A guide to Non-Fungible Tokens (NFTs), 2023 - Flipbook - Page 24
It is yet unclear the precise interaction that UK GDPR will have with NFT
technology, as further regulation may well be needed to deal with the
inconsistencies of blockchain technology in general.
In terms of limiting or controlling the applicability of the UK GDPR in NFT
creation and transactions, there are some key areas that can be considered.
The creation of the NFT should be managed carefully to ensure that no personal
data is inadvertently included within the design which could then be included
on the blockchain. When undertaking a transaction involving NFTs that contain
personal data, any issues with UK GDPR can likely be dealt with using contractual
measures (probably requiring a hybrid contract with written terms).
There are also potentially some technical work-arounds, including use of
“zero-knowledge proof” (ZKP) protocols, such as Zero-Knowledge Succinct
Non-Interactive Argument of Knowledge (Zk-SNARKs). These ZKPs enable
participants in transactions to prove certain key pieces of information, such
as identity, without revealing them to the other party. This would ensure that
any personal data remained anonymised and outside of the scope of UK GDPR,
whilst still giving reassurance of security and validity to those engaged in
blockchain transactions.
Potential future developments
As will be clear from the above, the regulatory landscape surrounding NFTs is
in no way fixed and may well be subject to change with the expansion of this
technology.
A key factor in change may well be the provisional proposal made by the
European Commission for a Regulation on markets in cryptoassets (MiCA). This
proposed regulation seeks to establish a European framework for cryptoassets,
to capture those currently unregulated tokens such as NFTs. The latest text
published in relation to MiCA had two key aims:
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A uniform legal framework for cryptoassets and protecting consumers.
Safeguarding against market manipulation.
The third aim from the draft proposal, including cryptoasset mining in the
EU taxonomy, was rejected. While the current focus of the legislation is on
cryptocurrencies, the plans could include compliance requirements for NFT
issuers.
