AI (narrow) is already happening. It's not futuristic. “AI is everywhere. It’s not that big, scary thing in the future. AI is here with us.” – Fei-Fei Li

George Orwell's dystopian novel "1984" depicts a totalitarian society where the government, represented by the character of "Big Brother," has complete control over every aspect of citizens' lives, including their thoughts and actions. The novel explores themes such as government surveillance, propaganda, censorship, and the suppression of individual freedom.

The concept of "Big Brother" watching has become a popular reference to describe the idea of government surveillance and the erosion of privacy rights. It has also been used to criticize governments and corporations' increasing use of technology to monitor and track individuals' behavior and activities.

Orwell's novel has had a significant impact on popular culture and has become a touchstone for discussions about government power, individual freedom, and the role of technology in society.

So, what is Narrow AI? Narrow AI, also known as weak AI or applied AI, refers to artificial intelligence systems designed to perform a specific task or a set of functions within a narrow domain.^[1] These systems are programmed to operate within specific parameters, and their capabilities are limited to the specific task for which they were designed. Examples of narrow AI systems include voice assistants like Siri or Alexa, facial recognition systems, and chatbots like ChatGPT 3, 3.5, and 4. These systems are designed to perform a specific task, such as answering questions or recognizing faces, and they cannot generalize to other tasks outside of their domain.

In contrast, to narrow AI, general AI, also known as strong AI or artificial general intelligence (AGI), is the hypothetical ability of an AI system to learn and understand any intellectual task that a human can. However, we are yet to develop a general AI matching human-level intelligence.

Narrow AI already shows some characteristics of monitoring and control. For example, about 400 million circuit cameras in China use facial recognition to monitor citizens. That is about 1 for every 3 people. This technology can decipher a person's age, ethnicity, lifestyle, address, family members, and more from gait, voice, facial recognition, spatial/GPS surveillance, and other sensitive data it continuously amasses and connects for each individual. In the UK, every five mins, you're on at least one close circuit camera when moving around. Where not in a highly monitored territory, our cell phones are listening to us and learning who we are, and we have voluntarily ceded these rights to our devices.

That brings us to the legal considerations of Narrow AI, such as:

I.     Consent and data privacy: Consent, the right to privacy, and the protection of human rights are fundamental when designing or building AI systems. Therefore, organizations must have the appropriate consent and safeguards to protect personal data when using AI.^[2]

II.    Bias and discrimination: Narrow AI systems could perpetuate and amplify biases in the data they are trained on. Organizations must ensure that their AI systems are transparent and do not violate anti-discrimination laws, as the right to non-discrimination is fundamental. Organizations may employ the use of explainability tools to avoid unintended harm, promoting trust, understanding, and fairness.^[3]

III.   IP Issues: AI raises intellectual property issues, such as copyright, trademark, and patent infringement. AI-generated art, music, and videos are becoming more prevalent with the use of text-to-speech, text-to-images, and text-to-video applications. AI could also generate similar patents or even replicate trade secrets. Considering the above, who owns the copyright to these works - as they are created by an AI algorithm rather than a human author? Generally, copyright protection is limited to original works created by human authors. Does this remain the same when AI-generated work involves considerable human creativity or input? Consequently, organizations must have the appropriate licenses and permissions to use any IP in their AI systems.

IV.   Liability and responsibility: AI systems will only become more autonomous than they are now. Consequently, questions arise about who takes responsibility when something goes wrong. As a result, organizations must consider accountability and liability issues when deploying AI systems and ensure they have appropriate insurance coverage.

V.    Regulation and compliance: Governments worldwide are introducing regulations specific to AI, such as the EU's proposed Artificial Intelligence Act (AIA). As a result, organizations must ensure their AI systems comply with all relevant regulations and standards. Why? Because of all the above-mentioned legal considerations.

The above only mentions a few issues with narrow AI. Other risks/issues include AI security, AI hallucinations, AI misalignment, weaponized AI data – disinformation, vulnerability, commercialization, and more. I generally classify the risks/issues into three categories (grade 1, grade 2, and grade 3) which I will delve into in another article. AGI brings about self-guiding AI like autonomous guiding drones, weapons, cars, or devices. Is this going to get out of control? Will things soon fall apart that the center cannot hold? Who will police these autonomous creations? Who determines what is right and what is wrong? How will AI and humanity co-exist? Should governments control AI?

Narrow AI is fed data and built to do one thing. On the other hand, AGI is building a better and faster system that can do more than human intelligence can achieve (basically, a digital super being). Such AGI would require using several AI systems. There are two likely ways this would be achieved; either by building machines to do this (robotics & machine learning) or by enhancing existing human beings via bioengineering and technology to create cyborgs. A few highly pertinent questions arise. What are these cyborgs going to be? Humans who become cyborgs will be who/what? What rights will robots with AGI have? Where a human being merges with technology, what legal status or rights would accrue to this entity/being? Would human beings with any physically augmenting AI be treated equal to regular human beings? Or would there be super-ability status, just the way we have dis-ability?

Why does all of this concern us? The fact that some scientists take this seriously and that some corporates are creating technologies in this space... makes it a priority. It will soon concern the general populace; consequently, regulatory frameworks must be established to control these dynamics. The global AI regulatory landscape is already being shaped by regulations such as the European Union Artificial Intelligence Act (AIA), Canadian Artificial Intelligence and Data Act (AIDA), United States AI Bill of Rights (AIBoR), US National AI Initiative Act, US Algorithmic Accountability Act of 2022, and more. Is transatlantic consensus with these regulations possible?

We must get people (lawyers, regulators, policymakers, philosophers, ethicists, economists, scholars, technologists, engineers) thinking about this and developing regulatory frameworks immediately. As Elon Musk stated recently unlike other technologies, if we don’t get AI right now, it might be too late to implement once things have gone wrong.

