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On September 7, I had the privilege of participating in the HODL2021 conference organized by the Blockchain and Crypto Asset Council (BACC) of the Internet and Mobile Association of India (IAMAI).
India has always been a growing and challenging environment for the crypto industry. The Government of India is occasionally considers a ban crypto assets and viewed the technology with skepticism. Industry participants are often lacked clarity about regulatory expectations, and had to deal with the looming threat of possible bans.
However, the Indian government has recently sent more receptive signals. Reports there have been suggestions that India may consider passing legislation to regulate rather than ban crypto-asset activities.
The HODL2021 conference was therefore a timely opportunity for industry and public sector stakeholders to meet and discuss the challenges and opportunities surrounding the crypto sector, so that India can find a new way forward.
The panel I participated in dealt with one of the hottest topics in crypto: non-fungible tokens (NFT). Under the name “NFTs . . . A bubble or a long-term bet?” The panel was moderated by Ankit Wadhwa, CEO of Rario, India’s first NFT platform for cricket. Other speakers included Rahul Pagidipati, CEO of Zebpay, India’s leading crypto exchange, and Ronald Le, CEO of BHOLDUS, a decentralized finance (DeFi) and NFT platform.
One of the key topics that came up several times during the discussion was the possible future of regulation of the NFT space, and the implications of fraud and scams for market participants. In Elliptic we they already work with NFT platforms to meet these challenges, so I had a lot of thoughts to share with the audience.
So what is the future of NFT regulation and compliance? Here are three key takeaways from the HODL2021 panel.
1: The NFT space is filled with exciting and legitimate new projects. But fraud is a real and growing problem that will damage the industry’s reputation if not addressed.
As a panel, we all agreed that NFTs are much more than just a fad, and actually represent the future of ownership in the digital age. We discussed some of the exciting new use cases in the NFT space — from avatars that playing that fan collectibles.
However, everyone on the panel noted a major challenge for the NFT industry: the proliferation of fraud in the space.
For example, we are in Elliptic recently highlighted the case NFT scams involving British artist Banksy.
In that case, a hacker gained unauthorized access to Banksy’s website and posted a link to an NFT purportedly by the artist. The NFT was quickly bought for $366,000. However, the customer quickly realized they had been scammed, and Banksy’s PR team admitted that the NFT was not his. While the fraudster returned the funds to the victim – possibly due to the unwanted attention the media coverage of the case generated – it underscored just how vulnerable the NFT space is to fraud.
With another cases of fraud since it is reported in the NFT space, the risks to individuals and businesses are real. All members of our HODL2021 panel agreed that this is a risk that needs to be taken seriously if the NFT space is to grow to its full potential.
2: In cases of fraud, regulators will look closely at the NFT space. However, regulation must be reasonable and proportionate to avoid stifling innovation.
The panel agreed on another point: the presence of fraud and other illegal activities in the NFT space will attract intense scrutiny from regulators in the near future.
As I mentioned during the discussion, any market where prices are as unpredictable and volatile as the NFT space will inevitably attract the attention of regulators — who will want to understand the scale of the fraud, money laundering, price manipulationand other issues that may cause harm. While the regulators may take some time to provide a clear framework and guidelines for NFT market participants, they will certainly strive to crack down on massive violations and instances of illegality.
The general view of the panel was that regulatory scrutiny is ultimately positive: regulatory attention will help the NFT space mature and gain legitimacy in the eyes of the general public, as has been the case with cryptoassets like bitcoin in general.
However, the panel agreed on another point: regulators should be careful not to overreact and risk overreach. Instead, regulators should seek to balance the need to ensure market integrity with the goal of allowing innovation to continue in the space.
3: Companies in the NFT space need to take regulatory compliance seriously.
Finally, the panel discussed another key point: as regulators eye the NFT space, the industry will need to demonstrate a commitment to regulatory compliance in order to gain the trust of regulators as well as the public at large.
At Elliptic, we’ve always believed that regulatory compliance is key an essential part of growth for the crypto asset industry. Demonstrating that crime in the crypto space can be reduced by applying innovative solutions like blockchain analytics has been key to the growing adoption of cryptocurrencies. Our experience is that businesses with a compliance-first mindset are the ones that thrive and grow — while those that view compliance solely as a burden will struggle to scale.
This will be no less true for the NFT space than for the broader crypto-asset industry.
Elliptic is already working with NFT service providers to help them proactively address anticipated regulatory challenges as well as manage the reputational risks they may face from exposure to crimes such as fraud and money laundering.
For example, on September 2 we published our partnership with NanakusaNFT market operated by SmartApp in Japan. Nanakusa will use Elliptical Lensour best-in-class wallet verification solution to identify high-risk wallets on Ethereum and Polygon. By introducing the Elliptic solution, Nanakusa will be able to provide its users with added confidence and security — allowing legitimate users to continue to innovate in the NFT space without the taint of illicit activity.
At Elliptic, we look forward to continuing our work with the ever-exciting NFT industry. We are grateful for the opportunity to discuss these topics with leaders in the space at HODL2021.
Contact us fodemo of our blockchain analytics solutions and to learn more about how Elliptic can help your business take advantage of opportunities in the NFT space.
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