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Are NFTs Entering a ‘Golden Age’? Expert Roundtable

Are NFTs Entering a ‘Golden Age’? Expert Roundtable

While the initial hype that surrounded non-fungible tokens (NFTs) in 2021 may have died down in the last couple of years, a number of people in the space continue to make bullish bets on the industry’s future.

Of course, the U.S. Securities and Exchange Commission’s (SEC) recent statement on potentially classifying NFTs as securities has stirred some speculation and volatility in the market, but it has also drawn attention back to it.

In more recent years, NFTs have moved beyond their speculative origins, expanding into use-case applications like gaming, real estate, the luxury industry, museums, ticketing, and intellectual property.

Fad or valuable (and potentially profitable?) products in their own right? Let’s revisit the world of NFTs.

Key Takeaways

  • Initially driven by speculation, NFTs are evolving into tools with practical applications in gaming, real estate, and more.
  • NFTs provide artists with irrefutable proof of ownership and authenticity, protecting their work from unauthorized reproduction and forgery.
  • The value of NFTs could be compared to that of traditional art – emphasizing long-term ownership and appreciation.
  • And then there are NFTs increasingly used for tokenizing real-world assets like property, adding tangible benefits and liquidity.
  • The future of NFTs lies in their practical applications rather than speculative excitement.

The NFT Space Is Going Through a Metamorphosis

The life cycle of NFTs thus far could be compared to that of a butterfly. Born as caterpillars, they started out as something different from their future form, undergoing a transformative cocooning process before reaching that final butterfly stage.

It seems that the current stage in the life cycle of NFTs could be compared to that cocooning stage — appearing dormant but quietly undergoing transformation, preparing to emerge in a new and evolved form.

A recent study conducted by NFT Evening made a loud statement: 96% of NFTs are considered “dead” based on three factors: zero trading volume, minimal seven-day sales, and inactivity on Twitter.

The study further emphasized that the average lifespan of an NFT is also notably shorter than the average span of more traditional crypto projects.

“The average lifespan of an NFT is notably short. The average lifespan of an NFT is now 1.14 years, which is 2.5 times shorter than the average lifespan of traditional crypto projects. This short lifespan reflects the intense speculative nature of NFTs, where rapid price fluctuations and the novelty of digital assets fail to sustain long-term value.”

However, such findings could also be argued.

NFTs, unlike cryptocurrencies such as Bitcoin (BTC) or Ethereum (ETH), are not meant to be traded constantly. While BTC and ETH function as digital currencies and stores of value with high liquidity, NFTs represent unique digital assets, often more akin to owning traditional art or collectibles.

Just as you would not trade a Monet or a Picasso every day, NFTs hold an intrinsic value that is less about constant market activity and more about long-term ownership and appreciation.

Speaking with Techopedia, Anndy Lian, an inter-governmental blockchain advisor and author of NFT: From Zero to Hero, highlighted that the NFT space is currently undergoing that exact “metamorphosis” process.

“We are actually seeing a shift happening right now, moving away from pure speculation and towards more concrete use cases.  For example, digital artists are using NFTs to prove ownership and authenticity of their work, and the gaming industry is exploring NFTs for in-game items and unique experiences.”

Needless to say, NFTs continue to be novelty-driven and playful; however, their focus is undoubtedly starting to shift gradually toward utility and long-term value.

NFTs Continue to Open Doors for Artists

For years, one of the most prominent issues in the arts industry was proof of ownership. Artists often struggled with unauthorized reproductions, forgeries, and disputes over who truly owned a piece, especially in the digital era where copying and sharing artwork online became effortless.

NFTs provide undeniable proof of ownership for artists’ digital creations, arguably a silver bullet for those who have struggled with copyright infringement in the digital age.

Glam Beckett, the creative director of Sad Girls Bar, an NFT collection recognizable for its monochrome, hand-drawn female profile pictures, added that NFTs are an additional revenue stream and a way for many artists to attract new audiences and collectors.

In addition, NFTs help artists unleash more of their creativity, allowing them to experiment with animation, artificial intelligence (AI), and music.

Rhiannon Fletcher, an up-and-coming NFT artist was also bullish on the possibilities the technology gives new creators. 