Do you currently have an AI policy and strategy for your firm/organization? Every organization/government/institution needs to have one under their AI roadmap. The time to act is now.

Thanks for reading this article! :) If you enjoyed it, please like, comment, and share the post.

Disclaimer: This article is not intended to provide legal or financial advice. All information, content, and materials available on this site are for general informational purposes only. Areas discussed are also constantly changing with new regulations, laws, cases and so on; Consequently, do ensure you conduct your own personal research before using information herein.

^References:

^[1] Paschen, U., Pitt, C., & Kietzmann, J. (2020). Artificial intelligence: Building blocks and an innovation typology. Business Horizons, 63(2), 147-155.

^[2] Zysman, J., & Nitzberg, M. (2020). Governing AI: understanding the limits, possibility, and risks of AI in an era of intelligent tools and systems. p.2,11-13.

^[3] Das, A., & Rad, P. (2020). Opportunities and challenges in explainable artificial intelligence (xai): A survey. arXiv preprint arXiv:2006.11371.

1. ABSTRACT

The rule of Caveat emptor is the due diligence burden placed on a buyer before purchase. Under the law, if a buyer fails to meet this obligation, then he/she cannot recover for defects that should have been discovered if the obligation was met. This paper relates the principle of caveat emptor in the NFT ecosystem, which has continuously grown over the past few years. Many NFT owners buy and sell NFTs without proper research and examination of the risks, benefits, strategies, regulations, and much more. The paper also discusses; the concept of Caveat Emptor, its origin and relation to NFTs, NFT investment, Non-fungible Token Marketplaces (“NFTMs”), and what to look out for before purchasing an NFT.

Keywords: Non-fungible Tokens, Caveat Emptor, Nigeria, United Kingdom.

Disclaimer: This research paper should by no means be considered financial advice. It is for educational purposes only.

2. INTRODUCTION

2.1 What is Caveat-Emptor?

Caveat Emptor (Latin) means “let the buyer beware.” The phrase is a Contract Law principle requiring the buyer to properly examine before purchase and is commonly used in property law but applies to purchasing and buying other items[1]. It passes the responsibility of discovering encumbrances and/or patent defects from the seller to the buyer - Yandle V Sutton. However, in recent and more modern legal systems and market economies, more attention is being garnered to ensure buyers’ needs and interests are protected during purchase. On the other hand, the counterpart of Caveat Emptor is Caveat Venditor which means “let the seller beware” with this principle, the seller is held responsible for all malfunctions or latent defects except where the responsibility is expressly disclaimed before purchase.

The principle of Caveat Emptor arises due to asymmetrical information between the buyer and the seller. The data is regarded as asymmetric because, essentially, the seller tends to have more information regarding the item than the buyer. Then the buyer assumes any risks of possible defects of the purchased item. This burden primarily rests on the buyer, where there is no explicit warranty on the product/item/property. Therefore, the buyer must gather all necessary and required information about the product/item. In addition, the seller must not misrepresent the product/item or provide any false information about the product.

The Land Use Act has been at the forefront of property law in Nigeria. It was enacted in March 1978 to strengthen the regulation of land further. At the time, despite the laws that guided property and land, buyers/purchasers still fell victim to defects on property. To end the evil act, the doctrine of Caveat Emptor became popular within the Nigerian Legal System. In the Nigerian case of U.T.C. Nig. Plc v. Maobison Interlink and Associate Ltd (2003) CA/PH/127/2000 David Adedoyin Adeniji JCA quoted Richard C. B from the Purvis v. Rayer (1821) case: “the rule is Caveat Emptor — let the buyer beware. It is a very old and useful rule.” To weigh the importance of the doctrine, he further highlighted from Onyido v. Ajemba (1991) 4 NWLR (Pt. 184) 203 at p.228 where Uwaifo, JSC stated: “…it follows in my view, that a purchaser must be careful to know full details about the land he is buying so as to acquire a good title by ensuring that the vendor has the necessary title to what he offers to sell.”

Sequel to the foregoing position, it is essential for the buyer to beware at the pre-contract stage of land purchase or property. The buyer, through this sign, is duty bound first to carry out proper investigation before the contract of sale of land is executed. Adeniji JCA, while referring to Purvis v. Rayer(1821), stated that “It is a general rule in equity founded on principles of honesty and the dictates of good sense, that if a person, generally speaking, offers anything for sale, the vendee, or he who becomes the purchaser, is entitled to see that the vendor has it with the qualification and in the way in which he, the vendee understood that he bought it; that is, to offer him an assurance of having bought what he wanted, and meant to buy, or at least what was offered or professed to be sold, or he may reject the contract.”

Nowadays, the principle of Caveat Emptor can be applied to purchasing any good or service. The modern law of commercial transactions recognizes this law and protects the buyer with various exceptions to the principle of Caveat Emptor. Non-Fungible Tokens (NFTs) are being bought and sold online, representing digital proof of ownership of any given item. NFTs could be solely digital or represent real-world objects and are securely recorded on the blockchain.

NFTs are mutually interchangeable, and the term ‘non-fungible’ comes in. They are usually based on the Ethereum network, but there are other blockchains some NFTs use, e.g., Solana, Polkadot, Klaytn, Polygon, and so on. Not all NFT projects are created equal; some projects sell NFTs without the digital asset’s creative or ownership rights. NFTs are often sold and bought on a purpose-built NFT marketplace. The marketplace offers terms and conditions, including a license for NFTs purchased on their site. The NFTs license agreement is the most crucial determinant of an NFT buyer’s rights, so it is essential to read it before buying. Unfortunately, some NFT buyers lack experience; they are unaware of the legitimacy and the working mechanism of NFTs. Moreover, like in every money-making market, there will always be scams, which cannot be stopped but can be avoided if investors are careful.

