NFT ownership and licensing: The hidden legal pitfalls nobody warns you about

When a $70k NFT of a pixelated punk gets sold, the buyer would most likely think they own it. But in most cases, what they own is a token, not the image, not the copyright, and definitely not the rights to use it commercially. This is where the knowledge of NFT ownership and licensing comes in handy.

So, what do you actually “own” when you buy an NFT? That’s where the legal fog rolls in…

And as NFTs continue to exist, the gap between hype and legality narrows. So this article presents to you, what you need to know about NFT ownership and licensing, and how regulation might change the game.

NFT ownership and licensing: The legal limits of your NFT as an IP

The cold truth behind most NFT deals is that you don’t own the art. NFTs themselves carry no copyright or broader IP rights. Legal experts and the

In addition, the World Intellectual Property Organization (WIPO) and the European Union Intellectual Property Office (EUIPO) stress that an NFT usually acts as a certificate of authenticity distinct from the art.

So, in practice, NFT ownership and licensing depend entirely on the contract or license terms, not on the token itself. In that vein, unless the license spells it out in black and white, whether you can remix, resell, display, or build on it, your NFT ownership and licensing rights stop at “look, don’t touch”.

So, stakeholders urge that NFT ownership and licensing agreements should explicitly define permitted uses, for example, whether the buyer may reproduce, display, or create derivatives, so that purchasers clearly understand which rights (if any) transfer with the token.

Taxation: Your NFT got gains? You got paperwork

If you flipped an NFT for profit recently, congrats, the IRS wants a word. A little laugh there, right? But here’s the serious talk: Tax rules for NFTs vary by jurisdiction, and in the U.S., NFTs are treated as property (capital assets), and any gain or income must be reported.

Thanks to IRS Notice 2023-27 (Mar. 2023), some NFTs might even count as “collectibles” with a 28% gain rate. And as kicked off from January 1, 2025, brokers are meant to start reporting NFT sales on IRS Form 1099-DA, and yes, they’re watching.

Over in the EU, NFT sales are generally VAT-liable as digital services. Reporting thresholds and tax categories follow standard rules: all NFT transactions (sales, exchanges, royalties, etc.) are taxable.

NFT ownership and licensing terms can affect which income is reported and how, for instance, are you earning from resale royalties? Licensing out the work? If yes, then you’ve got reportable income.

Overall, gains from NFT ownership and licensing events are taxed under existing income or capital-gains rules. So, it’s safe to say that while NFTs may be non-fungible, taxes are very much not optional.

Why Anti-Money Laundering (AML) rules now track NFT sales

Anti-Money Laundering (AML) rules apply to NFTs when they function as value transfers. FATF warns that “markets for… NFTs… have intrinsic characteristics that expose them to money laundering and terrorist financing vulnerabilities”.

NFTs used as collectibles only fall outside ‘virtual asset’ rules, but where an NFT is used like a payment or investment instrument, it’s treated as a virtual asset service provider (VASP) subject to AML obligations.

In the U.S., even without FinCEN issuing NFT-specific guidance, its broad definition of “value that substitutes for currency” and expanded money-transmitter rules is wide enough to rope in high-ticket NFT trades. In other words, it means high-value NFT trading likely triggers KYC and reporting requirements.

However, law enforcement is already active, e.g., a 2022 U.S. case charged organizers of a $2.6M NFT “rug pull” with wire fraud and money laundering.

In practice, NFT marketplaces must conduct customer due diligence and report suspicious NFT ownership and licensing transactions. And yes, those blockchain transfers are traceable, but with anonymous wallets in the mix, it’s up to marketplaces to tighten the gate, screen users, verify buyers, flag shady flows.

You can’t code away the law

NFTs promised a new model of digital ownership, but without clear laws on IP, taxes, and AML, buyers and builders alike are swimming in risky waters. So, there’s a need for clearer terms around NFT ownership and licensing to avoid surprises.

Finally, in the coming years, we can expect regulators worldwide to offer consistent rules and perhaps new laws just for NFTs. That clarity will help everyone trade and build with more confidence, knowing exactly what rights and duties come with each digital token.

Thank you for reading. Stay tuned to The Bit Gazette.