A legal limbo

Opportunities abound for NFTs but regulation and political opposition dent their appeal.

For those of us less familiar with the technical minutiae of cryptocurrencies, the somewhat dry-sounding ‘non-fungible tokens’ (better known as ‘NFTs’) may do little to peak further interest. But it’s worth sticking around for a longer explanation because these tokens – which function as a kind of digital currency – are likely to become increasingly attractive to commercial entities across Latin America.

“NFTs are another virtual economy and, as such, its future development is still unclear. That being said, Latin America shows great potential in this area mostly because of its gaming volumes”, explains the board member of a Brazilian blockchain company.

“NFT’s are another virtual economy and, as such, its future development is still unclear.”

Board member, blockchain company, Brazil

NFTs provide an opportunity for artists themselves to have a greater role in digital assets and it’s this that is stirring excitement around them. In Brazil, André Abujamra’s ‘Phonogram.me’ has broken new ground by creating what is effectively a stock market for music production. It aims to decentralise the music market, allowing fans to directly invest in artists.

Sport is another example. The Mexican National football team recently announced ‘Bitso’ [a cryptocurrency exchange] which will also create the national team’s own NFTs. Daniel Vogel, Bitso’s CEO, recently relocated to Brazil to expand its operations across South America. Bitso is the first crypto unicorn in the region, their rapid expansion is a sign of market confidence in the long-term value of NFTs.

Don’t mistake market confidence for diminished risks however. A Sao Paulo-based content manager at a global bitcoin exchange platform said, “There are indicators that the NFT market is cooling off in terms of prices and volume. NFT sales slowed down in September, October and November after peaking in August 2021.”

“There are indicators that the NFT market is cooling off in terms of prices and volume.”

Content manager, global bitcoin exchange platform.

Regulation is another area of concern, especially in relation to encryption and technological uses. As it stands, in most countries people can use cryptocurrencies at their own risk but the great majority of businesses and banks don’t accept them. This leaves cryptocurrencies and digital tokens in a legal limbo. True, Uruguay is preparing a regulatory framework and Mexico’s Congress has a number of legislators who would like to implement crypto-friendly regulation but such legislation will take time and patience to gain congressional stamps of approval. Until they do, NFTs can be a risky bet.

The risks don’t stop there. The blockchain company board member added, “Money laundering risks are intrinsic to NFTs. Just as in physical art, a hacker can create a digital piece of art claiming it is an original one.” Add to the mix copyright issues and even increased carbon emissions and NFTs start to look rather less appealing.

There is political hostility as well. Bolivia has fully banned crypto, whilst Ecuador has voiced concerns on money laundering. It remains too early to tell whether NFTs will encourage legislatures across the region to progress regulatory frameworks or whether, nervous of its effects on commercial transactions and the dominance of national currencies, they will seek to instead impinge its adoption.

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