2.2 Origin of Caveat Emptor

The concept of caveat emptor Latin for ‘let the buyer beware, is an interesting one that has existed since the 16th century. The caveat Emptor principle in law originates from a 16th Century case, known as Chandelor v Lopus, in England. It was a case where a man bought £100 bezoar stone which was supposed to have healing properties. Unfortunately, it did not work as it was meant to, and the man decided to sue the seller. However, the courts opined that “the bare affirmation that it was a bezoar stone, without warranting it to be so, is no cause of action.” The seller did not make warranties that the product was a bezoar stone.[2] When the rule of caveat emptor first originated, it was quite rigid, and there was no scope for any subject change in the law. According to the English Sales of Goods Act 1893, the seller had the duty to make disclosure requirements when the product sold was minimal. There was no duty upon the seller that they must provide information, and the buyer’s proper examination of their goods was considered over and above any other obligation.

3. INVESTING IN NFTs

There are many different ways to view Non-fungible Tokens (NFTs); some see them as a scam, irrelevant, the future of commercial transactions, and, most reasonably, an investment. Although NFTs have considerably grown since the beginning of 2021, it has attracted the attention of investors looking for alternative investments. NFTs as an investment option evolved from the 2014 blockchain space, allowing the personal ownership of unique digital property. The NFT marketplace is relatively new compared to the cryptocurrency market and has become extremely popular. The market has shown a 118% growth just in the first quarter of 2021.”[3] Digital natives and users have shown interest in various categories of digital assets, the most popular with the highest sales volume being Collectibles, amongst others like Art, Music, Sports, Metaverse, DeFi, and much more.[4]

Top 10 NFT Projects Sorted by Total Sales of all-time until Oct. 19, 2022[5]

The information above shows that NFTs have high ROI (Return on Investment) potential and suggests that some investors classify them as new assets since the market shows similar attributes to art and cryptocurrency. The main benefit of the art market is that this market has much higher transparency due to publicly available activities. However, this market needs to be explored and analyzed because it is still developing as an economy. Specifically, pricing is an interesting topic that will help researchers to understand the market from an economic perspective and evaluate the extent to which NFTs are suitable for portfolio diversification and alternative investment.[6] There are many advantages to investing in NFTs, but challenges come with them. Even if the seller of an NFT is legitimate, the investment may not work out as anticipated. For instance, Twitter’s CEO, Jack Dorsey, first tweet sold as an NFT for $2.9M in March 2021. Later in 2022, the NFT went back on the market but could not command bids above $280. NFTs offer security with transparency and are stored on the blockchain platform, where they are tracked and verified on the network.

3.1 NFT Marketplaces (NFTMs)

NFTs are bought and sold on purpose-built NFTMs. The Top NFTMs include OpenSea, Rarible, Super Rare, and Foundation.[7] The NFTM functions as a public Blockchain platform. It stores, displays, trades, and sometimes mints (creates) NFTs.

It is important to note that listing and creating NFTs on a marketplace incurs a blockchain network fee. The fee depends on which blockchain-based system is decided to use. For instance, Ethereum boasts the largest ecosystem of NFT DApps (Decentralized Applications). These marketplaces allow digital collectors to buy, sell and create their tokens representing ownership of unique, tangible, and intangible items.

4. WHAT TO LOOK OUT FOR BEFORE PURCHASING AN NFT

This is where the principle of caveat emptor is applied within the NFT space. Before a buyer purchases an NFT, they must first have conducted their research from multiple sources. For instance, research how the NFT works, the NFTM, potential scams, mishaps, and the ROI. Many things go wrong in the NFT space, considering that it is still growing and has not been thoroughly investigated by most governments. Therefore, it is only reasonable that investors do their proper research before joining an NFT marketplace. There are a few things to be considered before purchasing an NFT. The most crucial factor to look out for is the certification mark. Legitimate sellers on some platforms have a verification mark to show they can be recognized. In addition, it is vital to remember that NFTs might not have the same liquidity as cryptocurrency. To boost NFT liquidity rates, several experts recommend fractionating them, which entails dividing the NFT into tiny pieces.

Much due diligence should go into truly understanding what will be owned before purchasing an NFT. When an NFT is purchased, the buyer needs to review the terms of the contract and understand how the license to use intellectual property rights works. A Smart Contract is usually encoded within the NFT; it will define how the buyer can use or display the token. Alternatively, it might offer the buyer utility (value/benefits) over it but no other rights. One must beware of what affects the license to the NFT; everything is specified in the Smart contract encoded in the NFT. A standard NFT transaction will not strip the original creator of copyrights, so buyers need to understand what rights are transferred. Without reviewing the contractual terms when purchasing an NFT, the buyer must be careful not to copy, display, or reproduce the NFT, which could easily lead to infringement claims from the NFT owner/seller and other legal implications. Because of encoded Smart Contracts — which are not immediately visible to the buyer — and the naivety of new investors, it is easy to misinterpret the rights that are effectively transferred in the transaction. As new regulatory systems are being introduced in countries around the world, some buyers might even be protected under local consumer protection laws — which can condemn encoded contracts that do not meet transparency standards. However, buyers might be subjected to a limitation of liability and only receive partial compensation for any eventual financial loss deriving from the transaction.

4.1 Advantages of Investing in NFT

Some of the advantages of investing in the NFT space include:

(i) It is easily accessible:

Anyone anywhere can invest in NFTs. Investing in tokenized assets is very accessible to everyone. Asset ownership is tokenized into an NFT and can more quickly and efficiently be transferred among people globally.

(ii) It is secure:

NFT ownership is secured by the blockchain network. The use of blockchain technology to digitally signify ownership makes an investor’s ownership of an asset more secure. In addition, the blockchain network encourages transparency.

