Press play to listen to this article
Cryptocompanies fear that a new way of selling digital assets such as art, music, memes – and even tweets – will soon be weighed down by the old Brussels bureaucracy.
European lawmakers are debating whether to incorporate the market for so-called NFTs – non-fungible tokens – into a proposed European law that will regulate cryptocurrencies and the companies that manage them, called MiCA. The legislation initially rejected such online collectibles. Not anymore.
Lawmakers are determined to stop fraudsters and money launderers from abusing the unregulated industry, which has caught the attention of the tax authorities in Australia, Canada, the Netherlands, the UK and from the US, now that it has become a popular way of buying and selling things. as a digital work of art. A major NFT marketplace called OpenSea, for example, is facing several lawsuits in the United States over allegations of stolen and plagiarized digital art, while prosecutors in New York recently accused a former employee of misdemeanor.
The challenge is that the crypto market has developed at a rapid pace since the European Commission proposed MiCA almost two years ago to provide investors with guarantees equivalent to the financial sector. Legislators are therefore determined to act in the midst of fears that NFTs will be left unchecked in Europe, leaving crypto firms to use the sector to completely bypass MiCA. Lack of action is not an option, and lawmakers hope to reach an agreement on the matter as early as next week.
However, the crypto lobby fears that Brussels’s legislators will go too far in trying to keep up with crypto-technology. He says it is a mistake to cram NFTs into MiCA because these assets are not of an economic nature. They cater more to artists, musicians and video players.
The risk is that they fear that the EU will bury artistic types during paperwork and unsuitable customer checks, and they warn that a harsh approach could stifle the European NFT market, which is still in its infancy. .
“The use cases for NFT have just begun. A big one right now is art. Art that goes from physical to digital is basically no different than art that goes from cave walls to canvas. We do not regulate art as stocks and we should not regulate the sale of digital art as the sale of cryptocurrencies, ”said Seth Hertlein, vice president and global policy chief at Ledger, a company that offers a USB key digital wallet that allows people to store cryptocurrencies and NFTs off-exchange.
monkeys and birds
NFTs made headlines after celebrities spent hundreds of thousands of dollars on unique digital works of art, such as Bored Ape Yacht Club and Moonbirds. These collectibles exploded in popularity last year, but have since been dampened by the general downturn in the crypto market. The NFT sector is now valued at around $ 12 billion.
NFTs have wider applications than line art. Musicians can sell their songs as NFTs, for example, as an alternative source of revenue. Investors also buy digital shares in physical art or real estate. On a smaller scale, cinemas can issue cinema tickets as NFTs, while video players can use the technology to purchase props for their virtual characters.
This agreement will be further examined on 30 June, when Commission officials, MEPs and Council representatives from EU capitals will meet to try to conclude the legislative negotiations on MiCA. There is always a chance that the negotiations will require more time, given the ongoing divisions, including over NFTs.
The Commission has taken a tougher stance because it fears investors could be harmed by NFT sales that are far less valuable than headlines.
“NFT markets left unregulated will remain exposed to serious risks of market manipulation such as counterfeiting and insider trading,” Commission officials explained to the Council and Parliament’s legislators in a confidential note obtained by POLITICO before next week’s meeting.
Find a compromise
The Commission is determined to ensure that the legislation covers companies that allow trade in or storage of NFTs, while allowing artists and companies to freely create and manage their own NFTs without the regulatory burden. Many MEPs are also in favor of this approach.
But the Council is not convinced. According to her, MiCA should target large online auction houses such as OpenSea or video game platforms that fall below certain thresholds, such as average monthly trading, according to a separate document prepared by the Council to try to reach a compromise..
This approach seems to have won over some in the crypto industry, although they would still prefer a separate set of rules outside of MiCA.
“Tackling NFTs as purely financial instruments completely misses the innovation they can bring to Europe,” said Robert Kopitsch, Secretary General of Blockchain for Europe. “The aim of regulators should have been to develop a tailor – made scheme for NFTs that examines their variation and addresses the specific risks that each application case may entail.”