governments want to regulate NFTs and cryptocurrencies, but first they have to catch up

by AryanArtnews
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“Do you need more regulation on this? You must do it.”

So, in June, US Senator (and crypto critic) Elizabeth Warren said she branded the cryptocurrency of the financial sector as “Wild West.” Warren is one of many companies pushing for better control of cryptocurrencies and NFTs, as US and UK regulators catch up with this fast-moving area as the legal battle intensifies. I am struggling with. In addition, US officials have warned of a thin line between the sale of “subdivided NFTs” (currently subject to minimal regulation) and financial securities (strictly regulated by the government).

Being exposed to fraud

The volatile and “free” nature of NFT marketplaces has already attracted scammers. Known scams include the “pump and dump” scheme (which increases the value of stocks before misleading recommendations are sold) and “rag pull” (developers remove liquidity from tokens and leave other investors empty. (Leave in) is included. An example of the latter occurred in October last year when Evolved Apes NFT investors lost $ 2.7 million when project creator Evil Ape disappeared with a social media account. Insider trading has also emerged. Last year, employees of the NFT platform OpenSea and Art Blocks were found to be using insider information for their investments.

Elizabeth Warren called cryptocurrency services “spin straw into gold” Photo © Gauge Skidmore

“Education is paramount to protecting new entrants from the prey of malicious people, and the online community can help raise the level of understanding of NFTs,” said London-based media and technology law. Omri Bouton of the office Sheridans said. “The industry can also benefit from having standards that enable consumers to quickly identify trusted projects,” he adds.

Existing regulations such as consumer rights and contract laws may come into contact with NFTs. For example, even if the platform allows fiat payments, the usual “know customer” check under money laundering prevention regulations applies.

Government abs exercise

Signs that UK and US government agencies are beginning to focus on cryptocurrencies and focus on the metaverse, which has accelerated in the fall.

In the United States, Securities and Exchange Commission Chair Gary Gensler announces that he is working on rules that regulate cryptocurrencies, and in October the U.S. Department of Justice announced a newly formed national cryptocurrency enforcement team. Did.Later report by the financial crime investigation network (FinCEN) said the Treasury is turning existing money laundering prevention controls towards cryptocurrencies, while the government’s ongoing work on infrastructure bills could soon subject NFTs to higher taxes. Said suggesting. But in what jurisdiction do I have to pay taxes for assets that are held only online?

Meanwhile, the Financial Activity Task Force The International Organization (FATF) has also included a specific reference to the NFT for the first time in its updated guidance. Also, in the UK, discussions on the classification of “works of art” under the new anti-money laundering rules provided room for “digital art”, but it is largely suggested that NFTs are considered to be a category within this range. (The consultation period ended on October 14, but the date of the findings has not yet been published).

The Chinese government’s crackdown on cryptography is not so hesitant. After the introduction of state bans on cryptocurrencies and mining, state media “warnings” on NFTs are believed to be affecting major platforms such as Alibaba’s Ant Group and Tencent. The past few weeks.

The art market seems to be waiting for guidance or clarity on how NFTs relate to current regulations.

Chris King, ArtAML

Much of this government’s attention is focused specifically on cryptocurrencies rather than NFTs. The former is substitutable (exchangeable in terms of value), while the latter’s “irreplaceable” nature makes cryptocurrencies unique. Still, it shows a broad desire to manage virtual transactions. “If authorities decide that an NFT falls under the definition of’cryptocurrency’, regulations could be tightened in the coming years,” said Chris King, co-founder of ArtAML... “The art market seems to be waiting for guidance and clarity on how NFTs relate to current regulations and business practices, but ultimately they need to be understood in their own terms. There is a new way of working and ownership. “

As governments struggle to move fast enough to catch up with this fast-moving area, major technology platforms show unique innovations aimed at reassuring market participants.Digital news outlet Block cipher Recently, Adobe has introduced new features to Photoshop and is working with major NFT marketplaces OpenSea, KnownOrigin, Rarible, and SuperRare to develop tools that allow people to verify the attribution of the creator of an NFT. I reported. I mint it. ” There are also start-ups to “protect” NFTs, such as Club NFT, which provides NFT owners with a bespoke “backup” system.

“I think we certainly need some regulation, but it’s certainly not from the government or external organizations, but from within the community in the form of oversight,” says NFT collector Amir Soleymani. “Experience shows that government intervention doesn’t work because we don’t know how this space works. If we don’t act as a community, external forces will destroy the entire ecosystem.”

Legal headache

The legal department is on its own path as the government and the NFT community feel a path towards a balance between freedom and buyer trust.
Of understanding.

Law firms are in a hurry to attract professional expertise, making it even more difficult by determining the international nature of the market and the jurisdiction associated with the dispute. Intellectual property ownership is a central legal dispute highlighted by attempts to sell Basquiat NFTs. Free comb with pagoda, Advertised on OpenSea in April, posted all “related IPs and copyrights” and was canceled after stating that the property of the late artist could not acquire these rights. It also considers the level of “creativity” contained in the creation or creation of the NFT, rather than the creativity contained in the original work of art from which the NFT is based.

According to Jon Sharples of London-based company Canvas Art Law, there are rumors that gambling regulations can be applied to NFTs. “Regulations and laws are always lagging behind innovation in this area. Just as Uber changed the way taxis are used before regulators catch up, NFTs say what lawmakers do about it. Before agreeing on what to do, change people’s expectations of what “ownership” of digital assets means. “

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