(iii) It is a learning process:

NFTs present an opportunity to learn more about blockchain technology. The increased knowledge allows Investors more easily diversify their portfolios.

4.2 Risks Involved in Purchasing NFTs

Some of the risks involved in investing in NFTs include:

(i) NFT generation impacts energy:

Most NFTs are currently supported by the Ethereum blockchain, which uses an energy-intensive operating protocol called proof-of-work. Ethereum has since switched to a proof-of-stake consensus.

(ii) One may need to own Ether (ETH):

With most NFT sales occurring on the Ethereum platform, owning the blockchains’ native currency, Ether (ETH), is often necessary to purchase an NFT. Investors wishing to buy NFTs with fiat money like the US dollar may have limited options.

(iii) Scams, Fraud, and Security Breaches:

Bad actors are on a constant prowl to gain access to platforms, and assets in the NFT ecosystem using different methods and means. Hackers also target individuals and platforms using social engineering, sophisticated technology, and other methods to steal/siphon, convert, and fake assets. Investors consequently need to be aware of these risks, and how to mitigate them.

(iv) Smart Contract Vulnerabilities:

Smart Contracts even though a powerful feature of the blockchain, are not sufficient in and of itself. The programming could have bugs that need to be fixed speedily otherwise they could be exploited. Consequently, vulnerability, verification, and testing of Smart Contracts is highly pertinent[8].

5. NFT AS A PROPERTY IN THE UNITED KINGDOM

Let us examine how the transfer of Real Estate NFTs’ work. The NFT Real Estate market works like a regular NFT market. After processing the allowed preparations for the sale of Real Estate as an NFT, the NFT is minted, which comprises the sale documentation, descriptions, movies, images, and disclosure agreements of the crucial property. As soon as the minting process is complete, the sellers combine their digital pockets with the market, where they will add their NFT. As soon as the NFT is accounted for, the digital land will be added to the client itemization section. The itemizing phase of the NFT helps market the transaction to many clients because of the bidding procedure. The NFT will be for sale after the bidding process concludes. The exchange may be made using any cryptocurrency or fiat money. The price of the valued item will be sent to the vendor’s digital wallet. The handoff of possession is the last and most crucial stage. This occurs after the buyer has provided all paperwork necessary to transfer legal ownership of the NFT to the seller.

The nature of NFTs plainly complied with Lord Wilberforce’s definition of property in National Provincial Bank v. Ainsworth in that they:

(i) are definable, with reference to the NFT’s underlying smart contract;

(ii) are identifiable on the blockchain;

(iii) are capable in their nature of assumption by third parties who can acquire the NFT and associated underlying rights defined in the smart contract; and

(iv) have “some degree of permanence”, notwithstanding the decentralized technology that NFTs utilize.

The United Kingdom has recognized NFTs as legal property. This came via a lawsuit filed by Lavinia Osbourne, the founder of Women in Blockchain Talks, against the Boss Beauties collection. The High Court of the United Kingdom qualify NFTs as property, opening the door for victims of NFT theft to seek injunctions that would prevent them from using the money. In a much-anticipated ruling, the Commercial Court ruled that “there is at least a reasonably plausible case” that non-fungible tokens (‘NFTs’) are considered property under English law. This case included Lavinia Deborah Osbourne v. (1) Persons Unknown (2) Ozone Networks Inc.[9] HHJ Pelling QC held that “NFTs are to be treated as property as a matter of English Law”. The decision in Osbourne v (1) Persons Unknown and (2) Ozone Networks Inc has demonstrated the willingness of the jurisdiction of England and Wales to account for the distinctions between different kinds of cryptoassets and affords NFT owners an according level of legal protection. Furthermore, the formal recognition of NFTs as legal property by a court means that future cases can be better handled, and industry players can access more legal protections.

6. CONCLUSION

Ultimately, Caveat Emptor is a rule that can be used for anything today, most notably in the ever-growing Metaverse, which includes Crypto, NFTs, DeFi, and Blockchain Technology, and discoveries are made every day. Therefore, anyone who wants to buy NFTs should do their due diligence and look at, study, research, and come to the right conclusions about the NFT space from multiple sources. It makes no sense to get information from just one place. And this is not the end of it. When using NFTs, one learns more about other parts of the Metaverse, like meta-commerce, digital identity, etc.

Regarding NFTs, people who know little about them are more likely to fall for scams and make mistakes. Also, unlike in consumer-friendly industries, the NFT seller’s job is to teach and inform the buyer about everything necessary in the space. So, the Caveat Emptor rule is apparent here, so be careful. The rule is “Let the buyer of NFTs beware.”

*Stayed glued for Part 2 on Caveat Venditor.

Thanks for reading this article! :) If you enjoyed it, please like, comment, and share the post.

Disclaimer: This article is not intended to provide legal or financial advice. All information, content, and materials available on this site are for general informational purposes only. Areas discussed are also constantly changing with new regulations, laws, cases and so on; Consequently, do ensure you conduct your own personal research before using information herein.

7. REFERENCES

[1] Christina, S., & Munishamappa, P. (2014). Caveat Emptor To Caveat Venditor In The Process. International Research Journal of Management Sociology & Humanity, 430–436.

[2] Hamilton, W. H. (1930). Ancient Maxim Caveat Emptor, the. Yale LJ, 40, 1133.

[3] Kelly, D., Zuppinger, G. (2021). Non-fungible Tokens Quarterly Report. NonFungible. Retrieved from: https://nonfungible.com/reports/2021/en/q1-quarterly-nft-market-report

[4] NonFungible.com 2021. Market Overview. Available: https://nonfungible.com/market/history

[5] DappRadar, (2021). NFTs Overview: Discover the hottest NFT collections, marketplace rankings, and top real-time sales [Online]. Available at: NFT (Non-Fungible Tokens) Sales | DappRadar

[6] Schaar, L., & Kampakis, S. (2022). Non-fungible tokens as an alternative investment: Evidence from Cryptopunks. The Journal of The British Blockchain Association, 31949.

