Undoubtedly, NFTs are still a pervasive topic in our daily lives, but their impact continues to expand. In this article, we touched on the definition of NFTs, behind the scenes, and most importantly, the regulations about NFTs.
Non-Fungible Token Concept
Non-Fungible Tokens ("NFTs") are unique cryptographic assets on a blockchain with unique identification codes and metadata that set them apart.
From the definition, it can be seen that NFTs have several characteristic features.
First of all, NFTs cannot be a vehicle for barter or commercial transactions like cryptocurrencies. The consumer can use bitcoin to buy an expensive slice of pizza at some businesses, but it cannot be a medium of exchange as NFTs are not invariant.
On the other hand, NFTs are still cryptographic assets on the blockchain, but they are unique. These entities have unique identification codes and metadata. Metadata, in its simplest form, is data that describes data.
Finally, NFTs are distinguishable from each other. Each NFT has its creator's name, owner, description, date of creation, and other identifying information about the asset. Even if the creator publishes more than one identical NFT, this particular NFT can be distinguished from the others thanks to the information about it.
NFT and a Brief History
Although the exact release date of NFTs is unknown, multiple sources agree that NFTs became popular in 2017, along with the "CryptoKitties" project, where they gained great value.
However, there is also information that Quantum, which was minted in 2014, is the first digital asset to be awarded the NFT title. On the other hand, in 2012, 10 years ago, it was stated that the digital asset called Colored Coins could be the first NFT. Colored Coins consist of small values of one bitcoin and can be as small as a single satoshi, the smallest unit of a bitcoin.
NFTs have been described as the next step in art history, though they have a maximum record of 10 years. Because as a digital asset, NFTs can host illustrations by artists, host photographs, be part of brands' loyalty programs, and can be a digital dream for collectors.
As can be seen in the chart above, the popularity of NFT does not seem to have come to an end, although it fell sharply after January 2022, when the trend was at its peak.
It has been reported that collectors spend $40 Billion on NFTs in 2021. But it has actually stabilized after the strong growth of NFTs in 2021. Although the popularity of NFTs, which are works of art or can be the subject of loyalty programs of brands, has decreased, it cannot be said that their existence has come to an end.
International Legislation
EU
There is also digitalization within the scope of the priorities of the Commission before the EU. Hence, on October 5, 2022, the European Council approved the final version of the Proposal for Regulation on Crypto Asset Markets amending Directive 2019/1937 (“MiCA Regulation”). It has been stated that decentralized finance (Defi) and NFTs are outside the scope of the application of the MiCA Regulation.
While member states can regulate NFTs in their national laws, the EU has chosen not to include NFTs within the scope of the MiCA Regulation.
Singapore
On September 22, 2022, the Singapore Supreme Court ruled that NFTs are digital assets. At the same time, this case is a purely commercial case worldwide, and it is the first case in which the status of NFT has been decided.
The Central Bank of Singapore has announced that it will not regulate the NFT market. The Central Bank considers that the emerging market has not yet reached maturity, but also has come to the conclusion that it does not make sense to currently regulate an asset in which people invest their money.
Japan
In Japan, there are both commercial and criminal regulations regarding NFTs. These regulations state that criminal sanctions will be applied if NFT is subject to gambling in any way. In addition, it is subject to a number of regulations in terms of investment, crypto assets, and other commercial issues.
USA
Apart from tax, it was also stated in the press release that whether a regulation on NFTs and NFT marketplaces would be discussed.
UAE
In the United Arab Emirates, NFTs are stipulated to be subject to anti-money laundering legislation. Abu Dhabi Global Market has included the regulation titled "Improvement Recommendations for Capital Markets and Virtual Assets in ADGM" in order to prevent money laundering in free zones.
Comments