Non-Fungible Tokens (NFTs) have exploded onto the scene with sales such as the Beeple NFT fetching US$69m catching the attention of people across the world. NFTs are increasingly seen as a new digital ownership framework that creates opportunities for new business models. Artists, creators or musicians can attach stipulations to an NFT that ensures they receive some of the proceeds when it gets sold – benefitting if their work increases in value. Similar to DeFi, the blockchain technology adds a layer of security to the trading of NFTs. Smart contracts ensure that assets change hands automatically and the algorithms ensures that both parties honour their agreements.
At present, the legal status of NFTs is uncertain. Nevertheless, its rise in popularity and high value transactions have resulted in jurisdictions taking steps to try to identify what / if any regulatory approach should be taken towards the use of NFTs. At present, there is not a specific regulatory initiative aimed at NFTs, but some regulations capture certain NFTs. For example, in the UK, certain NFTs may fall under the classification of ‘security tokens’ or ‘e-money tokens’ and thus would fall under the Financial Services and Market Act 2000 or Electronic Money Regulations 2011, however, the reality is that most fall outside of this scope. The EU recently discussed the inclusion of NFTs within the remit of the Markets in Crypto Assets (MiCA) regulation, however the extent to this is yet to be seen. As the NFT market continues to expand, so too will the regulatory focus on this application.