“The NFT movement is the most significant artistic revolution we have seen since the invention of the photograph. Artificial Intelligence is breaking down barriers, and the blockchain, with its provenance and smart contracts, is providing the tools that artists need to be fully independent.

“The global community forming around the NFT art scene should also not be dismissed. Online communities are on the rise, allowing people to connect in real-time from anywhere.”

Beyond that, the technology powering NFTs also serves as a direct line to collectors, cutting out traditional gatekeepers like galleries.

“This means artists can build closer relationships with their audience and potentially earn a more significant share of the profits from their work.

“The ability to program royalties into NFTs is also revolutionary, allowing artists to earn a percentage every time their work is resold,” Lian said.

NFTs Are Moving into RWA — It’s a Positive Change

While some people may not be such big fans of the initial NFT phase of profile pictures with collections such as Bored Apes Yacht Club and CryptoPunks emerging at the top, they do understand that they have played a crucial role in helping the industry develop into what it is today.

“I often equate PFP [profile picture] NFTs … to a bar selling coasters or matchbooks with their logos. PFPs served their purpose by driving the first sales cycle and drawing attention and eyeballs to the technology.

“Without this initial buy-in and hype, NFT projects would not have gotten the funding to work on the underlying tech,” Fletcher explained.

Fletcher added that NFT ticketing and real-world assets (RWAs), on the other hand, add more positive momentum to the industry as people start interacting with the technology in real-world situations.

“I have friends on Facebook who have attended concerts with NFT tickets, even though they are vocally against crypto.”

Lian added that RWA tokenization through NFTs has also the potential to streamline transactions and unlock liquidity in traditionally illiquid markets.

2021 NFT Craze Fueled By FOMO

There is no doubt that the 2021 levels of mainstream NFT frenzy were fueled by speculation and fear of missing out (FOMO), seeing how collections would sell for an unthinkable amount of money.

Despite that, saying people are no longer interested in the “OG” NFT movers would also not be entirely true, as headlines emerged on September 9, 2024, that a CryptoPunk was bought for 550ETH ($1,265,786.46 at the time of purchase).

Lian is also bullish on the future of NFTs, highlighting that the assets can totally achieve mainstream appeal again, but in a different way — rooted in their utility and tangible benefits.

“Think about it: most people do not care about the technicalities of blockchain. They care about what it can do for them.  If NFTs can seamlessly integrate into our digital lives — enhancing gaming experiences, streamlining ticketing, revolutionizing digital art — then mainstream adoption will follow naturally.”

Fletcher compared the initial NFT boom to BTC, noting that BTC was also “pure speculation in its beginnings,” with first news cases grounded in casinos and poker games.

“Non-speculative NFT projects will ultimately become integrated into everyday life. In 20 years, we will wonder how we ever got along without them, much like many people can’t imagine a world before the Internet.”

The Bottom Line

With an overwhelming amount of discussions within the crypto communities that this could be the end of NFTs, it surely does feel refreshing to be met with such positive remarks.

I have always been fascinated with NFTs. I truly enjoy how a groundbreaking technology such as decentralized finance (DeFi) can integrate so easily with the cultural industry, opening doors for artists, creators, and musicians.

So, with all of this in mind, I leave it to you: could we really be entering the “golden age” of NFTs?

 

Source: https://www.techopedia.com/are-nfts-entering-a-golden-age-expert-roundtable

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
j j j

Are NFTs Securities or Collectibles? Labeling Debate Heats Up

Are NFTs Securities or Collectibles? Labeling Debate Heats Up

On August 28, 2024, the co-founder and CEO of OpenSea, Devin Finzer, said that his company received a Wells notice from the US Securities and Exchange Commission (SEC) threatening to sue the company amid beliefs that the non-fungible tokens (NFTs) on the platform could be considered securities.

 

A bold statement sent shockwaves through the crypto community as discussions arose over whether NFTs should be considered securities.

What are industry experts saying, and what could a lawsuit mean for the NFT community?

