This chapter delves into the intricate relationship between digital assets, specifically non-fungible tokens (NFTs), and the regulatory landscape of anti-money laundering (AML) and counter financing of terrorism (CFT). With the rapid emergence of NFTs, new challenges and opportunities have arisen, necessitating an exploration of evolving regulatory frameworks and enforcement measures to combat AML and CFT risks associated with digital assets. This chapter focuses on the unique characteristics of NFTs, AML, and CFT risks within the NFT market, global regulatory developments, compliance challenges, technological solutions, enforcement actions, collaborative efforts, and future trends. By analyzing these aspects, this chapter aims to provide insights for policy-makers, regulators, scholars, and industry participants in effectively addressing financial crime risks in the digital asset landscape.

This chapter highlights the dangers of linguistic inaccuracies and misunderstandings that permeate discussions on blockchain technology and non-fungible tokens (NFTs), impacting policy and legal outcomes. It identifies two critical issues hindering effective legislation: a lack of comprehension of blockchain technology’s technical nuances and a failure to appreciate the link between blockchain-related terminology and the intricacies of varying blockchain protocols. By borrowing frequently misused terms without questioning their technical accuracy, policy-makers may unwittingly stifle innovation and develop legal regimes that are ill-suited for their intended purpose. This chapter explores six specific language landmines prevalent in blockchain and NFT discussions, urging researchers, lawmakers, industry members, and other stakeholders to bridge the understanding gap. By addressing these linguistic pitfalls, the chapter advocates for informed and comprehensive policy-making that keeps pace with the evolving landscape of blockchain technology and its applications, including NFTs.

Non-fungible tokens (NFTs) are used in numerous markets for collectibles, art, securities, and commodities. These are different markets, and there is no regulatory framework for all NFTs. To determine a proper legal regime, it is essential to locate the market to which an NFT belongs. This task requires a deep understanding of the economic realities of the associated rights, assets, and transactions. Economic-reality-based interpretations should provide a solid footing for better regulation of NFTs in the US and other jurisdictions grappling with NFT regulation. The new cryptoasset regime in the EU already incorporates a “substance over form” approach. In the US, courts have been successfully applying the Howey test to examine transactions and schemes and establish whether securities law should apply to cryptoassets. In 2023, the SEC and a US federal district court applied the Howey test to demonstrate why and how securities law built for legacy markets where mainstream assets are fungible could apply to transactions in non-fungible assets. The decisions are an example of establishing economic realities of transactions with novel assets regardless of the underlying technologies on which the assets are built. An economic reality approach should help courts and other policy-makers ascertain to which market an NFT belongs and which corresponding legal regime should govern.

The market of non-fungible tokens (NFTs) is rapidly growing and their potential uses and applications are still being discovered. The rapid growth of this market, coupled with the unique nature of NFTs, which do not fit squarely within the existing regulatory frameworks, creates a regulatory gap between existing and effective regulation of NFTs. This gap, in turn, creates a policy-making dilemma: on the one hand, regulating NFTs too quickly could prevent efficient uses and applications from being discovered and deployed, thus stifling innovation. On the other, leaving NFTs unregulated could leave investors unprotected from the risks posed by this innovation. With this dilemma in mind, this chapter argues that regulation of NFTs should occur sparingly, and to the extent that it does occur, regulatory experimentation and competition emerges as the most promising approach. In the US, one place where regulatory competition exists is between and among the states. State regulation in the areas of securities and virtual currency and money transmission can be used to address some of the prominent present concerns posed by NFTs, such as frauds and money laundering, and states have the opportunity to experiment as NFTs evolve and are refined.

The chapter explores the profound implications of non-fungible tokens (NFTs) within the context of the Web 3.0 movement and the burgeoning metaverse landscape. While NFTs have already found some economic traction in analog settings, their potential is most transformative in a purely digital realm. NFTs offer unparalleled provenance and tradability for digital assets, circumventing centralized intermediaries. The metamorphosis of NFTs and their role in the emergence of the metaverse will determine their full impact. As metaverse platforms evolve, enabled by NFT interoperability and consumer trust, they are poised to reshape the leisure economy and extend into education and employment. The true value of NFTs lies in their integration into an interconnected, dynamic virtual world revolutionizing various facets of society. While existing regulations provide a framework, they will inevitably adapt if and as the metaverse gains prominence, necessitating agile regulatory responses to this transformative landscape.

Blockchain-based fundraising transforms the way issuers raise capital from the public, promising to reduce transaction costs, expand financial access, and reshape issuer-investor interactions. Despite these promises, the blockchain finance market is currently plagued by severe asymmetric information and is rife with fraudulent and low-quality issuers who exploit this friction. This chapter explores the reasons for the severe asymmetric information in this market and discusses the extent to which signaling and analysts can address it. It suggests that the effectiveness of signaling is limited due to the low costs of producing and disseminating signals and investors' inability to verify biased signals ex ante and punish biased signals ex post. These limitations make analysts a vital source for reducing asymmetric information but they, too, appear to suffer from significant problems – ranging from conflicts of interest to lack of transparency to low competence and expertise – which hinder their effectiveness in reducing asymmetric information. The chapter concludes with the policy implications arising from these observations, which can also guide policy-makers in addressing emerging blockchain-based fundraising mechanisms, such as non-fungible token (NFT) offerings.

The birth of bitcoin in the Great Recession of 2008 appealed to cypherpunks and libertarians distrustful of government. Together with copycat altcoins, the volatility of cryptoassets has drawn interest from investors and speculators who did not share in these ideals, including trustees, raising four questions. First, can cryptoassets be the subject-matter of trusts? Second, if so, how may the rules relating to validity be applied to cryptoassets? Third, is such an investment permitted under the terms and/or governing law of a particular trust? Finally, what must trustees be aware of in deciding whether to invest in this new asset class?

The spectacular, if erratic, growth in the price of Bitcoin since its first implementation in 2009 has attracted substantial public interest. Unlike the stocks promoted by venture capitalists, it is not simply another instance of a well-established asset class, but rather a completely new asset class. Unlike those stocks, it is not promoted by well-connected finance industry insiders, but has been established by outsiders whose agenda was in part to escape the influence of established institutions. And yet, as this chapter will argue, there are some striking similarities in how its value has been constructed. Above all, the process has depended upon the development of a series of narratives about the value of Bitcoin, which have sought to connect it to lay theories of value or valuation conventions, and those narratives have been marketed to specific groups of potential buyers leading to the construction of an asset circle. This chapter traces some of the narratives that have been told about Bitcoin and how they have contributed to (or, in some cases, undermined) the growth of an asset circle for Bitcoin and thus to its spectacular growth in price.

As China has banned ICOs, cryptoassets cannot be created and traded there. This chapter thus examines the relevant law in the Hong Kong Special Adminstrative Region (HKSAR). Due to the difficulties in regulating cryptoassets under the traditional framework, HKSAR set up its first regulatory regime on cryptoassets in November 2018, imposing new standards on cryptoasset fund managers, distributors and platform operators. A year later, HKSAR further clarified its position on the regulation of cryptoasset exchanges. Overall, the new regulatory regime for cryptoassets in HKSAR addresses the issues of regulatory gaps and regulatory arbitrage that existed under the previous framework as well as introducing enhanced regulatory standards. This has the effect of improving investor protection, but there are some remaining concerns. Chief amongst them are the problems with regulatory scope, the application of traditional regulatory standards to cryptoassets that do not fall within the definition of securities or futures, problems with the sandbox mechanism and ultimately, as a matter of regulatory philosophy, the need for a better balance between investor protection and market development.