NFT Sector Snapshot

Sunday 19th September, 2021 - Bruce Sterling

*As business summaries go, it’s not too bad.



NFTs are confusing regulators and politicians. It is unclear whether an NFT is a security (which would be regulated in the United States by the SEC just like a stock) or some other kind of asset. It is unclear how NFTs should be taxed. Because NFTs are global, every country in the world is involved. Which rules will apply? The country of origin (where the NFT was originally minted)? These are very early days and no one knows how the regulatory issues will ultimately play out. However, in the United States, the new infrastructure bill specifically calls out NFTs as an asset class and makes them subject to federal capital gains taxes.

Anti-money-laundering watchdog FATF, the Financial Action Task Force, is targeting DeFi, NFTs, and Crypto (writ large). This is a very big threat to the entire sector.

Then there’s climate mythology. Are NFTs using too much electricity? Is crypto bad for the environment? The short answer is that it is no worse than video games or gold mining or a thousand other human activities. That said, when you’re explaining, you’re losing. This myth won’t die.

Intellectual property (IP) rights are another sticking point. Copyright laws vary wildly from country to country. Some countries do not have any restrictions or do not enforce them. This gets very complicated very quickly. For example, if you purchase an NFT that includes a song or video created in the United States, you will most likely enjoy “fair use” rights to the work, meaning you’ll have the same rights to use and enjoy the work as if you purchased a download or bought a vinyl record or DVD. You can’t use it for commercial purposes, but you can certainly sell your record or video collection at a flea market or swap meet. Copyright laws are hard to explain to professionals. When you purchase an NFT, there is no international standard that describes what you have actually purchased or your rights to use it….