Key Takeaways

  • The SEC’s Wells notice to OpenSea signals heightened regulatory attention on NFTs.
  • Some could potentially be categorized as securities, reshaping the legal landscape for the entire NFT market.
  • Experts are divided on whether NFTs qualify as securities, with some arguing that fractionalized or value-based NFTs might meet the criteria, while others see them as digital collectibles.
  • If NFTs are regulated as securities, the focus could shift from creativity and community to financial instruments, potentially stifling innovation in the NFT space.
  • NFT creators and marketplaces may need to enhance their legal and compliance frameworks, including more rigorous due diligence and onboarding processes, to navigate potential new regulations.
  • Regulation could drive a surge in NFTs tied to real-world assets (RWAs) and utility-driven NFTs.

SEC vs. Crypto: A Never-Ending Battle

The recent news that the SEC has targeted OpenSea with a Wells notice may have come as a surprise to many in the blockchain space. However, the battle between US regulators and the cryptocurrency industry has been ongoing for years.

  • In July 2024, the SEC charged Consensys, a blockchain software company, with engaging in the unregistered offer and sale of securities through its service MetaMask Staking.
  • In November 2023, the SEC charged Kraken, a US-based crypto exchange, for operating as an unregistered securities exchange, broker, dealer, and clearing agency.
  • In July 2023, the SEC charged Celsius, a cryptocurrency platform and Bitcoin mining company, with fraud and the unregistered offer and sale of securities.

However, the SEC’s current focus on the largest NFT marketplace, comes as a first, with the regulator seemingly stepping into uncharted territory.

Finzer said in a statement published by OpenSea on Thursday:

“Cryptocurrencies have long been in the crosshairs of the SEC. But, by targeting NFTs, the SEC is diving into new, uncharted waters, with potentially harmful consequences for consumers, creators, and entrepreneurs alike.”

While a Wells notice does not automatically mean that a lawsuit will ensue it does indicate that the SEC is seriously considering taking enforcement action, thus keeping the industry on its toes.

Are NFTs Securities?

While not all cryptocurrency experts agree with the SEC’s latest statement, some are more inclined to believe that certain NFTs could be classified as securities.

Teddy Ellison, the COO and general counsel of Mojito, a leading platform for NFT commerce and community engagement, told Techopedia that certain NFTs could surely be considered securities.

“It is well accepted amongst legal scholars in the industry that fractionalized NFTs likely are securities. Further, we have seen NFTs released with no utility, for fundraising purposes and with value-based marketing that also likely are securities. Many projects in today’s NFT market have taken the ‘NFT’ technology and used it to create identical bundles of NFTs in large numbers. How many NFTs until it looks and talks like a fungible token? The analysis is complex and there are arguments on both sides.”

Anndy Lian, an inter-governmental blockchain adviser and best-selling author of NFT from Zero to Hero, agreed, citing the Howey Test, a legal standard used by US courts to determine whether a transaction qualifies as an investment contract and, therefore, a security, by assessing if it involves an investment of money in a common enterprise with an expectation of profits primarily from the efforts of others.

“The question of whether NFTs are securities is complex and depends on how they are structured and marketed… NFTs involve investing money, but whether they represent a common enterprise with profit expectations dependent on others’ efforts is less clear.

“Some NFT projects, especially those promising future benefits tied to the NFT’s value, might meet these criteria.”

However, other experts argue that NFTs should not be considered securities when compared to more traditional collectibles such as pieces of art, trading cards, and antiques, which also carry a similar potential for value appreciation over time.

Corey Wright, the CEO of Honeyland, a blockchain-based strategy game, said:

“Key arguments against treating NFTs as securities revolve around their identity as collectibles and their additional functionalities. Many NFTs offer more than just potential economic benefits—they often provide utility, access to communities, or digital ownership rights. Applying a decades-old securities framework like the Howey Test fails to acknowledge the modern digital context and could stifle the innovative potential of NFTs rather than protecting investors.”

Classifying NFTs As Securities Could Be Positive

Speaking with Techopedia, Mojito’s Ellison debunked the overall negative sentiment surrounding the recent news, highlighting that if NFTs are classified as securities, the impact could be positive.

“I believe the impact will be positive in that it will cause NFT projects to look more critically at their goals and structure to bring to market something that is pre-baked legally to be sold as a commodity and not a security.

