Learn: Should Bored Ape buyers be legally entitled to refunds?

It isn’t clear whether a 25-year-old European Union law means you should be allowed to get refunds on your NFTs.

Should people who purchase nonfungible tokens (NFT) be entitled to refunds if they decide they don’t like their digital pictures? Some Europeans are beginning to make that case under a 25-year-old law.

Unhappy buyers have claimed that their right to a refund is protected by a 1997 European Union law that requires any person or business engaged in “distance selling” — that is, buying and selling a product that is not done in person — to allow customers a 14-day grace period to return the product for a refund. But since digital goods are different, the law makes provision for the 14-day period to be waived if customers are made aware in advance.

While the interpretation of the law is going to inevitably play out in the courts, there are several important caveats to take into account, particularly given that the law was written before the ubiquity of digital goods and services. Simply put, the law was written before the emergence of the internet, let alone digital assets like NFTs, so it is much less applicable today.

Just as an example that it is not applicable to the current state of the NFT market, consider that “this Directive shall not apply to contracts” that are “concluded with telecommunications operators through the use of public payphones.” What differentiates contracts that are concluded through the use of public telephones versus through the blockchain? Nothing substantive other than the delivery mechanism, underscoring that the intent of the law was to prevent consumers from getting ripped off by sellers who were shipping physical goods that turned out to be different from what the consumer originally desired before seeing it in person.

Fundamentally, applying the directive to NFTs would pose grave consequences for patent and trademark law. Crucially, each NFT is, by definition, inherently unique, and any NFTs that get refunded and discarded inevitably imply the destruction of intangible capital. By contrast with the 1997 EU directive, shipped products are largely homogeneous, so a buyer who seeks a refund and returns it does not damage the product and prevent the seller from reselling it.

Furthermore, allowing for refunds would eliminate the very purpose of rarity in profile picture projects — potentially eliminating their value altogether. Consider the example of Bored Ape Yacht Club NFTs. The highest-value BAYC purchase was for $3.4 million spent on #8817 — which was minted for roughly $1,000 in April 2021. Its rarity is partially a product of its “gold fur,” a trait held by less than 1% of BAYC NFTs on the market.

Of course, if buyers can simply request a refund in the event that they do not like the NFTs they randomly receive during the minting process, it’s safe to say that such “1% NFTs” will become much more common, as buyers will simply keep seeking refunds until they obtain the NFTs they want. If you follow the logical consequences of that thinking, there will no longer be rare NFTs in any corner of the market.

The reality is that the law around digital assets has not kept up with the technology, so there is naturally a temptation to rely on outdated, irrelevant regulatory guidance, for better or worse. But if we keep pressing on and companies innovate and serve consumers in good faith, we can converge to a new equilibrium that generates value on all sides of the equation.

This opinion piece first appeared in Cointelegraph, by Christos Makridis