[7] Nicholas Rossolillo (2022). How to Invest in NFTs. The Motley Fool. Available at: https://www.fool.com/investing/stock-market/market-sectors/financials/non-fungible-tokens/how-to-buy-nft/

[8] Benabbou, C., & Gürcan, Ö. (2021, November). A Survey of Verification, Validation and Testing Solutions for Smart Contracts. In 2021 Third International Conference on Blockchain Computing and Applications (BCCA) (pp. 57–64). IEEE.

[9] Whittaker, R. (2021). Pivotal judgment on NFTs in the UK? Osbourne v (1) Persons Unknown and (2) Ozone Networks Inc. Society for Computer Law. Retrieved from https://www.scl.org/articles/12631-a-pivotal-judgment-on-nfts-in-the-uk-osbourne-v-1-persons-unknown-and-2-ozone-networks-inc

[1] Christina, S., & Munishamappa, P. (2014). Caveat Emptor To Caveat Venditor In The Process. International Research Journal of Management Sociology & Humanity, 430–436.

[2] Hamilton, W. H. (1930). Ancient Maxim Caveat Emptor, the. Yale LJ, 40, 1133.

[3] Kelly, D., Zuppinger, G. (2021). Non-fungible Tokens Quarterly Report. NonFungible. Retrieved from: https://nonfungible.com/reports/2021/en/q1-quarterly-nft-market-report

[4] NonFungible.com 2021. Market Overview. Available: https://nonfungible.com/market/history

[5] DappRadar, (2021). NFTs Overview: Discover the hottest NFT collections, marketplace rankings, and top real-time sales [Online]. Available at: https://dappradar.com/nft

[6] Schaar, L., & Kampakis, S. (2022). Non-fungible tokens as an alternative investment: Evidence from Cryptopunks. The Journal of The British Blockchain Association, 31949.

[7] Nicholas Rossolillo (2022). How to Invest in NFTs. The Motley Fool. Available at: https://www.fool.com/investing/stock-market/market-sectors/financials/non-fungible-tokens/how-to-buy-nft/

[8] Benabbou, C., & Gürcan, Ö. (2021, November). A Survey of Verification, Validation and Testing Solutions for Smart Contracts. In 2021 Third International Conference on Blockchain Computing and Applications (BCCA) (pp. 57–64). IEEE.

[9] Whittaker, R. (2021). Pivotal judgment on NFTs in the UK? Osbourne v (1) Persons Unknown and (2) Ozone Networks Inc. Society for Computer Law. Retrieved from https://www.scl.org/articles/12631-a-pivotal-judgment-on-nfts-in-the-uk-osbourne-v-1-persons-unknown-and-2-ozone-networks-inc

Thanks for reading this post! :) If you liked it, please support by clapping 👏🏻 and sharing the post. Feel free to leave a comment 💬 below.

Disclaimer: This post is not intended to provide legal or financial advice. All information, content, and materials available on this site are for general informational purposes only. Areas discussed are also constantly changing with new regulations, laws, cases and so on; Consequently, do ensure you conduct your own personal research before using information herein.

Introduction

With the emergence of Big Data came the popularity of the ‘behind the scenes’ modus operandi of data privacy and data protection. As individuals, business owners, governments’, it seems we have enough stress and worries as it is, than to add another layer of ‘what we need to be aware of’. What then is all the recent fuss on data privacy and protection about? Hence the question ‘Hullabaloo or No?’

Background

Fortunately and unfortunately, it has become expedient to pay attention to data privacy and data protection. Why? There are two major events I’d like us to take cognizance of.

The first incident happened in 2014; when a young man by the name Max Schrems filed a complaint against Facebook to the Irish Data Protection Commission (“DPC”); requesting the DPC to investigate and suspend the transfer of his personal data from Facebook Ireland to Facebook Inc. USA. He elucidated that the data could be accessed by U.S. Intelligence authorities, and this would be a violation of his data protection rights under the European Union (“EU”). The DPC described the complaint as “frivolous and vexatious” at the time, and many echoed the same sentiment. Schrems consequently took the matter to the Irish High Court with the DPC as the defendants (Schrems v Data Protection Commissioner also known as Schrems I) .

The case was thereafter moved to the Court of Justice of the European (“CJEU”) where Facebook showed that they had legal basis for the processing and transfer of the data under the 15 year old transatlantic U.S.-EU Safe Harbor Framework/agreement (“Safe Harbor”). The CJEU invalidated the Safe Harbor which Facebook had seemingly relied on. This was a massive landmark decision which sent ripples through Europe, and the rest of the privacy world. In simple terms, Facebook and any other organization (“Data Controllers or Processors”) dealing with the data of Europeans (“Data Subjects”) could no longer send data (personal information of Europeans) from Europe to ‘any other country’ outside the EU including onward transfers; without certain specific requirements being met. Requirements such as:

(i) Ensuring there is focus on individual rights of data subjects. For instance ensuring:

a. all the right of the data subjects under the General Data Protection Regulation “GDPR” is met. This entails ensuring that the consent of the data subjects’ is obtained;

b. that data subjects are aware and informed of who would and could have access to their data (i.e. inclusive of eventual third parties); and

c. what their data would and could be used for (especially in the case of onward transfer of data), amongst other rights.

(ii) Ensuring adherence to new restrictions on access of such data to Government authorities, and other third parties (onward transfers). This would ensure the data stays safe even during transfers;

(iii) Ensuring the categorization of countries is used and followed. The categorization is based on the comparison of GDPR to the data protection laws in the transferee country; and ensuring it is of a competent or equal level.

