Opinion: Regulating NFTs now is utter folly

Author: George Basiladze, Co-founder and CEO of Wert Source: blockworks Compilation: Shan Ouba, Jinse Finance

Uncharted territory for regulation

The smart devices and laptops you use today would have been considered science fiction 25 years ago.

Because in a relatively short period of time, technology has taken us from analog phones to supercomputers as communication devices.

The fact that many of us refer to our smart devices as "phones" suggests that our understanding of technology and functionality has been surpassed by the technology itself. Your iPhone is so much more than a phone; in fact, it's probably the function you use the least.

Technological advances have created an environment that has sparked intense innovation, which eventually led to cryptocurrencies and blockchain technology. Then came the NFT: a digital token that records a complete history of every transaction it has participated in, and can identify or claim ownership of almost any item, which is still a very new concept for us.

NFTs can be anything - who's to say what NFTs will look like or be able to do in 25 years? We can guess, but it might sound like the work of science fiction.

So please don’t over-regulate and make them disappear until we see what else NFTs can do.

Trials and Supervision of Cryptocurrency

If you work in the cryptocurrency field, regulation policy is undoubtedly an important issue that is always on the mind.

In the United States, the debate over cryptocurrency regulation is raging in Washington, D.C. The European Union has successfully passed a package of regulatory rules known as "MiCA for the cryptocurrency market", setting a milestone for the cryptocurrency industry.

As the discussion of regulation in our industry hardly ceases, one of the debates that has intensified is: Are NFTs securities? If yes, is it subject to regulatory review?

yes? no? Or is it possible or not?

An NFT could be a digital memento of LeBron James breaking the all-time NBA scoring record. It can also be a California Certificate of Ownership of the vehicle. Or it could be the recording of John Lennon singing "Imagine" for the first time live.

So, are NFTs securities that need to be regulated? My answer is that NFT is only a carrier, and its underlying assets determine whether it is a security. This means that regulators need to consider the underlying assets behind them when discussing how to regulate NFTs.

Since NFTs can now be defined in many ways, how they will develop in the future and how regulators will keep pace is uncertain. If regulators apply the Howey test, which treats investment contracts as securities, they may conclude that at least some NFTs meet that definition.

For example, in a case against Dapper Labs involving digital NBA Top Shot memorabilia, a judge ruled that promotional tweets featured emojis, implying that the collectibles would increase in value. In this case, it’s the companies promoting these NFTs that hint at and tout ROI on Twitter, making them securities and not just digital trading cards.

Unleash Future Potential

Regulators eager to act may see Dapper Labs' decision as justification for taking a draconian approach to treating any NFT as a security. But given the virtually limitless applications of technology and the ever-changing nature of technology, adopting such a policy would unnecessarily stifle innovation and inhibit Web3 adoption.

Given that even regulators and legal experts are deeply divided on what an NFT is, it's reasonable to worry that broad regulation could kill a multibillion-dollar industry.

This is why the European Parliament’s decision to exclude NFTs from MiCA cryptocurrency regulation was a wise decision. By adopting regulatory oversight that focuses on clarity and consumer protection, NFT technology can continue to evolve into a game-changing technology.

Summarize

NFTs may prove to be the greatest digital tools yet, and we have no idea of their potential years from now. Therefore, regulation needs to give NFT technology the freedom to grow and develop.