Where Are NFTs Included in Crypto Asset Classification?
NFTs, or non-fungible tokens, are a type of crypto asset that represent unique digital items, such as art, music, games, collectibles, and more. Unlike fungible tokens, such as Bitcoin or Ether, NFTs cannot be exchanged for other tokens of the same kind and value. Each NFT has its own identity and provenance, which are verified by the blockchain.
But how are NFTs classified in the crypto asset taxonomy? Are they a separate category, or a subset of another type of token? And why does it matter?
There is no universal agreement on how to categorize crypto assets, but one of the most widely used frameworks is the Crypto Asset Taxonomy Framework (CATF), developed by the Cambridge Centre for Alternative Finance. The CATF divides crypto assets into four main categories: cryptocurrencies, utility tokens, security tokens, and platform tokens.
Cryptocurrencies are tokens that function as a medium of exchange and store of value, such as Bitcoin or Litecoin. Utility tokens are tokens that provide access to a service or network, such as Filecoin or Basic Attention Token. Security tokens are tokens that represent a claim on an underlying asset or cash flow, such as tokenized stocks or bonds. Platform tokens are tokens that enable the creation and operation of other tokens, such as Ethereum or Polkadot.
According to the CATF, NFTs can be classified as a subcategory of utility tokens, since they provide access to a specific digital item or service. However, some NFTs may also have characteristics of security tokens or platform tokens, depending on their design and functionality.
For example, some NFTs may represent fractional ownership of an underlying asset, such as a piece of art or real estate. In this case, they may be considered as security tokens, since they confer a claim on the asset's value or income. Alternatively, some NFTs may enable the creation and operation of other NFTs, such as CryptoKitties or Decentraland. In this case, they may be considered as platform tokens, since they facilitate the development of an NFT ecosystem.
The classification of NFTs is not only a theoretical exercise, but also has practical implications for their regulation and taxation. Depending on how NFTs are categorized, they may be subject to different legal frameworks and obligations in different jurisdictions. For example, security tokens may require compliance with securities laws and regulations, while utility tokens may be subject to consumer protection and anti-money laundering rules.
Therefore, it is important for NFT creators and users to be aware of how their NFTs are classified in the crypto asset taxonomy, and what implications this may have for their rights and responsibilities. As the NFT market grows and evolves, so will the need for clear and consistent definitions and standards for this emerging type of crypto asset.