When Bitcoin is bought, it’s referred to as Cryptocurrency, and not as an FT (fungible token). Cryptocurrencies are categorised into different types such as a store of value, smart contract tokens, stablecoins, and meme coins, just to name a few. This categorisation has helped the general public to manage expectations when investing in them, and also helped regulators distinguish between the different kinds of Cryptocurrencies and regulate them accordingly.
On the other hand, when an artwork is minted as a non-fungible token, it’s referred to as an NFT rather than just calling it digital art. A gaming avatar minted as an NFT is called an NFT rather than an avatar, and a concert ticket minted as an NFT is also labeled as an NFT instead of being called a digital ticket.
The term NFT was brought to mainstream attention through sensational stories about teenagers making millions overnight. As a result, the term NFT became synonymous with high-risk investment and trading.
The general belief was that if something was an NFT, it would increase in value tenfold or even a hundredfold. This led to many people making money off of those who were caught up in the hype. Most of the NFT sales that took place in 2021 were heavily based on the greater fool theory, which is the belief that an investor can make a profit by buying an overpriced asset and selling it to a “greater fool” who is willing to pay an even higher price, rather than investing based on the asset’s intrinsic value.
In order to alter the existing perception and tap into the full potential of non-fungible tokens (NFTs), it may be worth contemplating a rebranding and relabeling of these tokens. This would enable clearer communication of their value and potential use cases. Additionally, it would help distinguish between NFTs that are perceived as an “investment” and those that have utility-based applications.
One proposed solution is to label NFTs the same way fungible tokens were labeled. For example, digital artwork utilising non-fungible tokens can be labeled as DATs (digital art tokens), while tickets that utilise non-fungible tokens can be labeled as TTs (ticketing tokens). I can see this one trending.
Regulatory bodies in many countries are attempting to regulate Cryptocurrencies and NFTs, and distinguishing between the different kinds of NFTs and the assets they represent is critical. NFT regulation cannot follow a one-size-fits-all approach. For instance, it is argued that a digital art NFT could be considered a security as people purchase it with the expectation of future profit. However, an NFT minted as a concert ticket would not fall under the same category. From a regulatory point of view, policy makers will treat both applications of the same technology in the same manner, creating more hurdles for innovators and entrepreneurs who are getting mixed up with artists and traders. Establishing clear categorisation will enable regulators to regulate without preventing innovators from innovating, and this ultimately protects all buyers of NFTs, especially the new ones.
In light of the latest booms and busts seen in the industry, we have learnt that not all Cryptocurrencies are created equal. Regulators understand that Bitcoin is not like Ethereum, and both are different from USDT. Industry veterans can smell rug pulls and scam coins from a mile away, and the sooner these distinctions reach the NFT space, the better it will be for everybody. NFTs have the potential to revolutionise the way we think about digital assets, and it is up to us to ensure that they are properly understood, utilised, and regulated. Relabeling and rebranding NFTs could help change the existing perception and unlock the full potential of this technology.