Saturday, November 26, 2022
Ross E. Bruch (Brown Brothers Harriman & Co.) recently published an article entitled, Technology— Probate: NFT Scams— Buyer Beware, ABA Probate & Property, November/December 2022. Provided below is an introduction to the article:
The year 2022 has been a rough year for digital assets. First, after reaching all-time highs in late 2021, Bitcoin, Ethereum, and many other popular cryptocurrencies lost more than 70 percent of their market value earlier this year, erasing trillions of investment dollars. Second, multiple crypto exchanges either declared bankruptcy or limited withdrawals from their customers’ accounts to avoid a run on assets. Third, the Securities and Exchange Commission charged several crypto exchange employees with insider trading, which resulted in increased demand for Congressional regulation over digital assets and their markets. Among digital assets, this article focuses on a specific type of digital asset that is experiencing remarkable volatility—non-fungible tokens (NFTs).
Like other digital assets, NFTs have faced their fair share of problems in the last year. Sales of NFTs have significantly dropped in both volume and value. According to Non-Fungible.com’s market tracker tool, NFT sales peaked in late 2021 and as of late summer 2022 stood at about 25 percent of their highest values. Admittedly, even after excluding the current market turmoil, I have some doubts about the functionality and value of a majority of existing NFTs. I believe the purported fundamentals of many NFTs are questionable at best. Furthermore, the NFT environment and various markets are ideal for scams and other fraudulent activity (more on that below). That being said, underlying NFT smart-contract technology appears to be useful in some capacities and will likely continue to appear in different formats and platforms for years or decades to come. In other words, I believe we are still in the very early stages of NFT development, and just as the internet of the late 90s barely resembles the ubiquitous digital resource we so heavily rely upon today, NFT naysayers should not immediately dismiss NFTs as merely a passing fad.
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