“For all the NFT projects that are truly unique (such as selling non-fractionalized artwork 1 of 1s) nothing will change as those are clearly not securities, but for the more creative projects looking at fractionalization, loyalty programs or bundling NFTs, they will need to be careful.”

Of course, if the classification of NFTs as securities comes into fruition, creators, marketplaces, and collectors would have to pay much closer attention to the legalities behind purchasing, creating, and selling non-fungible tokens.

Ellison highlighted that:

  • Creators would have to figure out how they are planning to sell their IP.
  • Marketplaces will need to build much more serious customer due diligence and Know Your Business (KYB) or Know Your Customer (KYC) onboarding processes.
  • Collectors should also exercise greater caution and due diligence before purchasing an NFT and determining their risk appetite.

Utility-Driven & RWA-Linked NFTs Could Strive

Naturally, new regulations could also drive a shift in the types of NFTs created.

Lian highlighted that a surge in NFTs tied to real-world assets (RWAs), such as real estate, intellectual property rights, or fractional ownership in businesses, is highly likely since these offer the inherent value and potential for income generation and utility, perfectly aligning with the characteristics of traditional securities.

He added:

“Utility-driven NFTs, granting access to exclusive content, services, or communities, could also gain traction. However, creators would need to carefully structure these offerings to avoid inadvertently creating an expectation of profits based on their ongoing efforts.”

Honeyland’s Wright noted that if the SEC says NFTs are securities the new regulation could truly stifle the innovation with this fundamentally creative industry.

“The focus would likely shift from NFTs as vehicles of artistic expression, cultural significance, and recreational gaming to more financial-focused instruments. This shift would erode the foundational elements of creativity and community that have been central to the rise of NFTs.”

The Bottom Line

As the SEC clarifies its stance on NFTs, the market could likely see a period of adjustment and maturation, Lian told Techopedia.

“While some uncertainty remains, the NFT space will probably evolve in a way that balances innovation with regulatory compliance. We can expect to see platforms adapting to meet disclosure and registration requirements, leading to a more secure and transparent marketplace.”

The classification of NFTs as securities could also bring a much more mainstream group of investors into the industry, who previously might have hesitated to get involved amid regulatory ambiguity.

However, stricter regulations could also present the space with a number of challenges, especially for smaller creators and platforms.

Even so, the new regulation would show how the NFT market is positioned to become more integrated into the existing financial system, with a greater focus on compliance and investor protection.

 

Source: https://www.techopedia.com/are-nfts-securities-or-collectibles

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
j j j

Decentralized Transactions Challenge Howey Test’s Application to NFTs

Decentralized Transactions Challenge Howey Test’s Application to NFTs
  • The key question is whether NFTs meet the Howey test criteria for classification as securities under federal laws.
  • In the NFT industry, adopting best practices includes transparency, fraud prevention, respecting intellectual property, and ethical conduct.

Non-fungible tokens (NFTs) are unique digital assets that can represent anything from art and music to virtual land and gaming items. They have exploded in popularity and value in recent years, attracting the attention of celebrities, investors, and regulators alike. The legal status of NFTs remains unclear and controversial, especially in the United States, where the Securities and Exchange Commission (SEC) has the authority to regulate securities and protect investors from fraud and manipulation.

One of the key questions that arises is whether NFTs are securities under the federal securities laws, and specifically, whether they meet the criteria of the Howey test, the legal framework established by the Supreme Court in 1946 to determine whether an instrument is an investment contract and thus a security. Howey test has four elements, I will argue that NFTs are not securities. On top of that, I will also address some of the counterarguments and challenges that NFTs may face in the future, and suggest some possible solutions and recommendations for the industry and the regulators.

NFTs are not investments of money, but rather purchases of digital goods

The first element of the Howey test is whether there is an investment of money or something of value in exchange for the instrument. This element is usually easy to satisfy, as most financial transactions involve some form of payment. However, in the case of NFTs, the payment is not an investment, but rather a purchase of a digital good.

They are not shares, bonds, or derivatives that represent a claim or a right to a future cash flow or a share of profits. Rather, they are digital tokens that prove ownership and authenticity of a unique digital asset. In my point of view, they are similar to other digital goods, such as e-books or music downloads, that consumers buy for personal use and enjoyment, not for investment purposes.

