What Exactly Does Food-related NFTs Represent? A Preliminary Exploration of the Legal Nature of Metaverse Chicken Rice NFTs

This article is written by Lu Yi-Xian, a director of the Taiwan Virtual Currency Anti-Money Laundering Association and a lawyer at Jianquan International Business Law Firm.

NFT (Non-Fungible Token) refers to a type of digital asset with characteristics such as indivisibility, non-replaceability, uniqueness, etc., which is also known as virtualized asset. These digital assets are traded through blockchain technology and can be used to verify the existence and authenticity of rights. Items like music, images, art creations, game props, game characters, and even a post on a social media platform can be sold in the form of NFT. For example, Twitter CEO Jack Dorsey publicly auctioned the first Twitter post in the form of an NFT, which was eventually sold for 1630.58 Ether (ETH), equivalent to about NT$78.49 million. However, what did the winning bidder actually acquire? Ownership of the post? Or a certificate? A broader question is, what do consumers who purchase NFTs actually obtain? There are various opinions on this matter.

NFT can serve as the transfer of intangible property rights, digital certificates, ownership representation, and interpretive data at least

The author initially believes that the nature of a specific NFT cannot be generalized, as follows:

Firstly, it may be the transfer of property rights, especially intangible property rights. It is highly possible to transfer copyright through NFT. For example, a music composer uploads their work to the blockchain and issues an NFT, stating that the purchaser of this NFT will own the copyright to the work. When a consumer purchases this NFT, they not only acquire the NFT but also the copyright to the work. However, it should be emphasized that the creator may also state that the purchaser of this NFT only receives a digital certificate and does not acquire any rights to the work.

Secondly, if it is a physical item, such as a physical painting, the creator or owner takes a photo of it and mints an NFT for sale. In this case, the content acquired by purchasing the NFT needs to be determined based on the consensus reached between the parties to ascertain whether the NFT can represent ownership of the physical artwork or is just a digital certificate. The former can be regarded as a representation of property rights transfer between the issuer and the purchaser based on the provisions of Articles 761, 1-3 of the Civil Code, such as simple delivery, change of possession, and instructions for delivery. However, if there is no agreement on these aspects when the NFT is resold to a third party, the NFT loses its function as a representation of ownership, diverging from real-world property rights, thereby rendering the NFT only a digital certificate. The latter view holds that NFT with this certificate function is a form of metadata, containing creation timestamps, artwork content, artwork links, and screenshots. The author agrees with this perspective.

In Taiwan, food-related NFTs have emerged, where issuing stores release NFTs on trading platforms and set a certain percentage of profit sharing for the issuing store each time the NFT circulates in the secondary market. The recent hype around Metaverse Chicken Rice NFT involves a three-party relationship in the trading process: the "issuing store," the "first-time holder A who purchases the NFT from the store in the primary market," and the "holder B who acquires the NFT through transactions in the secondary market."

Recently, NFTs have expanded beyond music, images, art creations, games, etc., and their applications have become quite diverse and beyond imagination. The emergence of "food-related NFTs" has been notable. For instance, a renowned Taiwanese crispy chicken shop, "Master Yuan Crispy Chicken," issued NFTs, allowing holders to redeem designated items at the crispy chicken shop upon acquiring the NFT.

In December 2021, a unique NFT was issued on the trading platform OpenSea, namely, "Metaverse No.1 Chicken Rice." This "Chicken Rice NFT" comes in two forms: a limited edition NFT and a lifetime free version NFT.

• The limited edition Metaverse Chicken Rice NFT has an initial trading price of 0.09 ETH, equivalent to 10,000 NTD. The holder of this NFT can exchange for a chicken rice meal each day for seven days starting from the acquisition of the NFT. After seven days, the exchange is no longer possible. However, if the holder resells the NFT to a subsequent holder for no less than 0.09 ETH, the new holder can also exchange for a chicken rice meal each day for seven days with the NFT.
• The lifetime free version of the Metaverse Chicken Rice NFT has an initial trading price of 1.9 ETH, equivalent to 200,000 NTD. The holder of this NFT can redeem a chicken rice meal each day at the designated store indefinitely. Similarly, if the holder sells the NFT to a subsequent holder for no less than 0.09 ETH, the new holder can also redeem a chicken rice meal each day at the store starting from the acquisition of the NFT.
• Under the profit-sharing mechanism on the trading platform, the issuing store of the chicken rice NFT can extract 10% of the transaction price as profit for each transaction in the secondary market.

As such, the trading process of the Metaverse Chicken Rice NFT primarily involves a three-party relationship: the "issuing store," the "first-time holder A who purchases the NFT from the store in the primary market," and the "holder B who acquires the NFT through transactions in the secondary market."

However, there is currently no consensus on the nature of NFTs, and opinions vary among scholars and practitioners. Moreover, there is no legal interpretation regarding the legal relationships of the parties involved in the operation of the "chicken rice NFT," particularly the more complex "limited edition" model. Therefore, this article attempts to categorize food-related NFTs and analyze the Metaverse Chicken Rice NFT as the subject of analysis. The legal relationships between the issuing store, holder A, and subsequent holder B are discussed below:

I. Issuing Store and Holder A: Reaching a sales contract for the NFT itself, with the 7-day daily chicken rice offer being a gift contract

Firstly, when the issuing store publishes a white paper, a roadmap, or sets out the rules of the product in the description, what is the relationship between the issuing store and the purchaser A? The relationship between the issuing store and holder A in the sale of the Metaverse Chicken Rice NFT is undoubtedly a sale contract, indicating a clear buying and selling relationship between them.

