Non-fungible tokens, better known as NFTs, have been a controversial topic since their introduction into the mainstream during the last cryptocurrency bull market.
For their fans, NFT is an innovative way to use blockchain technology to create, share and verify digital artworks. And, in truth, it's undeniable that ledger immutability could theoretically revolutionize the way digital assets are issued and certified.
(If this last sentence gives you a headache: Imagine that blockchain data is permanently stored in stone and cannot be tampered with. When an artist distributes his latest masterpiece in this data tree, he can rest easy knowing that there will only be one legal copy. the rightful owner of this work of art.)
For critics, however, NFTs seem to be pretty dumb - at least in their current form. Unlike the Art Security Token (AST) issued by Sygnum Bank and Artemundi — shareholding tokens that effectively give the owner legal control over a work of art — there are no guarantees for those who buy NFTs. NFT artists can (and often do) "print" 100 identical images in one click. In doing so, they reduce the value of your so-called unique piece of art by 99%. If the work is popular, tomorrow they can publish another 500 copies. You have no say in this matter.
It's getting too bad. At the height of the NFT craze in the 2020/2021 bull market, these digital magic beans were selling for hundreds of millions of dollars. Is it too good to be true? Because it was. We now know that artists, fairs, and auction houses have been running a crazy business of letting these useless GIFs change hands for huge amounts on paper, when in reality the buyer and seller were often the same person. All the turbulence that followed created the most delicious and painful pattern of swings and resets (depending on which side of the market you were on).
Disappointing, right? Yes, worse. Today, the Securities and Exchange Commission (SEC), one of America's financial regulators, put another nail in the coffin of this cleverly designed but horribly executed asset class.
Yesterday, the SEC successfully published the first-ever enforcement action against an NFT entrepreneur who conducted an "unregistered crypto asset security offering in the form of non-convertible tokens." Never before has the regulator been able to successfully resolve a case treating NFTs as securities under US law (defendant, Los Angeles-based Impact Theory, chose not to contest the findings). This is important because when a financial asset is classified as a security, there are opportunities for legal liability on the part of the issuer and legal protection on the part of the holder.
It's not a burden most NFT creators particularly want to bear, whose collection of petrified monkey GIFs and other brilliant contributions to the art world are undermined.
Of course, it's important to note that Iron Maiden's legal decision that ended the strike theory may not have been as deadly as other enforcement measures. The regulator's success in this case depended on its ability to prove that Impact Theory was selling its NFTs "as an investment in a business" and that buyers were told to believe they would "return their purchases because Impact Theory was successful." This is what has earned this particular collection of GIFs the undesirable financial guarantee status; Other NFT collections may not meet this criterion, especially given the general principle that works of art and collections are not considered "property" or "immovable property" under the law.
But here again the question arises: “What is art”?
If a smart programmer creates a website that creates AI-generated images for the sole purpose of creating a buzz and selling those images for profit, does he really deserve to be called an artist? Isn’t he involved in the same scam as most small cap altcoin developers – another corner of the cryptosphere that the SEC is actively targeting?
I leave this issue to the legal community. Suffice it to say that if you invest in any of the ASTs discussed above, you can rest easy knowing that the Swiss courts will protect your property rights. Meanwhile, if you're investing in NFTs — an asset class that bypasses legal requirements and claims to be an artistic security token — well, good luck.