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Crypto Law/Level I · What crypto is in law/1.2 The labels/Lesson 6

NFTs: what you actually buy

An NFT is a ledger entry that usually points to a file stored somewhere else; what the buyer owns, what stays with the creator, and how tax, securities and property law treat it.

Education, not legal, tax or investment advice. Crypto law differs between countries and states and changes often. Check the current rules where you live with a qualified lawyer or tax adviser before you act.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. Under IRS Notice 2023-27’s look-through test, an NFT whose underlying right is not a collectible is taxed at ordinary long-term rates, 0% to 20%, not the 28% collectibles maximum; hold over one year, and keep evidence of what the NFT represents.
  2. Never buy an NFT tied to art, gems or other collectibles inside an IRA: §408(m) treats the purchase as a taxable distribution. Holding such NFTs in a taxable account is lawful but faces the 28% maximum long-term rate.
  3. Read the collection’s licence before buying, free: copyright stays with the creator under 17 U.S.C. §202 unless transferred in a signed writing under §204(a); commercial use beyond the licence can mean infringement claims, and some licences end on resale.
  4. Creators can register a single work with the Copyright Office for $45 online, enabling statutory damages and fees against copycats; registration must generally precede the infringement or follow publication within three months for those remedies.

MaterialsThe ERC-721 token standard on eips.ethereum.org17 U.S.C. §202 and §204(a), on copyright ownership and transfers (on law.cornell.edu)The licence or terms page of an NFT collection you own or are consideringA block explorer view of one NFT, showing its owner address and its token URI

Wonder

  1. If I buy an NFT of a picture, do I own the picture and its copyright?
  2. Where is the image actually stored, and what happens if that link stops working?
  3. Can an NFT be a security, a collectible for tax or property a court will protect?

Explore

  1. A non-fungible token (NFT) is a token on a blockchain that is unique, unlike interchangeable coins. The IRS describes an NFT as “a unique digital identifier that is recorded using distributed ledger technology and may be used to certify authenticity and ownership of an associated right or asset.” On Ethereum, the common standard is ERC-721, created on 24 January 2018. It records which address owns each token number and offers an optional “token URI”, a link that “may point to” a file of descriptive data, called metadata. The picture, music or video is usually described in that metadata rather than stored in the token.
  2. So what the chain itself proves is narrow: which address controls a particular token number in a particular contract. The file the token refers to may sit on a company’s web server or on a shared file network. If the server shuts down or the link changes, the token still exists but may point to nothing, and the law gives no automatic right to have the file restored. A practical check: on a block explorer, look up your token, read its token URI and note where the metadata and image are hosted and who controls that location.
  3. Copyright is separate from the token. Under US law, 17 U.S.C. §202, owning a copyright is “distinct from ownership of any material object in which the work is embodied,” and transferring the object does not by itself transfer any rights in the work. Under §204(a), a transfer of copyright ownership is not valid unless it is in writing and signed by the owner. Buying an NFT therefore does not normally make you the copyright owner. What you get beyond the token is whatever licence the creator grants in its terms, which may allow only personal display or may allow commercial use, and may end when you sell.
  4. Disputes over NFTs run through ordinary intellectual property law. Yuga Labs, the company behind the Bored Ape Yacht Club collection, sued Ryder Ripps and Jeremy Cahen over copycat NFTs. In April 2023 a federal judge in California granted summary judgment for Yuga, awarding about $1.3 million in profits plus $200,000 in damages. On 23 July 2025 the Ninth Circuit vacated that judgment, holding that Yuga had not yet proved that buyers were confused, and sent the case back for trial. Trademark claims such as this depend on evidence about real buyers, not on the technology.
  5. Courts have protected NFTs as property, and regulators have sometimes treated NFT sales as securities offerings. In Osbourne v Persons Unknown, decided on 10 March 2022, an English judge found it at least realistically arguable that NFTs are property and granted an injunction over digital artworks taken from the claimant’s wallet (lesson 1.2.1). On 28 August 2023 the SEC settled charges that Impact Theory’s “Founder’s Keys” NFTs, which raised about $30 million, were investment contracts because they were marketed as an investment in building “the next Disney”. The SEC’s March 2026 interpretation now treats digital collectibles as not securities, though promises of profit can still create an investment contract (lesson 1.2.3).
  6. Tax has its own rules. US tax law treats “collectibles” such as works of art, gems and stamps differently: buying one inside an individual retirement account (IRA) is treated as a distribution from it, and long-term gains on collectibles can be taxed at a higher rate than other long-term gains (lesson 2.3.2). In Notice 2023-27 the IRS said it would use a “look-through” approach: an NFT is a collectible if the asset or right it represents is one. An NFT that certifies ownership of a gem is a collectible; one giving a right to use “land” in a virtual world generally is not. The notice described this as an interim approach pending further guidance.

Key facts

  • The ERC-721 standard for non-fungible tokens on Ethereum was created on 24 January 2018 and provides an optional token URI that may point to a metadata file.
  • Under 17 U.S.C. §202, ownership of a copyright is distinct from ownership of any material object in which the work is embodied.
  • Under 17 U.S.C. §204(a), a transfer of copyright ownership is not valid unless it is in writing and signed by the owner of the rights or an authorised agent.
  • On 23 July 2025 the Ninth Circuit vacated Yuga Labs’ summary-judgment win against Ryder Ripps and Jeremy Cahen and sent the case back for trial.
  • On 28 August 2023 the SEC settled charges that Impact Theory’s “Founder’s Keys” NFTs, which raised about $30 million, were offered as unregistered securities.
  • IRS Notice 2023-27 says an NFT will be treated as a collectible if the right or asset associated with it is a collectible.

Exercise nine, six, three, one

9CollectList up to 9 things that come with an NFT you own or are looking at, such as the token itself, the image file, the metadata link, a copyright licence, community access, physical goods, future airdrops or royalties.
6ClusterSort them into 6 categories: recorded on the blockchain, stored off the blockchain, granted by a written licence, promised by the creator, granted by law, and items you cannot confirm.
3DistillReduce the 6 categories to 3 groups: what you clearly own, what you may use only with the creator’s permission, and what depends on promises that could change.
1CrystallizeWrite 1 sentence explaining, in your own words, the difference between owning an NFT and owning the copyright in the work it shows.

Fact check

Dates, figures and claims checked against the published sources listed below.

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