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Protection of Non-Fungible Tokens in UAE

Non-Fungible Tokens are cryptographic assets on a blockchain with certain unique identification codes and metadata that distinguish them from each other. Unlike the cryptocurrencies, they cannot be traded or exchanged at equivalency. Thus, they do not serve the purpose of commercial transactions. However, NFTs can be bought or sold on NFTs based marketplaces. Sometimes, the NFTs exist on a platform governed by additional terms in the traditional contracts. Currently, most of the NFT market is created and it exists on the Ethereum blockchain using either ERC 721 or ERC 1155.

NFT[Picture Credit: Gettyimage]

For instance, in the fashion industry, the NFTs can be tied to the fashion industry as well as to an actual good. In the traditional world, when any sneakers are introduced, a long line of consumers can be seen outside the store. Most of these people, often sell the shoes in the secondary market for a price that is ten times higher. However, once NFTs are attached to the shoes, authenticity can be ensured and royalty can be incorporated in the smart contract in case, secondary sale takes place. Simultaneously, the NFTs can be highly observed in fantasy sports games. Herein, NFT is tied to a particular product. For example, the character and even its skin, have their own NFTs, which can be traded or loaned to any other player. When a player reaches a certain level, NFT is unlocked.

Just because you are an owner of an NFT tied good, shall not guarantee complete intellectual property protection. The smart contracts may set forth such terms or conditions but it is likely that the creator shall at least protect his/her intent of the artistic work through the legal framework. Moral rights sustain even if commercial rights are distributed among certain third-parties. In 2021, both Marvel and DC Comics sent notices to the artists stating that any offer for sale of digital assets shall not be permitted.

NFTs in the Middle East

Dima Abdulkader, Co-founder of Emergeast, an online are gallery and marketplace displaying the artists from the Middle East and North Africa stated that NFTs give recognition to digital artists and their work, thus becomes “official”. The organization was founded in 2014 and was first of its kind in the region. During that period, the consumers were nor sure of buying the art online but post that, recently, in the pandemic, the consumers because accustomed to online shopping, the culture of buying art online also entered. With every new technological wave, the organization adopted new means and measures. NFT is a natural extension in a digitally-built platform. It was Middle East’s first are gallery to host NFT exhibition in 2021.

Technological advancements across the globe have affected the art gallery to a great extent. Art centres and galleries have observed a positive impact of the technology on their workings and profits. Artists have gained a tremendous reach through digital assets. One advantage is that the artists can claim the royalty fee as and when the artwork is sold through blockchains. It has been observed that the activity related to NFTs is the strongest and most popular in Dubai where many creators and buyers are situated.

Despite the upsurge in the activity and interest in the NFTs, the regulations and rules are still in the nascent stage. There is hardly any visibility of the laws established or to be established in the long term. It is true that we live in a digital era but geographies and territories become an important factor during regulation of a particular subject. It is predicted by the experts in the region that they shall adopt Anti Money Laundering laws and extend them to the NFTs like the UK and US.

The regulations surrounding NFTs and the transactions are essential because users end up paying ‘gas money’ while buying and selling NFTs on the Ethereum blockchain. At times, the costs are higher than the value of the NFTs. Moreover, additional fees are also incurred to store the transactions on a digital ledger.

Apart from the transactional regulations, one of the grey areas is also related to the Intellectual Property Rights and protections. On the white shade of the subject, the artists can sell their artwork and still retain the copyright on the said work. However, on the black side, the law is still uncertain what shall happen when the digital asset is replicated and republished by others on the internet.

In the opinion of certain leaders and owners of art galleries dealing in online art, it shall be easier to incorporate IP protection laws in the online world because the work is in the public and has been documented throughout. There are no blanket regulations for issues such as Intellectual Property Rights, financial transactions and data security in NFTs for the Middle East.

NFTs in the UAE

Recently, in March 2022, the ruler of Dubai has issued the Dubai Virtual Assets Regulation Law. It is stated that the law will create an advanced legal framework to protect the investors and design standards at par with the international regulations to govern the virtual asset industry. Now, herein, the regulation shall solely be for Dubai and not the UAE. Under the said law, an authority named as the Dubai Virtual Asset Regulatory Authority shall be established. It shall have its own autonomy and personality to take the requisite decisions for the stakeholders. The authority shall be responsible for licensing and regulating the sector across Dubai Mainland and Free Zone territories. The law comes into force once published in the Official Gazette. The notification states the tasks, competencies and authority of the organization established. The notification in furtherance to this shall give the authority of organizing and setting the rules and regulations for all virtual activities including specifying their types.

According to the law, any individual is prohibited to engage in the activities without VARA authorisation in the region. Any person wishing to practice in any of the virtual asset activities must establish their presence in Dubai to conduct any such business. In case of any violation, VARA may impose penalty or take any of the following measures: suspend the permit for period not exceeding six months, cancel the permit and coordinate with the competent commercial licensing authority in Dubai to cancel the said license.

The Virtual Asset Regulatory Authority will also be essential in establishing a trusted framework of rules and regulations that will attract new investors and creators to the market. These regulations will also provide an extra layer of protection for NFT creators and will no doubt deter illegal behaviour and scammers who could have a negative influence on the whole ecosystem.


In the Middle East, there is a plethora of creators and artists but the regulations are not rigid yet. The transactions and intellectual property rights are the prime concerns of the artists across the region. Dubai has taken a first step by establishing an authority to monitor and manage the virtual assets and the related transactions. However, it must be noted that the authority can only regulate the assets and transactions within Dubai. Thus, the UAE still has a long way to go ahead. Other members of the conglomerate are still in the process of providing requisite protection to the artists and the applicants wishing to establish themselves in the region through the digital world. To summarize, the United Arab Emirates and the Middle East at large is still in its nascent stage in the world of NFTs and cryptocurrencies.

Author: Tanya Saraswat – a student of  Institute of Management Studies (NMIMS), in case of any queries please contact/write back to us via email [email protected]. or at Khurana & Khurana, Advocates and IP Attorney.

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