The issuing store predefines the relevant buying and selling rules, predetermines the contract content of the sale of the Metaverse Chicken Rice NFT, and enters into a contract with unidentified individuals. The issuing store acts as the offeror providing standardized contracts, and the holder decides whether to accept or reject the offer based on their willingness, indicating the existence of standardized contract terms between them. Therefore, the pre-drafted standardized contract terms provided by the issuing store should comply with the relevant regulations of the Civil Code and Consumer Protection Law, ensuring fairness, equality, reciprocity, and good faith, to be considered valid and not unfairly disadvantageous, even if signed by the other party.

Secondly, what does holder A get when purchasing the Metaverse Chicken Rice NFT? Is it the chicken rice itself? Or is it the NFT? If it is just the NFT, how should the 7 bowls of chicken rice airdrop be explained? Or is it the NFT plus 7 bowls of chicken rice? In this regard, the content of the buying and selling agreement between the two parties regarding the NFT should be examined. There is no dispute that the subject of the sale includes the Metaverse Chicken Rice NFT, but what about the chicken rice? The issuing store states that the holder of the Metaverse Chicken Rice NFT can receive airdropped chicken rice for seven consecutive days, suggesting that the chicken rice is at best a complimentary item. This may raise issues such as flawed chicken rice quality or supply refusal by the issuing store, particularly concerning how holder A can assert their rights.

Alternatively, revisiting the rules set by the issuing store, taking the 7-day Metaverse Chicken Rice as an example: "...6. Transfers or transactions below the floor price of 0.09 ETH will forfeit the 7-day chicken rice airdrop." At the time of writing, 0.09 ETH is approximately 8574.71 NTD. Considering a 10% profit-sharing for each transaction, the issuing store can earn around 857 NTD, with a chicken rice meal costing approximately 122 NTD. This suggests that even if holder A continues to transfer the NFT for 0.09 ETH to the next holder, as long as the price of 1 ETH does not fall below 2500 USD or 1 USD is equivalent to 27.5 NTD, the issuing store can receive transaction profits equivalent to the price of selling 7 chicken rice meals in a physical store. Therefore, the characterization of these 7 chicken rice meals would be considered part of the sales contract for holder A, implying that any defects in the chicken rice or refusal of supply by the issuing store could lead to liability for breach of warranty or non-performance.

It is essential to consider what the mutual consensus of the issuing store and holder A is when selling the Metaverse Chicken Rice NFT and when the purchaser acquires the NFT. It is unlikely that the agreement involves purchasing chicken rice, as there would be no need to purchase the NFT for that purpose. Furthermore, whether or not the issuing store airdrops chicken rice is not a crucial concern for holder A, given that the price of the NFT is generally affordable. In the NFT frenzy, the issuing store sells the NFT itself, using it as a gimmick to enter the NFT market early and anticipate potential profits from subsequent transactions. For holder A, the primary goal is to invest in the NFT, hoping to achieve substantial returns. Therefore, the nature of the Metaverse Chicken Rice NFT seems more akin to intangible property rights (note: Is it possible for an NFT itself to be considered property? There is room for discussion, but it will not be addressed here due to space constraints), where upon selling the NFT, the holder gains disposal, use, and profit rights, while the 7 bowls of chicken rice are more like a gift. Additionally, in the case of the lifetime airdrop and daily chicken rice NFT, given its initial sale price and transfer price, it is evident that the issuing store has factored the cost of the chicken rice into the NFT, making the chicken rice part of the transaction subject of the NFT.

II. Holder A and Holder B: Reaching a sales contract for the NFT itself

As holder A and holder B are ordinary individuals, and their understanding of the purchased item is limited to the NFT, excluding any guarantee by holder A to the issuing store for chicken rice, their agreement pertains solely to the NFT. Since their transaction relationship is a standard buying and selling scenario, it can be handled according to general sales contracts.

III. Issuing Store and Holder B: Setting conditions and communicating them to the general public, establishing a gift contract with the content of receiving 1 bowl of chicken rice each day for 7 days starting from the acquisition by Holder B

As there is no transaction relationship between the issuing store and subsequent holder B, and holder B does not consider themselves in a transaction with the issuing store, no buying and selling relationship exists between them. The issue arises as to how holder B can claim the 7 bowls of chicken rice airdrop from the issuing store.

In the Civil Code of Taiwan, it is not prohibited for an offeror to set specific conditions and communicate them to the general public. When the conditions are met by the general public, a contract naturally forms between the parties, known as a "reward advertisement." Applying this concept to the case of the Metaverse Chicken Rice NFT, Holder B satisfies the conditions set by the issuing store upon purchasing the NFT from Holder A, automatically establishing a gift contract where the issuing store is obligated to provide 1 bowl of chicken rice each day for seven days. Therefore, when Holder B presents the NFT to the issuing store, the store only needs to verify that Holder B owns the NFT and the acquisition time to determine whether chicken rice should be provided. The function of the Metaverse Chicken Rice NFT, apart from its intrinsic NFT value, is at most an identification or representation for receiving chicken rice.

After the Metaverse Chicken Rice NTF...

Despite the extensive discussion, the main motivation was a craving for chicken rice. However, NFTs have sparked broader imaginations. Recently, Hester Peirce, a commissioner at the U.S. Securities and Exchange Commission (SEC), suggested in an interview that NFTs with specific purposes and financialization should prompt people to consider the possibility of these NFTs being classified as securities.

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