NFTs are not common enterprises, but rather individualized and decentralized transactions

The second element of the Howey test assesses the presence of a common enterprise, where investors’ fortunes are tied to the success of an issuer or third party. However, in the case of NFTs, no such common enterprise exists. Transactions are decentralized and individualized, with various artists and creators minting NFTs across different blockchain networks like Ethereum or Solana. NFT buyers rely on blockchain‘s public ledger to verify authenticity, rather than trusting a specific issuer or promoter.

NFTs do not generate profits, but rather subjective value and utility

The third element of the Howey test concerns whether there’s a reasonable expectation of profits. Unlike traditional investments, NFTs don’t generate income or appreciate based on others’ efforts. Instead, their value comes from subjective qualities like rarity, originality, and cultural significance, rather than anticipated financial returns. NFT buyers don’t expect profits but rather value the assets for their intrinsic qualities and utility.

NFTs are not dependent on the efforts of others, but rather on the creativity and innovation of the creators and the community

The fourth element of the Howey test examines whether profits stem from the efforts of others. Unlike traditional securities, NFT profits aren’t reliant on issuer or third-party services. NFT value is driven by the creativity and innovation of artists and developers, not centralized platforms. Buyers assess and appreciate digital assets based on personal judgment, rather than external influences.

Counterarguments and challenges

Despite the arguments in favor of NFTs, potential challenges from regulators and courts may arise in the future. One such challenge is the classification of certain NFTs as securities under regulatory tests like the Howey or Reves tests. Depending on their characteristics, some NFTs could represent real-world assets or rights, potentially falling under the definition of securities, especially if they promise future cash flows or resemble investment instruments.

Moreover, even if NFTs don’t meet all elements of the Howey test, they might still be deemed securities through a flexible analysis. For instance, if they are marketed as investments or show characteristics of speculative opportunities, they could create expectations of profit, thus falling under securities regulations. Additionally, if buyers pool funds or share risks and rewards, or if the NFTs’ value depends on underlying asset performance, regulators might consider them securities.

Furthermore, beyond securities laws, NFTs could be subject to various other regulations based on their nature and function. Anti-money laundering and sanctions regulations might apply if NFTs facilitate illicit transactions. Tax regulations could come into play if NFT transactions generate taxable income or capital gains. Consumer protection laws might be relevant if NFTs involve deceptive practices or breach contracts. Intellectual property regulations could be triggered if NFTs infringe upon original creators’ rights.

My take: Possible solutions and recommendations

Given the uncertainty and complexity of the legal landscape surrounding NFTs, it is important for the industry and the regulators to work together to find possible solutions and recommendations that can balance the interests and needs of all the stakeholders. Here are some suggestions from me that may help to achieve this goal:

  • Industry stakeholders should adhere to best practices and standards to improve transparency, accountability, and compliance in the NFT market. This includes clear disclosure of terms and conditions for NFT transactions, implementing measures to prevent fraud and illegal activities, and respecting intellectual property rights. Additionally, they should engage in responsible and ethical behavior, avoiding harm to the environment, society, or public interest.
  • Regulators should adopt a flexible approach to regulate the diverse NFT market. Avoiding overly restrictive frameworks is crucial to foster innovation and growth. Recognizing nuances among NFT types and consulting with industry and community for feedback is essential. Continuous monitoring and evaluation of market evolution are necessary to update policies accordingly.

Conclusion

NFTs are a new and exciting phenomenon that has revolutionized the digital economy and culture. They offer unprecedented opportunities and challenges for the creators, consumers, and regulators of the digital assets.

The legal status and implications of NFTs are still unclear and uncertain, and may vary depending on the facts and circumstances of each case. Therefore, it is important to understand and address the potential legal issues and risks that may arise from the creation, distribution, and consumption of NFTs, and to seek appropriate solutions and recommendations that can foster a healthy and sustainable NFT market.

 

Source: https://www.financemagnates.com/cryptocurrency/decentralized-transactions-challenge-howey-tests-application-to-nfts/

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
j j j