Author: George Basiladze, Co-founder and CEO of Wert
Source: blockworks
Translation: Shanooba, LianGuai
The Unknown Territory of Regulation
Today, the smart devices and laptops you are using 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 that serve as communication devices.
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In fact, many people refer to our smart devices as “phones,” which indicates that our understanding of technology and functionality has been surpassed by the technology itself. Your iPhone is much more than just a phone; in fact, the phone function may be the least used feature.
The advancement of technology has created an environment that inspires intense innovation, ultimately leading to cryptocurrencies and blockchain technology. And then came NFTs: digital tokens that record the complete transaction history of every transaction they participate in, and can identify or represent ownership of almost anything, which is still a very new concept to us.
NFTs can be anything—who can say what NFTs will look like or what functions they will be able to achieve 25 years from now? We can speculate, but it may sound like science fiction.
So, before we see what other functions NFTs can achieve, let’s not over-regulate them and make them disappear.
The Trial and Regulation of Cryptocurrencies
If you are involved in the cryptocurrency field, regulatory policies are undoubtedly an important issue that is always on your mind.
In the United States, the debate over cryptocurrency regulation is heating up in Washington, D.C. And the European Union has successfully passed a package of regulatory rules called “Markets in Crypto Assets” (MiCA), setting a milestone for the cryptocurrency industry.
As the discussions about regulation in our industry have hardly stopped, one increasingly heated debate is: Are NFTs securities? If so, do they require regulatory scrutiny?
Yes? No? Or maybe it’s possible either way?
NFTs can be a digital collectible commemorating LeBron James breaking the NBA’s all-time scoring record. They can also be a car title in California. Or they can be a recording of John Lennon’s first live performance of “Imagine.”
So, do NFTs need to be regulated as securities? My answer is that NFTs are merely a medium, and it is the underlying asset that determines whether they are securities. This means that regulatory agencies need to consider the underlying assets when discussing how to regulate NFTs.
Due to the various definitions of NFTs at present, it is uncertain how they will evolve and how regulatory agencies will keep up with them in the future. If regulatory agencies apply the Howey test, which treats investment contracts as securities, they may deem certain NFTs to meet this definition.
For example, in the case involving Dapper Labs and NBA Top Shot digital collectibles, the judge ruled that promotional tweets with emojis implied that these collectibles would appreciate in value. In this case, it was the company’s promotion of these NFTs on Twitter, hinting at and advertising investment returns, that made them securities, not just digital trading cards.
Unleashing Future Development Potential
Regulatory bodies eager to take action may view Dapper Labs’ decision as a reason to harshly classify any NFT as a security. However, considering the almost limitless applications of the technology and its constantly evolving nature, adopting such a policy would unnecessarily stifle innovation and hinder the adoption of Web3.
Given the significant disagreements among regulatory bodies and legal experts regarding what NFTs actually are, concerns about broad regulations potentially suffocating a billion-dollar industry are valid.
This is why the European Parliament’s exclusion of NFTs from MiCA cryptocurrency regulation is a wise decision. By focusing on clear and consumer-protective regulatory oversight, NFT technology can continue to evolve as a game-changing technology.
Summary
NFTs may prove to be the greatest digital tools to date, and we have yet to fully grasp their potential years down the line. Therefore, regulation needs to allow the freedom for NFT technology to grow and develop.
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