The smart devices and laptops you’re reading this on now would have been considered science fiction 25 years ago.
Because in a relatively short time, technology has taken us from analog telephones to supercomputers that function as communication devices.
The fact that many of us refer to our smart devices as “phones” shows that our understanding of technology and function is surpassed by the technology itself. Your iPhone is so much more than just a phone; in fact, the phone aspect is probably the feature you use the least.
Technical advancement created an environment where intense innovation flourished, eventually giving us cryptocurrency and blockchain. Then came NFTs: a digital token that contains a full history of every transaction it participated in, and can identify or indicate ownership of just about anything, is still a very new concept to wrap our heads around.
NFTs can literally be anything – who’s to say what NFTs might do or look like in 25 years? We can guess, but it may sound like science fiction.
So please, let’s not ban the existence of NFTs until we’ve seen what else they can do.
The trials and regulations of crypto
When you work in crypto, regulation is always important – and for good reason.
Washington, DC is buzzing with debate over proposed crypto regulation in the United States. The European Union has successfully passed its groundbreaking set of regulatory rules for the crypto industry known as Markets in Crypto Assets (MiCA).
With the near-constant regulatory chatter in our industry, one debate that has escalated is whether NFTs are securities or not: and whether they then need some of this regulatory oversight to guide their way.
Yes? No? Yes and no?
An NFT is a LeBron James digital collectible that breaks the NBA’s all-time record. An NFT is a car title in California. An NFT is a recording of John Lennon’s first live performance of “Imagine”.
So are NFTs securities that need to be regulated? My answer is that the NFT is just the vehicle; the underlying asset determines whether it is a security. This means that regulators should consider the underlying asset when discussing exactly how to regulate NFTs.
Since NFTs can now be defined in different ways, it is uncertain how they will develop in the future and how regulators will take them into account. If regulators apply the Howey test, which identifies security as an investment contract, they can determine that at least some NFTs fall under the definition.
For example, in the case against Dapper Labs over digital NBA Top Shot memorabilia, the judge ruled that promotional tweets featuring emojis suggested the collectibles would gain value. In this case, it was the suggestion and promotion of investment returns on the company’s Twitter account in promoting these NFTs that turned them into securities rather than just digital trading cards.
Read more in our opinion section: You’re not thinking hard enough about digital art
Regulators eager to jump the gun might see Dapper Labs’ decision as reason enough to take a draconian approach by designating any NFT as a security. But given the virtually limitless applications and the ever-evolving nature of the technology, adopting such a policy would needlessly hinder innovation and slow Web3 adoption.
Given that even regulators and legal experts are sharply divided on what NFTs are, it’s reasonable to be concerned that far-reaching regulation could stifle a multibillion-dollar industry.
Therefore, the exclusion of NFTs from the MiCA crypto regulation of the European Parliament was a wise decision. By applying regulatory oversight that focuses on clarity and consumer protection, NFT technology can continue to grow and develop as a breakthrough technology.
NFTs may turn out to be the best digital tool yet, and we have no idea what they can do years from now.
It is vital that any proposed crypto regulation should give NFT technology the freedom to grow and develop.
George Basiladze is the co-founder and CEO of Wert, a fintech company dedicated to creating products that extend access to fiat payments to NFTs and the Web3 space. A two-time founder of Web3 companies, George previously co-founded the Cryptopay company before starting Wert. Launched in 2013, Cryptopay is one of the oldest Bitcoin wallets available in the UK with over 1.5 million customers worldwide. Under George’s leadership, Cryptopay was one of the first companies to offer prepaid debit cards that allowed customers to spend their crypto anywhere traditional debit cards are accepted, with over 100,000 cards issued. Prior to founding Wert and Cryptopay, George worked as Chief Analyst for NordWest Energy, Corporate Financial Analyst for Evli Bank PLC and Deal Intelligence Analyst for ReDeal AG, where he gained years of experience in the financial and technology industries. Born in Georgia, George is a graduate of the University of Exeter and the Higher School of Economics. George is currently based in Estonia.