New Report Proposes Four NFT Policy Steps to Protect Consumers and Encourage Continued Innovation

WASHINGTON—As non-fungible token (NFT) technology matures, the U.S. government should strengthen its policies for NFTs by clarifying agencies’ authority over digital assets, strengthening regulators’ enforcement capabilities, simplifying tax compliance for NFT transactions below a certain threshold, and creating an online hub for the government’s digital asset policies, according to a new report from the Information Technology and Innovation Foundation (ITIF).

“President Biden issued an executive order on digital assets last year that provides a strong foundation for U.S. leadership on forward-looking policies for NFTs, but the government can do more to protect consumers while encouraging innovation,” said ITIF Vice President Daniel Castro, who authored the report.

The report provides an overview of how NFTs use blockchain technology and the most popular uses for NFTs, such as in the areas of digital art, collectibles, gaming, entertainment, and fashion. It then breaks down the key policy issues that NFTs raise, including those related to financial regulation, IP rights, consumer protections, energy consumption, privacy, and content moderation.

The report also chronicles the policy developments that have shaped the United States’ approach to NFTs thus far, starting with the administration’s March 2022 executive order, which represented the first whole-of-government approach in the United States to cryptocurrencies and other digital assets. However, the report warns there is significant regulatory uncertainty about NFTs in the United States because multiple agencies may have claimed authority over them, including the Security and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Office of Foreign Assets Control (OFAC), and the Financial Crimes Enforcement Network (FinCEN).

Additionally, the report details how current tax policy impacts NFT transactions and how the Department of Justice’s National Cryptocurrency Enforcement Team investigates and prosecutes criminal misuses of cryptocurrency.

ITIF emphasizes that the U.S. government can do more to protect NFT consumers and responsibly regulate the technology.

The report makes the following recommendations:

• To address the regulatory uncertainty stemming from the SEC’s and CFTC’s jurisdiction over digital assets, Congress should clarify when each agency has regulatory authority over various types of digital assets and direct the lead regulator to produce clear guidance for compliance, including for crypto exchanges and online marketplaces for digital assets.
• To strengthen the United States’ investigative and enforcement capabilities, agencies should establish a joint Digital Asset Analysis and Detection Center to develop and house these capabilities.
• To simplify tax compliance for buyers and sellers, Congress should establish a de minimis exemption for NFT transactions below a certain threshold.
• To clarify digital asset policies for consumers and businesses, the administration should create a customer-friendly website to serve as a hub of information about federal government resources about digital assets.

“U.S. policy on NFTs has advanced rapidly to address emerging risks and continues to involve multiple regulators and law enforcement agencies,” said Castro. “Policymakers should continue to resolve unanswered questions, creating more regulatory certainty for the industry and better protection for consumers and investors.”

Read the report.