This would apply to all organizations dealing with data of Europeans anywhere in the world. After Safe Harbor was invalidated, the Privacy Shield came to be. This new framework was more stringent, with specific requirements that needed to be implemented, and agreed upon prior to transfer of data. The Privacy Shield after Schrems II was also invalidated, and we currently have Transfer Impact Assessments (Standard Contractual Clauses SCCs or Binding Corporate Rules (‘BCRs’) in its place.

The second incident to note was the Facebook Cambridge Analytica scandal; where a whistle blower named Christopher Wylie, came out with a tell-all in 2018 explaining how Cambridge Analytica (a political consultancy firm in the UK) had obtained more than 85 million profiles from Facebook as a third party. Cambridge Analytica had allegedly proceeded to use the data received (which included Facebook messages, profiles, status updates, likes’ and so on) to create a psychological profile for each user. These profiles were detailed having been built from data of each users likes’, patterns, preferences, and so on… essentially creating a digital clone). Cambridge Analytica consequently created psychological tools to suit each user, which could inadvertently influence them in specific and designed ways towards the 2016 presidential elections (where Donald Trump emerged as President). The discovery caused an outrage amongst users, regulators, and policy makers alike. Mark Zuckerberg had to be called to testify before Congress regarding the entire scandal. Facebook apologized for the data harvesting drama; but in 2019, the Federal Trade Commission (“FTC”) announced a whopping $5 billion fine levied on Facebook for the privacy violation of its consent regulation. Even the FTC described the fine as record breaking. The FTC also imposed new restrictions on Facebook to ensure more accountability on an ongoing basis.

These incidents amongst others, ended up showing to the world that:

(i) data could actually be a ‘weapon of misuse’ by unscrupulous parties,

(ii) data controllers many times collect more information than is necessary from data subjects,

(iii) most people need to be aware of their rights as data subjects/owners

(iv) most do not have any idea what their information is actually being used for and ‘need to’,

(v) data controllers/processors need to be held accountable for data obtained from data subjects

(vi) data controllers/processors should no longer be allowed to hide behind nonspecific, vague, or all-purpose ways of obtaining data (for instance organizations deceitfully hiding the details of consent in the very fine print of notices, terms, and policies; knowing most people would not read the fine print)

(vii) new regulations, policies, need to be enacted, implemented, and updated on an ongoing basis

(viii) new or existing regulatory agencies’ need to be more aware, informed, and equipped to implement new and existing regulations.

Consequently the above shows the importance of data privacy and data protection to our very existence considering the impact data could have where mismanaged or manipulated.

It is also important to note that there is data privacy and data protection. What’s the difference? Forbes has an awesome article on the differentiation between the two. The difference basically, is that data privacy addresses the need to control and manage access to data (for example, who has access to my data? why?, and what for?); while data protection addresses the necessary tools and techniques to restrict and secure such data against loss, corruption, or compromise (for instance using tools such as ‘a network monitoring device’, ‘data discovery and inventory’, ‘anonymization and pseudonymization of data’, or ‘encrypting data’ and so on). Both data protection and data privacy are used interchangeably every now and then; it is however important to note the difference.

A Constitutional or Fundamental Right?

Then begs the question is data privacy a constitutional or fundamental right? That is another article in itself. The EU currently has the most robust privacy laws. Under the EU Treaties and in the EU Charter of Fundamental Rights, the right to data privacy is stated and clear. Other EU legislations echo this as well; and there are several instances of case law available to support this.

In the US the right is not specifically mentioned in the constitution, however it has been entrenched under the U.S. Federal Trade Commission (“FTC”) and State legislations like the California Consumer Privacy Act (“CCPA”); the supplementary California Privacy Rights Act (“CPRA”); the Virginia Consumer Data Protection Act (CDPA); the Colorado Privacy Act (“CPA”); and a number of State and Federal legislations in view. Case law on the subject matter is also quite extensive, interpreting the right to privacy as including information/data privacy.

In India, the right to privacy is a fundamental right under Article 21 of the Constitution of India; which states: “No person shall be deprived of his life or personal liberty except according to a procedure established by law”. In addition to Article 21, the Part III rights under the same constitution were considered. This position was opined by the Supreme Court of India in Justice K.S.Puttaswamy v. Union of India, where a literal interpretation of the law was employed.

So we have generally seen the weight of some regulations’ thrown behind the right to data privacy and data protection.

Nigerian perspective:

InNigeria, which is my jurisdiction, the Constitution of the Federal Republic of Nigeria 1999 as amended (“1999 Constitution”); section 37 states that “The privacy of citizens, their homes, correspondence, telephone conversations and telegraphic communications is hereby guaranteed and protected”. The Constitution is not specific; neither did the constitution define privacy, but we can infer from the wordings ‘the general right to protect one’s territory, communications, and correspondence’ is intended (literarily just like the Indian Constitution). Inference nonetheless, has no place under the Nigerian law. Other Nigerian Federal laws and regulations have gone ahead to entrench privacy in some way; for instance The Cybercrimes Act 2015, The Child’s Right Act 2003, The Nigeria Data Protection Regulation (NDPR) 2019, the Freedom of Information (FOI) Act 2011, the Nigerian Communications Commission (NCC) Code of Practice regulation 2007, just to mention a few.

