NFTs are distinct cryptographic assets and are different from digital currencies and cryptocurrencies. They portray actual collectibles including trade cards, artwork, films, music, real estate, and photographs and paintings.
Nonfungible tokens (NFTs) are unique, non-transferable assets built on the blockchain. NFTs are purchased and sold online in specialized marketplaces and serve as ownership proof on a digital ledger system. Similar to the high-end art market, the value of NFTs is determined by market demand.
Since NFTs contain certifications of authenticity, they cannot be changed. Each NFT runs on a decentralized network that employs blockchain technology. NFTs can also be used to represent the identities, property rights, and domain name ownership of a person or organization. NFTs can be used for a variety of corporate applications, including supply chain, evidence of ownership of goods or services, and collectibles for loyalty, all credit goes to the blockchain, which prevents copies and destruction.
NFTs are essentially digital versions of actual collectibles. So the purchaser receives a digital file rather than an actual oil painting to display on the wall.
Additionally, they receive sole ownership rights. NFTs can only have one owner at a time. Due to the distinctive data of NFTs, it is simple to confirm ownership and transfer tokens between owners. Additionally, the author or owner may choose to store particular data inside them. As an illustration, artists can sign their work by putting their signature in the metadata of an NFT.
Are NFTs subject to regulation in the UAE?
For example, a crypto asset may be designed to be a utility token (and thus potentially not regulated as a financial product), but it is commonly traded for investment purposes due to its popularity. Such a crypto asset is likely to be classified as a financial product and subject to UAE securities regulations. As a result, considering the actual use of the crypto asset is critical in determining whether such an asset would be subject to any financial regulations.
But in any jurisdiction, it does not have legal tender status. A Virtual Asset is:
Since the definition of virtual assets is broad enough to include crypto assets, which could potentially include NFTs as well, the financial regulator, the Financial Services Regulatory Authority, clarified through guidance that its regulations are limited to stablecoins, cryptocurrencies, digital assets, and derivatives/funds (including any ancillary activities conducted with them) and do not extend to utility tokens, which lack the features and characteristics of virtual assets.
Following the ADGM’s virtual asset regulations, the Central Bank and the Securities and Commodities Authority (SCA) on the UAE mainland issued crypto asset regulations, broadly defining crypto assets as cryptographically secured digital representations of value or contractual rights that use a type of distributed ledger technology and can be transferred, stored, or traded electronically, as a result, potentially capturing NFTs. Even though the Central Bank, as the currency regulator, has limited its regulations to crypto assets, they are being used as stored value facilities for storing currency or payment tokens (e.g., stable coins or other tokens backed by fiat currency). As a result, they do not apply to NFTs. SCA, on the other hand, clarified that its regulations apply to most types of crypto assets, whether securities or otherwise, that are listed and traded on an organized market, except those regulated by the Central Bank.
The regulations issued by the ADGM, Central Bank, and SCA were followed by the Dubai International Financial Centre’s (DIFC) regulatory framework on investment tokens. The current regulatory framework is intended to regulate:
1. Securities and derivatives in the form of a cryptographically secure digital representation of rights and obligations issued, transferred and stored via distributed ledger technology or other similar technology.
2. A digital representation of rights and obligations that is cryptographically secure and is issued, transferred, and stored using DLT or other similar technology, and:
• Confers rights and obligations that are substantially similar to those conferred by security or derivative or
• Has a substantially similar purpose or effect to security or derivative.
Accordingly, since, by their very nature, the NFTs may not qualify in being a financial product, they may still be subject to financial regulations in the United Arab Emirates, when it is dealt with by the way of the business, depending upon its original use and the jurisdiction, under which it is being dealt with.
The UAE’s technology and media laws apply to NFTs as crypto assets. NFTs are not addressed in the current UAE media and content law because they are a new development. However, this does not negate the importance of considering these laws from a legal standpoint.
In addition, the UAE issued Federal Decree-Law No. 34 of 2021 on the Fight Against Rumours and Cybercrime, which includes provisions for the offering and promotion of unrecognized crypto assets. The law specifically prohibits anyone from using the internet or technology for “promotion, advertisement, mediation, or dealing in any form, or encouraging dealing in a virtual currency, cryptocurrency, stored value unit, or any payments unit not officially recognized in the UAE or without being licensed by the competent body.
