Cryptoassets: non-fungible tokens – ASA

May 22 marked “Bitcoin Pizza Day,” a day where tradition tells us that in 2010, programmer Laszlo Hanyecz bought two large pizzas for 10,000 Bitcoins. Since October 8, 2023, the regulation of advertising for cryptocurrencies, including Bitcoin, has fallen under the jurisdiction of the Financial Conduct Authority (FCA), but given that Bitcoin Pizza Day is the closest thing to a “Red Letter Day” for the crypto-asset. sector, this is a good time to provide a refresher on the ASA’s role in regulating non-fungible tokens (NFTs), as these remain within the remit of the ASA. While NFT advertising is a nascent field and the public utility of NFTs is still taking shape, the ASA has established positions with previous rulings regarding NFT advertising.

The ASA’s decisions regarding NFT advertisements are generally consistent with the widely held view that NFTs are a type of digital claim on an asset that is “created” on a blockchain via a “smart contract”, but the decisions issued by the ASA could also apply. to digital assets that exist outside of this definition. However, NFTs represent a diverse range of entities, and it is likely that advertisements for NFTs of different types will potentially require different treatment under the rules. For example, digital art and digital collectibles present different risks and challenges to NFTs for digital ticketing. NFTs that are not commercial, such as digital authentications for official documents, should in turn be considered in the parameters of how they are used and therefore advertised.

As NFTs are still a developing technology, advertisers should consider how Article 3 of The CAP Misleading Code applies to their advertising. Rule 3.3 requires that advertisements not omit important information, that is to say the information that the consumer needs to make an informed decision. Important information should also not be hidden or presented in an unclear, unintelligible, ambiguous or inappropriate manner.

There are additional specific inclusions on what constitutes material information in advertisements that indicate prices of advertised products in Rule 3.4. Due to the relative newness of NFTs, the ASA may consider that it is unlikely that the average consumer will be well informed about NFTs or how they work.

NFTs as investments

Advertisers should consider whether the NFTs they advertise are likely to be viewed by consumers as a form of investment. Art or collectible objects, likely to meet personal interest, may also be considered worthy of investment by consumers as a store of value. Advertisers have defended their ads on the grounds that their NFTs are “collectibles” as opposed to “investments” (FC Barcelona, ​​December 21, 2022), but the ASA considered that NFTs that behave like collectibles are likely to be understood by consumers as investment products. This means that the advertiser must take into account the rules applicable to financial products, services and investments in article 14 of the CAP Code.

Any advertising for NFTs that may be considered investments must contain a clear and conspicuous statement that clearly states the risks of NFTs, for example that it is an unregulated crypto-asset and that their value may decline like increase. If advertisers make claims about the past performance of an NFT’s value (Turtle United, December 21, 2022), they must clarify that the past performance of an NFT does not necessarily give an indication for the future.

Restrictions on the use of NFTs

Advertisers should consider the rights afforded to the owner of an NFT. NFTs sold containing intellectual property must clearly state that ownership of the NFT does not necessarily confer intellectual property rights to the content of the NFT. In a case investigated by the ASA (FC Barcelona, ​​December 21, 2022) the NFT featured a graphic of Johan Cruyff’s “impossible goal” in 1973. Ownership restrictions excluded intellectual property rights to the image, restrictions on displaying the NFT for commercial purposes, and modifying it in any way whether it be. The ASA considered this to be important information which should have been clearly stated in the advert.

Which blockchain, which wallet?

Advertisers should not omit technical requirements for consumers to obtain and hold an NFT if the absence of such information is likely to be misleading. The ASA found a FanCraze Technologies Inc. Advertising for Essex County Cricket Club NFTs was misleading as it did not clearly state which crypto wallet a potential buyer would need to receive an NFT or which blockchain the NFTs operated on. NFTs had to be created on the FanCraze platform on the Flow Blockchain and users could only trade their tokens with other users, on the FanCraze peer-to-peer marketplace. The ASA considered that this was important information which should have been included in the advert and that the advert was misleading on this basis.

Costs and fees

As with all products, pricing claims must not mislead consumers by omission, and the minting or method of selling NFTs may incur costs. In the event that an NFT were to be auctioned (FC Barcelona), the advertisement was found to be misleading on the grounds that it did not clearly indicate that the buyer had to pay fees to the auction house in addition to the hammer price. The ASA also found that fees that typically apply to NFTs, such as minting fees or gas fees, are important information that must be included in the listing (Turtle United NFT, December 21, 2022).

For more advice on non-showing ads for NFTs, our Copy Advice team is on hand to provide, free of charge,tailor-made advice.

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