We have case law establishing rights to privacy of communication for instance, in Emerging Market Telecommunication Services v. Barr Godfrey Nya Eneye (2018) LPELR-4619 Mr Eneye sued Etisalat (Emerging Market Services) for sharing his telephone number with third party organizations who in return, started forwarding unsolicited text messages to him. This he claimed was in violation of section 37 of the 1999 Constitution. The Federal High Court awarded him damages of N8, 000,000.00 (Eight Million Naira). However, the specificity (of the term “data privacy”) is yet to be fully ‘backed’ by case law in Nigeria as being a constitutional or fundamental right. In the case of Incorporated Trustees of Digital Rights Lawyers Initiative and L.T Solutions & Multimedia Limited [Suit No. AB/83/2020] it was held at the Ogun State High Court; that the rights to privacy under the 1999 Constitution extends to the protection of the personal data of citizens. On the other hand, in Incorporated Trustees of Laws and Rights Awareness Initiative and The National Identity Management Commission [Suit No. FHC/AB/CS/79/2020]the Federal High Court held that a breach of personal data of a citizen does not necessarily fall under the rights available under the 1999 Constitution. This does not help to resolve the discuss on where the rights lie. There is hope that pending litigation before the courts would eventually help to shine the light of hope as to ‘definite’ and ‘landmark’ decisions in the area of Data Privacy and Protection in Nigeria. There is also the argument that the breach of the right of data subjects should be implemented strictly under The Nigerian Information Technology Development Agency Act (“NITDA Act”) which has elements of a criminal matter due to the heavy fines imposed; as opposed to a strictly civil matter. We evidently still have some ways to go.

Conclusion

Inconclusion… No! It’s no hullabaloo. We all need to pay attention to data privacy and its protection. It is somewhat entrenched in our fundamental/constitutional rights as ‘people of the world’ albeit lacking a little case law gusto in Nigeria. For organizations’, data privacy and protection regulations need to be adhered to, as not doing so will begin to affect the bottom line of your organization. We also need to educate many more about these rights, and how to protect it (from other people, organizations, and even sometimes from the Government). The EU amongst other countries have realized the potency of data; and the need to control, and secure it appropriately. With this in mind, Governments’ and regulators’ have the greatest duty to provide a robust ecosystem of education, laws/regulation, and enforcement to protect its citizenry. In other words, itself!

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Disclaimer: This article is not intended to provide legal or financial advice. All information, content, and materials available on this site are for general informational purposes only. Areas discussed are also constantly changing with new regulations, laws, cases and so on; Consequently, do ensure you conduct your own personal research before using information herein.

There is so much ado about the blockchain right now. Generally, we have those who are experts on one hand, and then those who are completely confused, or who completely oppose the ideal on the other hand (not discountenancing the fact that there will always be middle fielders, who are neither here nor there). Blockchain and its technology as it is, is very wide. I am merely attempting to write this in a less intrinsic way, for some more people to understand and find this topic a little more interesting and intriguing; including myself.

What exactly is the Blockchain? I like the Euromoney definition. Blockchain “is a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system. A blockchain is essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain”

Let’s break this definition down a little further. It says it is a digital ledger of transactions (DLT), duplicated and distributed across the entire network of computer systems… I like to use close analogies. Indulge me a bit… Just imagine the blockchain is like a bank platform on the internet. Let’s call the bank Universal HTB bank. You have Universal HTB bank platform on your laptop/phone and would like to transfer to Iya Sikira. Once you transfer money to Iya Sikira on the platform; a designated team behind the scenes confirms the transaction, and sends a blast email to everyone on the network; and Iya Sikira gets her funds. So, everyone with access to that platform/network gets the same alert by email. All the transactions in the correct sequence.

Each transaction must be confirmed and authenticated before another is added (hence the chain of transactions). The email (record) of transactions is the DLT. It is distributed, universal, and accessible to every single person with access to that network. Everyone can see all the “transfers”/”transactions” that have been made. The designated team behind the scenes that confirm the transactions and send the email blast are the miners. We can go into that later but for now, this illustration is good. Each transfer or transaction made via that platform is called a Block. Consequently, the string of blocks is called the “blockchain”. It takes some amount of time before each new block is created and added to the blockchain, consequently sealing in other preceding transactions.

Attributes of the DLT:

- It is distributed. So there is no need for a central record keeper. It’s peer to peer (P2P). Everyone gets a copy. Hence being a completely transparent process.

- It is run as a consensus network. Majority of the participants in the network must agree to network actions prior to them being taken.

- It is immutable. The transactions added to the chain are irreversible. In order for the transactions to be reversible, one will need to control 51% of the network’s computing power (which is controlled by some chosen mechanism for instance Proof of Work, Proof of Stake, Proof Deposit, and so on), or make the changes to the network (as well as all preceding transactions) before the 10 minute window [in the case of bitcoin] prior to another block being added to the chain. Which is generally just more difficult to do)

- It is anonymous. All transactions made on the blockchain are somewhat anonymous or on the more accurate side, pseudonymous, hence the attraction of bad actors to the technology. Recent tracing of bad actors by the FBI has however proved it isn't a completely safe haven.

- It is timestamped. Each transaction is timestamped with date and time, so that all the changes could be trackable. This is also achieved with hashes and digital signatures.

These attributes are key to understanding the reasons why this technology may be here to stay.

How did it all come about? Let me take you through a basic timeline. The timeline begins in 2008 with the release of an eight page Bitcoin paper titled Bitcoin: A Peer-to-Peer Electronic Cash System by Satoshi Nakamoto. No one knows up till now who Satoshi is. Many people believe he was conjured up, hence being classified as a pseudonymous person or group of people.

The first Bitcoin transaction of ’10 Bitcoins’ was made in 2009. The transaction was sent by Nakamoto to Hal Finney, A computer programmer who had been in very close contact with Nakamoto on the Bitcoin project (Hal is now deceased). Bitcoin was now in play; a cryptocurrency created via blockchain technology.

In 2010 the first bitcoin transaction was recorded by a programmer called Laszlo Hanyecz who bought two Papa John’s pizzas for 10,000 bitcoins (approximately $487,470,000 as at today).