” As a result, vetting is required for the content and advertising of the NFT before creating and offering them in the UAE, just as it is for the creation and promotion of other digital assets.
What sets NFTs apart from cryptocurrencies?
NFT is an abbreviation for non-fungible tokens. Even though it is frequently developed using the same programming style as cryptocurrencies such as Bitcoin or Ethereum, the similarities end there. Because cryptocurrencies and traditional currency are “fungible,” they can be traded or converted into one another; a dollar is always worth another dollar and a bitcoin are always worth a bitcoin. This means they are both of equal worth. Cryptocurrency is a dependable way to complete blockchain transactions due to its fungibility.
Everything you need to know about NFT wash trade
When a securities transaction, or several transactions, are staged to appear as real purchases or sales but are later revealed to be false, this practice is known as “wash trading”.
This typically happens when an investor purchases and then immediately sells the same security or investment. As a result, a trader appears to be trying to pass off trade as having been made even if it hasn’t been, claiming a change to their portfolio when there hasn’t been one. In financial parlance, wash trading is also referred to as round-trip trading, which can occasionally cause misunderstanding among non-finance professionals.
This is an explicit attempt at market manipulation in some instances. In other cases, wash trading may be the outcome of a more innocent error or plain ignorance on the side of the trader who attempted the deal. Although they can also happen in the bitcoin business, wash trades are typically used to describe the practice of falsely misrepresenting stock or securities trade activity. Regardless of the type of finance, you choose to trade centralized (CeFi) or decentralized (DeFi)—it is critical to comprehend the potential repercussions of engaging in a wash trade.
In the instance of intentional wash trading, such action typically occurs to sway buy/sell judgments in favor of the trader or party initiating the trade. Wash trading is strongly discouraged by most people, whether it’s to artificially inflate price/activity or to spuriously impact trend line indicators that are used to evaluate the market.
$44 billion NFT sales last year
Many people, according to several sources, think that wash trades may have had some influence on the $44 billion in non-fungible token (NFT) sales that were made last year, at least in part. Although it’s very challenging to claim this with a high degree of certainty, some cases are truly concealed from view.
Attempts are made by bitcoin exchanges to inflate their trading volumes. Chainalysis found 262 people who have sold an NFT more than 25 times to a self-financed address by using blockchain analysis.
It’s interesting to note that the 110 successful wash traders have together earned approximately $8.9 million from this activity, much outpacing the $416,984 in losses incurred by the 152 unsuccessful wash traders.
Why is wash trading prohibited?
Some governments have opposed NFT although there is no regulation or categorization for it. A South Korean cryptocurrency exchange called Bithumb, for instance, was charged in 2018 with promoting wash trading with false volume totaling more than $250 million.
Data from the NFT tracker CryptoSlam revealed that wash trading accounted for $18 billion, or 95%, of all trade volume on the LooksRare NFT market.
The decentralized nature of cryptocurrencies makes it challenging to identify the offenders, even though crypto wash trading is forbidden in several places. Unlike conventional financial products like equities, which have verified Know Your Customer criteria, blockchain-powered assets can be traded anonymously, increasing the danger of wash trading. Without a determination by the authorities as to which jurisdiction is in charge of overseeing cryptocurrency, the risk is caused by deceptive price and volume statistics.
In conclusion, wash trading is a risky regulatory activity that, if done on purpose, can even be considered illegal. This is why it’s crucial to comprehend what wash trading entails. A trader must take extreme care to avoid getting involved in wash trading to avoid irreparable harm to their professional reputation.
Although it’s not strictly unlawful in the same manner, crypto wash trading can nevertheless harm a trader’s reputation. Wash trading is prohibited in the majority of traditional U.S. markets, but because blockchain exchanges are conducted anonymously, it is still challenging to police in the crypto world.
This is something that NFT traders will use to give the appearance of great demand and raise the price of an NFT collection.
Typically, there are warning indicators that an NFT has been wash traded, such as a significant disparity between the floor price and list price of an NFT in a collection.
In the end, determining if an NFT’s price has been altered requires investigating an NFT collection and reviewing the transaction history. To curb the same, necessary regulations need to be implemented by authorities.
