In the previous CyberMiles Newsletter series article analyzing the challenges of hype, money laundering, illegal financing, infringement, and fraud that the NFT market faces in detail, we pre-announced discussion on the regulation of the NFT market. NFT market has to be regulated to protect all parties involved, not only those who simply want to buy the NFTs for collections but also the owners of artworks and artists who want to release NFTs.
This year has seen explosive growth for NFTs, with NFT sales for 2021 already exceeding $2.5 billion.
- Music artists have released songs and albums as NFT.
- NBA teams have launched NFT tickets.
- NFT will be allowed to sell on eBay soon, the first e-commerce company to enter the NFT space.
As the younger generation becomes more and more crypto-native, we see a trend to take off on a larger scale. The NFT boom calls for the laws and regulations of the products and industries.
Currently, there are no clear regulations on the NFT market. For the US market, there is no direct state regulatory guidance on NFTs, though a few states have created laws that could hold NFTs under their purview. The current U.S. regulatory and legal framework is slowly catching up to the developing technology. Critical legal issues include how NFTs can be categorized, intellectual property rights, anti-money laundering and sanctions implications, cybersecurity concerns, and state laws governing virtual currencies.
There is no doubt that with NFT gradually enters common people's lives, the new and detailed law and governance will follow. For example, the European Commission issued the draft: Markets in Crypto-Assets Regulation (MiCA) back in September 2020, triggered by the waves of Bitcoin and other crypto-assets. This is followed by European Central Bank generally supportive opinion on the MiCA in February 2021.
One of the issues with NFTs is that many consumers may have no idea what they're buying, said Donna Redel, a board member at New York Angels and an adjunct professor at Fordham Law. Once the transaction is made, there is no going back because it is all recording on the blockchain. Furthermore, NFTs raises further questions about who exactly is conducting know-your-customer/anti-money laundering procedures, whether any specific party is recording the sale of an NFT and what sort of rights buyers have.
In addition, there could but a risk of the NFT marketplace being hacked or users’ NFT stolen. As a fully digital and potentially valuable asset, NFTs likely will be targeted with greater frequency by cybercriminals for financial gain. Centralized NFT marketplaces that store private keys may prove especially attractive. By obtaining the private key associated with an NFT, a malicious actor can access, move, and sell the NFT without authorization from the NFT's rightful owner. And once stolen, given the decentralized and immutable nature of blockchain-based transactions, the NFT is not so easily returned.
Regulations are imperative for NFTs to reshape commerce
As we mentioned, there are money laundering and illegal financing risks over NFT. To tackle these problems, there should be a regulation on the funds to NFT beneficiaries to prevent funds from flowing into money laundering, terrorist financing, intellectual property infringement, and fraud. In addition, there should be regulations supervising NFT to prevent piracy and plagiarism.
Some media may have exaggerated reports and misleading information on NFT regarding the future of NFT and the problems that NFT has. People need to be selective about the channels they read the content to instead of believing all the articles released blindly. It is necessary to take advice from multiple sources and professionals.
CyberWorld will continue to post neutral and reliable content and articles on NFT, and we strive to bring the most up-to-date information and trendy NFT topics to our readers and users.
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