Between 2011 and 2013, a great Bitcoin drive began with discuss on Bitcoin featuring; on television (The Good Wife series); and in Vancouver Canada the first Crypto automated teller machine (ATM) was launched amongst other examples. Awareness grew and the Bitcoin community experienced its first division (Fork) in 2013.

Bad actors began to function in the huge potential of Bitcoin, and more so the technology it had been built with. Mt. Gox the largest Cryptocurrency trading exchange at the time was presumably hacked into, with about 850,000 bitcoins siphoned. Mt. Gox had to file for bankruptcy leaving a plethora of shocked customers in its wake. Having identified the culprit, it was recently announced in Tokyo, that a Japanese bankruptcy trustee is working to get the bitcoins reimbursed to the owners. Many other hacks of exchanges have since been recorded.

The blockchain technology was further established with the creation of Ethereum in 2013 by programmer Vitalik Buterin. With the Ethereum came the opportunity to create ecosystems on the blockchain (like DApps — Decentralized/Digital Applications, DAOs — Decentralized Autonomous Organizations, Smart Contracts and so on), as well as the Ethereum cryptocurrency (ETH).

The Government took notice of the rise in cryptocurrencies and blockchain technology. In 2014 Thailand banned Bitcoin, China prohibited financial institutions from using it, while Germany accepted it as a unit of account as opposed to money. New cryptocurrencies began to emerge in 2016. The Governments’ began to clamp down all around the world. An American who had created a website called Silk Road for the sale and delivery of drugs was apprehended and arrested in 2013. BitInstant a bitcoin exchange was also shut down in 2014, with the co-founder Charlie Shrem being arrested, and charged with money laundering and operating an unlicensed money-transmitting business. While some Governments are still fighting back the blockchain technology and its wide acceptance; others are now taking on the task of finding ways to innovate to include or restructure their financial and economic systems to include this new and widely accepted mode of transacting. It’s not news, many policy makers and regulators are struggling on this one. Estonia is leading the way as a fully digital republic; and have classified their Government “virtual, borderless, blockchained, and secure”; as described by The NewYorker.

Corporate organizations are not left out. Many are now scrambling to establish their future in this new era of blockchain technology; with even the Big 5 beginning to invest and procure technologies in this space. Amazon is establishing itself with the Amazon Managed Blockchain. Facebook is planning to launch its own digital currency called Libra/Diem for use on its social network, and Novi, the accompanying digital wallet. Google Cloud has joined the governance board of Hedera and will begin to host nodes on Google Cloud. Google Ventures has also backed Blockchain.com with $120 million funding. We can safely say they now have skin in the game. Apple is said to have filed a patent indicating its interest in blockchain. While Microsoft is said to have completed a deal with an Israeli bank based on Blockchain.

Decentralized finance (DeFi) which is a blockchain-based form of finance has an ecosystem that is growing in leaps and bounds; with multiple layers and variety of services.

The technology behind the currencies is consequently showing even more potential. There are however still some vulnerabilities which need to be improved upon, for instance the bitcoin speed of the number of transactions every 10 minutes is rather slow for modern times (other cryptocurrencies have since improved and are still improving on this). Also, the environmental side effects of mining are a huge concern, as mining is not good for the environment. Private blockchains’ are also still very susceptible to hacks; and the cryptocurrency market is still very volatile. The system is also not immune from social engineering such as phishing attacks and so on, amongst other vulnerabilities. Overall, the evolution of the blockchain is new, risky, complex, and is continuing to grow at a rapid pace. For instance there is already an alternate cryptocurrency built off the blockchain called IOTA which uses a “tangle” based on a directed acrylic graph (a mathematical concept). The project is still in the early stages but you can just imagine that we are only just scratching the surface of what all of this will turn out to be.

Some of the reasons why blockchain technology may be important for us:

- It has an improved level of security (transactions cannot be changed or deleted easily)

- We can conduct Instant transactions anywhere in the world without middle men, and unnecessary fees (It is peer to peer — P2P)

- Worldwide transactions can take place within minutes

- Privacy (Sensitive information is protected).

- Zero Trust (Everything on the blockchain is recorded, trackable, and verifiable).

- It allows for Multi party data sharing. DLT systems can be created where any party who updates a system, all parties will instantly get the update.

- Removal of redundant administrations/processes.

- Automation (With smart contracts and tokenization, processes can be automated).

- More opportunities to earn; for instance buying and selling of Non Fungible Tokens (“NFTs”) on Marketplaces and so on.

- Removal of sharing of unnecessary information.

- Removal of Counterfeiting (as products, services, and transactions can be tracked from their origin till the point you have access to them). For instance a customer can buy frozen chicken from a store; scan the code on it and be able to see the entire vendor chain from the farm to the store.

- Blockchain is a risk mitigation tool. It can help shining light on better data so one can make more informed decisions.

In 2017, the Central Bank of Nigeria (“CBN”) released a circular to all Banks and Financial Institutions in Nigeria on Virtual Currencies (“VCs”). The CBN stated that VCs were largely untraceable, and anonymous; and consequently risky to deal with. CBN warned that dealing with VCs’ such as Bitcoin, Ripple, Monero, Litecoin, Dogecoin, Onecoin etc., and other such similar products are not regarded as legal tender in Nigeria; and any bank or institutions which deals with such, does so at its own risk… To be continued….stay tuned

Thanks for reading this article! :) If you enjoyed it, please like, comment, and share the post.

Disclaimer: This article is not intended to provide legal or financial advice. All information, content, and materials available on this site are for general informational purposes only. Areas discussed are also constantly changing with new regulations, laws, cases and so on; Consequently, do ensure you conduct your own personal research before using information herein.

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