts have considered that transactional law can be applied to transactions between parties of different nationality with no clear connecting elements with a given country. Another aspect to consider is the governing law of the contract, a matter to be resolved by the provisions of Regulation (EC) 593/2008 on the law applicable to contractual obligations. The regulation provides for the application of the law of the contract chosen by the parties and in the absence of such a choice, for certain rules, which end up determining that the agreement shall be governed by the law of the country most closely connected to the agreement. Parties to the electronic document are likely to have chosen the law of a country.
For the time being, Spanish law does not allow non-fungible assets as shares. Under article 92 of Spanish company law (LSC), shares may be represented by paper certificates or by accounting entities (in the case of listed shares). Quota shares of limited companies are represented by the deed of incorporation or of capital increase of the company. Transfer of limited shares must be also carried by means of a notarial deed (article 106 LSC). Shares of joint stock companies may be also transferred by means of a private agreement. For the time being, NFTs as shares are not considered by article 2 of the Spanish Stock Market law as financial products so that there is legal uncertainty as to the protection given to the rights derived of the holding of a NFT which represents a company share. Finally, the EU Markets in Crypto Assets regulation has not regulated the representation of shares by NTFs which would require substantive changes in European company law. However, these changes will take place in the not-too-distant future as progress of digitalisation is becoming unstoppable.
For further information on this topic please contact Alfonso Lopez-Ibor at López-Ibor Abogados by telephone (+34 915 21 78 18) or email (alfonso.lopezibor@l-ia.com). The López-Ibor Abogados website can be accessed at www.lopez-iborabogados.com.