The European Union (EU) wants to regulate NFTs like crypto. Indeed, during the Korea Blockchain Week held from August 7 to 14, 2022, one of the EU officials said that the EU will have to apply the same regulation to NFT as to cryptocurrencies, according to the MiCa law. NFTs were still in a legal limbo, things are clearer now, even if no text has been officially published yet.
MiCa law: some reminders to understand the EU’s position on NFT and cryptos
As a reminder, MiCa (Market in Crypto Assets) law aims to regulate crypto market players. In particular, the law aims to regulate digital service asset providers with PSAN. Large market players are actually following the European guidelines in this regard, such as Binance.
The important thing to remember is that this law was aimed at cryptocurrencies only. Now, the EU is seeking to enforce this regulation on the NFT market.
EU and NFT, the ins and outs of this regulation
NFTs have experienced strong growth during the year 2021. The value of some NFTs has increased 100-fold and fundraising has been organized very quickly, without the approval of central authorities. It was therefore foreseeable that the EU would look into the subject, especially since the MiCa law is on the table.
Why this regulation?
The first reason mentioned would be to protect investors. Indeed, during the year 2021, many scams have appeared in the world of NFTs, and many people have lost money because of this. Also, the EU wants to protect investors from the high price volatility of these non-fungible tokens.
The second reason mentioned would be to fight against illicit activities. The regulation of NFTs would also aim to limit illegal activities, such as money laundering or the purchase of illegal products.
What is this regulation?
The first application of this law is that from now on, anyone who wants to launch an NFT collection will have to submit a WhitePaper that describes in detail the project and the protocol.
Also, exaggerated promises about the expected price of an NFT project (#youwillmakex100tothemoon) are prohibited. Prosecution could be brought against those who encourage people to buy a project that has no other basis than to make money (#FOMO).
A new classification will be put in place, and EU citizens who want to sell a collection of NFTs will be under the umbrella of Crypto Asset Service Providers (CASP). Thus, they will be under the obligation to receive an authorization from the EU before selling their NFT collection.
Exemptions… that don’t really apply
As said in the introduction, there is no official text yet, it is still only drafts. In theory, the latest version of the law exempts NFTs, “unless they are another kind of crypto asset.” A definition vague enough to fit any NFT as a “kind of crypto asset.”
Hot debates around this regulation
Naturally, this statement has not gone unnoticed and has sparked heated debates. Peter Kerstens, the EU’s advisor for technological innovation, said that it would be “stupid” to have a whitepaper for every NFT.
Especially since NFT marketplaces like Opensea will also have to be approved by the authorities, which could nip any innovation in the NFT sector in the bud.
“European legislators have a very narrow view of what an NFT is”Peter Kerstens, EU advisor for technological innovation
Some believe that the inclusion of NFTs in MiCa would be an unwarranted extension of the law. However, Members of the European Parliament counter-argue that the NFT market is full of scams and price manipulation.
The EU is once again brilliantly showing that it has not understood the major shift that is taking place with the emergence of Blockchain and is heading for another bullet in the foot by stifling the ecosystem as well. There is nothing wrong with regulation, it will be needed for mass adoption. Fortunately there are reasoned individuals within it, it remains to be seen if they will be heard.
Coming from a teaching background, I’ve become passionate about the world of Blockchain. I’m eager to learn more and share the fruit of my research through my articles.