By: Evoryo Carel Prabhata, S.H.
Hello Selaras Friends!
NFT has been quite a hot topic throughout the internet, news, even academic forums for some time. Despite its pros and cons, how about its legality in Indonesia?
When Does It Start?
NFT was first created by Kevin McCoy on May 3, 2014. The first work created was the “Quantum” which he introduced to an application called Counterparty and this NFT now has a price of 7 million US dollars.
In 2018 to 2022 there will be an explosion of NFTs, this is due to the big changes that have occurred in the art and industry markets. The sale of this artwork has significantly validated the NFT market. Another factor that makes NFTs even more preferable is engagement Blockchain.
NFT Development in Indonesia
Indonesia is also a country where NFT developments are also rapid after a student named Ghozali on social media sells selfies that he has taken consistently every day for several years.
He sells the photos at NFT marketplace, namely OpenSea. He went viral when the photos of him selling the NFTs skyrocketed. After this incident, the popularity of NFT in Indonesia began to increase rapidly
The process of buying and selling NFTs, which is increasing rapidly in Indonesia, is in fact not accompanied by laws and regulations that refer directly to regulating NFT buying and selling transactions. This raises several legal issues.
Particularly the legality of buying and selling NFT transactions carried out by the system smart contract in blockchain which automatically replaces the third party. This creates a new legal relationship that is currently not regulated in Indonesia.
According to Gustav Radbruch doctrine, law should create (Legal Certainty), justice for society (Fairness) and efficiency. This doctrine exists so that in the future the law can adapt to existing conditions.
Read More: Cryptocurrency Future in Indonesia
One of the legal problems that must be answered is the legality of whether or not NFT buying and selling transactions are carried out on websites such as OpenSea which is based on blockchain and by smart contract which replaces the role of third parties in buying and selling transactions.
A sale and purchase agreement can be determined whether it is valid or not by analyzing several legal terms of the agreement contained in the provisions of Article 1320 of the Civil Code. Which needs to fulfill 4 conditions which are:
Consent is one of the conditions. It indicates both parties’ interest and a mutual trust. This mutual relationship also indicates that there is no coercion in a contract. Coercion automatically means that a contract is not legally forceable.
Capacity, it means the party that is involved in a contract must have the capacity to make it. One of the indicators to assess capacity is health, both physical and mental. Forming a contract needs an optimal state of a person to assess and decide. Article 1330 of the Civil Code also adds that capacity means a person who is considered adult. Generally, an 18 year old is considered an adult.
Object, this condition explains that in the agreement made by the parties there must be an item of which the type has been determined, the item is not required by the provisions contained in the law.
A lawful cause, this condition demands that the thing agreed upon in the agreement must be in accordance with the substance of Article 1337 of the Civil Code which explains that the thing agreed upon must have a cause or cause that is lawful which is not prohibited by law
Furthermore, because NFT is an electronic contract, NFT can be tied to Government Regulation 71/2019 on Implementation of Electronic Systems and Transactions. Article 46 Paragraph (2) GR 71/2019 explains that an electronic contract can be considered valid if it meets the following requirements
- There has been an agreement of the parties in the electronic contract;
- The contract is executed by a competent legal subject or authorized to represent in accordance with the provisions of the law;
- There’s a certain thing;
- Objects used in transactions may not conflict with laws and regulations, decency and public order.
These two provisions clearly support the link between smart contracts and electronic contracts. It can be seen that actually a smart contract is an electronic contract that stands in an electronic system known as a blockchain.
The next thing to pay attention in NFT transactions is the currency used, namely Ethereum, which is a currency that conflicts with Law No. 7 of 2011 concerning Currency that the currency recognized in transactions in Indonesia is the rupiah.
Therefore NFT still needs to be regulated specially and needs to have some sort of government supervision. For more investment related article, please check our website at Selaras Group
Indonesian Civil Code
Government Regulations No. 17/2019 on Implementation of Electronic Systems and Transactions
Kugler, Logan, “Non-fungible tokens and the future of art,” Communications of the ACM, Vol. 64, No. 9, Agustus, 2021.
Wilson, Kathleen Bridget, Adam Karg, dan Hadi Ghaderi, “Prospecting non-fungible tokens in the digital economy: Stakeholders and ecosystem, risk and opportunity,” Elsevier Business Horizons, Vol. 65, No. 5, 2022.
Kompas.com, “Melihat Perkembangan NFT di Indonesia, dari Awal Mula hingga Muncul “Ghozali Effect”, Diakses pada laman, https://tekno.kompas.com/read/2022/02/28/09350097/melihat-perkembangan-nft-di-indonesia-dari-awal-mula-hingga-muncul-ghozali?page=all. Pada tanggal 5 Januari 2022.
Editor: Bambang Sukoco, S.H.