The promising future of NFTS remains in the flow

The author is an affiliate professor, HEC Paris, and member of the EU Blockchain Observatory

When it comes to NFTs, the world of art and digital games are lately on a roller coaster ride. The dominance not fungi token in these markets has also attracted the most attention. Many believe that the next big breakthrough will be to determine the property of virtual goods in the meta verse. But what if NFTs also offer solutions in cumbersome, archaic systems to secure property rights and thus release the value of real assets?

Such transformative uses of NFTs only take vague shape in the economic and legal horizon. Technically speaking, they are unique cryptographic tokens that exist on a blockchain and cannot be replicated. In contrast to cryptocurrencies, they cannot be traded or exchanged as equivalent. By "twinning" of a NFT with a certain version of a digital work, it makes it possible to distinguish it from its countless other versions and thus attribute it to an unmistakable value, which means that proof of ownership is transferred to a single identifiable holder.

NFTS already represent and "token" physical objects, objects such as works of art and luxury goods, expand the attributes of their property into the digital world and enable more efficient and secure transactions. Experiments in the real estate sector are now undertaken as a new way to provide the required liquidity in a system that was dependent on transaction costs in the past.

The fact that NFTs can serve as an unchangeable proof of ownership and origin could contribute to solving a stubborn ownership problem in developing countries. The Peruvian economist Hernando de Soto argued early on the potential of blockchain to establish an inexpensive mechanism for formalizing property rights for the poor. He estimates that this would release $ 10 trillion dollars worldwide.

It also seems increasingly possible that the common property and the crowdsourcing investment of NFTS could be used to support the preservation of world heritage sites, national artistic masterpieces or threatened biodiversity zones.

Practitioners still try to understand how exactly NFTs fit in existing legal ideas or they interfere and consequently how the applicable legal and tax treatment should look like. Fractional ownership and instruments for the syndication of property rights are not a new concept: NFTs are only their latest avatar. The new, however, is that these blockchain-based tools offer the prospect of non-intermedized (financially and administrative) new markets for creators and owners of otherwise non-marketable physical assets.

This view raises important governance questions. Even if every NFT that represents a certain share of value on the associated asset can be acted easily and individually, what is the basic framework required to ensure the preservation and integrity of the underlying assets as a whole? When do you become security instruments? What rights do the owners have in relation to the asset and which obligations do you have compared to other owners?

There remain well-documented challenges elsewhere, including the reliability and safety of the blockchain, the interoperability of different blockchains and, which is extremely important, the great ecological footprint of the NFT embossing. Fraud and market manipulation also increase. The regulatory authorities hesitate to choose the right approach because they are aware of the need not to suppress innovations while trying to exercise supervision. Neither the regulation of the EU markets for crypto-assets nor the proposed US crypto law expressly refer to NFTS.

These technical, legal and regulatory considerations should be incorporated into the debate much more. It is not excluded that NFTS could become important new instruments of partial ownership of assets, far beyond digital art and into the area of ​​tangible storage locations for the creation and distribution of prosperity. For the time being, however, they remain in the flow.