10 industry leaders’ tips for regulators as they begin to scrutinize NFTs
Many outside the crypto industry first heard about non-fungible tokens only in the last year or so, with most mainstream coverage focused on the digital art market. Those not in the know may well have thought that NFTs would amount to nothing more than digital collectibles. However, industry pioneers grasped the full potential of NFTs, and new applications are emerging that could impact multiple industries.
As the value of NFTs as assets is realized, regulation will certainly follow – but it will not be as simple as applying the rules established for more traditional assets. Below, 10 members of the Cointelegraph Innovation Circle discuss some key facts regulators should understand as they begin to scrutinize NFT markets.
Get to know the underlying technology and its potential
NFTs are not only a new concept, but the blockchain technology behind them is complex. Regulators should be careful when trying to group them into an existing framework. They should approach the NFT market with a willingness to learn and understand the underlying technology behind NFTs and the ways tokenization technology can be used to disrupt many industries. – Megan Nyvold, BingX
Realize that NFTs are not “one size fits all”
Regulators should understand that NFTs are not ‘one size fits all’. Their applications are incredibly broad, and rules that make sense to apply to one type of NFT may not make sense to apply to another. – Molly Glennon, Ditto
Know that not all NFTs are securities
Say you go to the cinema: you pay the entrance fee and they give you a piece of paper that entitles you to watch the film undisturbed – all good. Now let’s save some trees (ESG, anyone?). Instead of issuing a paper ticket, the theater asks you to download an app (wallet) so they can send you an ERC-721 token that gives you the same rights as the paper ticket. How is that a security? – Carlos Gomez, Belobaba Crypto Fund
Recognize the potential for creativity NFTs provide
It is important for regulators to recognize the significant potential for creativity that NFTs bring. By enabling new forms of artistic expression, community building and economic activity, NFTs help drive a wave of exciting new opportunities. To best support this innovation, regulators should think about ways to promote growth and development while protecting end consumers. – Bogomil Stoev, Seasonal Tokens
Don’t stifle innovation in the industry
NFTs are much more than just a speculative asset class. The unique properties of NFTs have a wide range of practical applications that can help catalyze growth across many different industries. So while regulators should work to protect investors from bad actors, they must also be careful not to stifle innovation. – Wolfgang Rückerl, ENT Technologies AG
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Consider both emerging and traditional markets
Regulators must approach NFTs with caution to protect both buyers and sellers. They should establish and implement standards that ensure authenticity and security and create a regulatory framework that takes into account both emerging and traditional markets. This will ensure that all parties are fully protected and that the market remains safe, fair and prosperous. – Theo Sastre-Garau, NFTaften
Focus the regulations on the players, not the technology
Regulators should understand the unique nature of NFTs as distinct, unique digital assets. This understanding will help them approach regulation in a way that recognizes the distinct characteristics of NFTs and avoids stifling innovation in the space. Ideally, regulation should be imposed on the actors in an ecosystem, not the blockchain technology itself. – Sheraz Ahmed, STORM Partners
Countering the known bad actions in the market
Regulators know that the NFT market is widely used to launder funds – just like the old-fashioned art market. They should set appropriate rules to counter this, focusing on such things as more transparency, Know Your Customer, anti-money laundering requirements and so on. – Motti Peer, ReBlonde LTD
Take a nuanced approach
Regulators should take a nuanced approach and have an understanding of the unique characteristics of NFTs and their intended use in order to properly regulate the market. For example, an NFT representing virtual property in the metaverse may have distinct legal implications versus an NFT representing digital artwork, as it relates to the ownership of virtual space and the management of virtual entities. – Vinita Rathi, Systango
Study the many uses and facets of NFTs
Regulators need to fully understand the many uses and facets of NFTs in order to best regulate the market. NFTs have many uses beyond speculative investment vehicles or digital art; therefore, comprehensive knowledge of their capabilities and the functions they serve will be essential to making informed regulatory decisions. -Anthony Georgiades, Pastel Network
This article was published through the Cointelegraph Innovation Circle, a researched organization of top executives and experts in the blockchain technology industry who are building the future through the power of connections, collaboration and thought leadership. Opinions expressed do not necessarily reflect those of Cointelegraph.
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