Fundamentally, an NFT represents a right granted to the NFT holder by its creator or previous holder. This basic definition holds true for both digital items and items in the real-world.
In the digital world, an artist can use an NFT to represent ownership of digital art they create or a video game developer can use it to represent usage rights of their game’s items. The NFT simplifies the sale of these items and enables subsequent resales. The NFT’s value is tied to the rights the artist or developer attached to the NFT. If the game is no longer played or if the developer closes shop, the value of the NFT will reflect that.
In the real world, property owners can similarly use an NFT to represent real estate they own or occupy. Homeowners could create NFTs to represent ownership rights to their home’s deed or monthly usage rights to their home or whatever rights they choose to attach. If the homeowner doesn’t honor that right or doesn’t hold the right in the first place, the value of the NFT is zero.
Creating an NFT is an many ways the same as creating a custom legal contract. The language and terms of the contract can be attached to the NFT itself. The main difference is one is digital and saved on a blockchain and the other is written on paper. If you wanted, you could create both and within the language of one, defer to the other.
Legal & Regulatory Considerations
Anyone can mint an NFT for anything, just like how you can write a contract for anything. You can mint an NFT or write a contract to rent out the Eiffel Tower but if you don’t have rights to do that, neither have any force or effect, and are equally worthless. The legal process for a dispute is therefore no different with NFT than it is for any other contract.
In this regard, the NFT acts not as some protection against fraudulent use, but as a tool for marketing or transacting the property by those people who actually have legitimate use.
The regulatory considerations are also the same as if you were to write out a custom contract, or use use Craigslist or Airbnb to sell or rent out your property. You’d want to make sure you can do it in the first place and follow applicable regulations.