In Spain, non-fungible tokens (NFTs) remain an evolving form of asset and much of the community’s understanding around the utility and legal ramifications of NFTs is still developing.

The NFT market in Spain is yet to be explored. The Contemporary Art Report in 2022 suggests that Spain is not only later than other countries, but also less enthusiastic about the NFT phenomenon than other countries, such as the United Kingdom and the United States. However, the NFT industry in Spain was expected to grow by 41.2% on an annual basis to reach US$564.6million in 2022 .

In addition, according to several sources, those who buy NFTs in Spain are 50% art collectors and 50% investors. Recently, cryptocurrency platforms have also gained prominence in the Spanish NFT market together with fan token companies.

At present, Spanish law does not provide for any specific laws regulating business activities in the NFT area. The Spanish regulatory framework governing NFTs is derived from a variety of other practice areas, including:

• Consumer: Spanish general consumer/commercial laws – Business activities in the NFT area will most likely be subject to general Spanish civil law principles. Particularly, in a B2C context, specific Spanish consumer protection laws will most likely apply.
  
  For instance, smart contracts (which are used in NFT trade) must be compliant with Spanish consumer protection laws, including the consumer guarantees and provisions surrounding unfair and abusive/unbalanced contract terms. These provisions are mandatory.
  
  Further, in cases where NFTs are sold online to consumers, specific ecommerce laws will most likely apply. These are mandatory and provide, amongst others, for information obligations of companies.
  
  General commercial and civil laws principles dealing with intangible assets (including contractual obligations re. e-contracts, B2C rules, distance contracts, etc.) - These rules provide for information duties and mandatory content within contracts.

• Financial: NFTs - depending on use and functionalities as described in Question 4 below – are likely to be subject to Spanish financial regulations and financial law requirements. However, since the NFT market is barely developed in Spain, there are no statements from Spanish supervisors or courts in this regard. Companies should therefore analyse on a case-by-case basis whether the NFTs they offer are subject to financial regulations.
• Gambling: The Spanish Gambling Act was amended at the end of 2022 to establish that the Government will develop a set of guidelines to ensure the safer use of non-fungible digital assets, loot boxes or mechanics of monetization of the participation of users of videogames. This will impact the use of NFTs in this context with regard to the commercial communications regime, information duties vis-à-vis users and security measures, which should be dealt with by this set of guidelines.

NFTs are virtual assets that represent digital or physical items such as art, music, in-game items and videos (underlying work). Such underlying work may be subject to copyright and  authors rights⁽¹⁾ protection. A buyer may believe that by buying an NFT, they own the underlying work to it and, therefore, can use it freely. However, it is important to understand that ownership of the NFT does not necessarily entail ownership of the intellectual property (IP) rights attached to the underlying creative work to the NFT. This means that, generally speaking, the buyer of an NFT will probably only have the rights to access / use the underlying work for personal use.

The author of such underlying work is, by default, the owner of all intellectual property rights over the same, including both moral and patrimonial rights (please note that under Spanish intellectual property law, moral rights cannot be waived and are inalienable (i.e. cannot be transferred) as opposed to patrimonial rights which can be freely transmitted).

Therefore, to own the patrimonial rights attached to the underlying work of an NFT, such rights shall be transmitted by the rightful owner to the buyer of the NFT; and such transmission shall be expressly regulated in order to be effective (e.g. by means of an additional contract to the purchase of the NFT regulating the transfer of certain IP rights). At the end, the extent of the IP rights acquired by the purchaser of an NFT will mostly depend on what the author contractually stipulates together with the sale of the NFT.

In line with the above, it is also relevant to take into consideration that the creation of an NFT (or better said, minting NFTs of copyright protected works) requires that the minter / seller of an NFT duly owns the IP rights of the work it represents (or any other relevant rights, such as image rights) in order to avoid possible copyright or other infringements. It is therefore of utmost importance that the author of the work whose rights are being infringed registers their  intellectual property rights in the Intellectual Property Register prior to the sale of their work in order to take the legal action they deem appropriate against the person who tokenised their work in an unlawful manner.

⁽¹⁾ In Spain, rights over patents, trademarks and alike are not covered by “intellectual property laws” but industrial property ones.

From a strictly financial regulatory perspective, the standard that is envisaged to govern cryptoassets and cryptoasset service providers (the so-called “MiCA”), which is still in the pipeline, excludes NFTs from its scope of application and does not provide a definition of NFTs, but merely states that it will not apply to cryptoassets that are unique and not fungible with other cryptoassets. In particular, it specifies that in order to be exempted from its scope, the assets or rights represented must also be unique and non-fungible. In this regard, MiCA stresses that the mere attribution of a unique identifier to a cryptoasset is not sufficient to classify it as an NFT and excludes it from the rules.

Hence, NFTs meaning the token that is issued or on which a service is provided would fall outside the regulation of cryptoassets and thus the providers of the related services would be exempted from compliance with financial and anti-money laundering regulations and, ultimately, from the scrutiny of financial supervisors. This is different from, for example, virtual wallet custody and fiat currency virtual asset exchange service providers, which are subject to Spanish anti-money laundering regulations and registration with the Bank of Spain, following the implementation in Spain of Directive (EU) 2018/843 of the European Parliament and of the Council of 30 May 2018 amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, and amending Directives 2009/138/EC and 2013/36/EU.

At the local level, NFTs are also excluded from the scope of the National Securities Market Commission Circular 1/2022, of 10 January 2022,  on the advertising of cryptoassets presented as an object of investment. Only if NFTs are issued in series or grouped in issues as an investment object will they be subject to such financial regulation.

In other words, depending on the use given by the issuer or the platform that offers them to third parties, they will have to comply with Spanish securities market regulations, mostly deriving from Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments, i.e. the so-called MiFID II.

The Spanish Data Protection Agency (AEPD) has not yet made a clear reference or taken a stand on privacy implications that may become relevant in relation to NFTs specifically. It has, however, provided some (minimal) information with regard to its position on blockchain technology. Mainly, the AEPD has stated that the blockchain is not a processing activity itself but a distributed information processing technique on which different processing activities and business models can be implemented; suggesting that any processing activities construed over the blockchain shall comply with applicable data protection requirements.

Taking into account previous interpretations of the AEPD on what shall be considered personal data (e.g. with regard to the IP address), we anticipate that the AEPD will most probably understand the public keys and transaction data generated in the process of mining an NFT on a blockchain to constitute “personal data” within the meaning of EU and Spanish data protection laws, insofar as they can be related to an identified or identifiable individual. Mainly, these rules consist in the General Data Protection Regulation (GDPR) and Spanish Organic Law 3/2018 on personal data protection and digital rights guarantees.

Where data is not fully anonymised (i.e. irreversibly altered so that no one, by themselves or with the help of others, can re-identify an individual), and is pseudonymized, data protection rules above apply, including general data protection principles and sanctions regime. This gives rise to a variety of data protection questions which the Spanish Data Protection Agency has not yet answered.

The Spanish NFT market is expected to grow and become more diverse in the coming years. The possible applications of NFTs are far-reaching. The NFT industry in Spain was expected to grow by 41.2% on an annual basis to reach US$564.6 million in 2022 and the NFT industry in Spain is expected to grow steadily in the next few years.

From a regulatory point of view, companies should expect that the European and Spanish legislator will place a stronger focus on NFTs in the years to come. The legislation in the EU and Spain on NFT is constantly evolving.

Companies should therefore keep an eye on future regulatory developments and evaluate the business opportunities arising from the NFT technology.