Non-fungible tokens (NFTs) are recognised for their unique properties in the digital world. In contrast to fungible assets, they cannot be mutually interchanged. NFT ownership is recorded through blockchain technology and commonly purchased through the cryptocurrency, Ethereum.

In contrast to other digital files, NFTs cannot be duplicated. This distinction has encouraged collectors to buy into NFTs. Beyond becoming collectables, they have attracted the attention of crypto millionaires, that have already monetised from digital currency investments. Importantly, this exclusivity is limited. Generally, the buyer does not acquire copyright, and outside of the title to the original work, the image can still be reproduced.

These intricacies have led to scepticism. Charles Allsopp, former Christie's auctioneer, believes that the process makes "no sense." In turn, the prospective value of NFTs has been highlighted by BNP Paribas’s L’Atelier, tasked with identifying opportunities in the technology market. Its COO, Nadya Ivanova, looks beyond the ‘speculative’ sentiment, recognising that NFTs may ‘eventually develop some utility.”

Despite divided opinions, the phenomenon continues. Simultaneously, it shifts more disputes towards the digital world. Most recently, Hermès has accused Mason Rothschild of trademark infringement. Rothschild is responsible for the creation of a non-fungible token collection, based on the infamous Birkin bag. The French fashion house claims that his “NFTs infringe upon the intellectual property…and are an example of fake Hermès products in the metaverse.” This claim is supported by the assertion that ‘MetaBirkins’ shifts revenue away from the company.

The overall lack of regulation within the digital space has ignited concerns over criminal activity. Finalising transactions through cryptocurrency, and the reliance on Blockchain, is likely to prevent a successful fraud investigation. Yet, the third quarter of 2021 recorded $5.9bn of NFT trading activity through Ethereum alone.

No guidance on the taxation of NFTs leads to further uncertainty. In the future, ownership may be assigned to a particular jurisdiction, where obligations such as capital gains tax may apply.

Others confine recent NFT activity to a “bubble.” Indeed, recent ventures pursued by recognisable names have fuelled interest. Earlier this year, SoftBank invested $680m into Sorare, a start-up offering its online game players, football cards registered through blockchain. More recently, Coinbase, America’s largest crypto exchange, announced plans for its own NFT marketplace.

The apprehensiveness directed at cryptocurrencies has smoothly translated towards the concept of NFTs. If NFTs are here to stay, the brightness of their future is most likely to be determined by other parties invested in the market – the regulators.

By: Zuzanna Potocka

How Bright Is The Future For Non-Fungible Tokens?