Cryptoassets: Non-Fungible Tokens – ASA

May 22nd marked “Bitcoin Pizza Day”, a day when tradition tells us that in 2010 programmer Laszlo Hanyecz bought two large pizzas for 10,000 Bitcoin. Since October 8, 2023, the regulation of advertising of cryptocurrencies, including Bitcoin, has been placed under the purview of the Financial Conduct Authority (FCA), but given that Bitcoin Pizza Day is the closest thing to a “Red Letter Day ” For the crypto sector, this is a good time to remember the ASA’s role in regulating non-fungible tokens (NFTs), because these remain within the ASA’s remit. While NFT advertising is an emerging area and the public utility of NFTs is still taking shape, the ASA has established precedent-setting positions for NFT advertising.

The ASA’s rulings on NFT listings are generally compatible with the widely held view that NFTs are a type of digital claim on an asset that is “minted” on a blockchain via a “smart contract,” but the rulings that the ASA took could also be applied to digital assets that exist outside this definition. However, NFTs are a diverse range of entities and listings of NFTs of different types are likely to potentially require different treatment under the rules. For example, digital art and digital collectibles pose different risks and challenges to NFTs for digital ticketing. NFTs that are non-commercial, such as digital authentications for official documents, would in turn need to be considered within the parameters of how they are being used and therefore advertised.

As NFTs are a technology that is still in development, advertisers should consider how Section 3 of The CAP Code on deception applies to your advertising. Rule 3.3 requires that advertisements not omit material information, that is, information that the consumer needs to make an informed decision. Relevant information must also not be hidden or presented in an unclear, unintelligible, ambiguous or untimely manner.

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

NFTs as investments

Advertisers should consider whether the NFTs they advertise are likely to be considered by consumers as a form of investment. Items of art or of a collectible nature, which may serve a personal interest, may also be considered worthy of investment by consumers as a store of value. Advertisers have defended their ads by claiming that their NFTs are “collectibles” and not “investments” (FC Barcelona December 21, 2022), but the ASA considered that NFTs that behave like collectibles are likely to be perceived by consumers as investment products. This means that the advertiser must consider the rules for products, services and financial investments in Section 14 of the CAP Code.

Any advertisements for NFTs that could be viewed as investments must contain a clear and prominent statement that makes clear the risks of NFTs, such as the fact that they are an unregulated crypto asset and that their value can go down as well as up. If advertisers make claims about the past performance of an NFT’s value (United Turtle, December 21, 2022), should make it clear that the past performance of an NFT does not necessarily give an indication of the future.

Restrictions on the use of NFTs

Advertisers should consider what rights are conferred on the owner of an NFT. NFTs sold that contain intellectual property must make it clear that ownership of the NFT does not necessarily confer intellectual property rights to the NFT content. 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. The ASA considered that this was relevant information that should have been clarified in the advertisement.

Which blockchain, which wallet?

Advertisers should not omit the technical requirements for consumers to obtain and hold an NFT if the absence of this information could be misleading. ASA found a FanCraze Technologies Inc. Essex County Cricket Club’s advertisement for NFTs was misleading on the basis that it did not make clear which crypto wallet a potential buyer would need to receive an NFT or which blockchain the NFTs operated on. NFTs were to be minted on the FanCraze platform on the Flow Blockchain and users could only trade their tokens with other users there, on the FanCraze peer-to-peer marketplace. The ASA considered that this was material information that should have been included in the advertisement and that the advertisement was misleading on this basis.

Costs and fees

As with all products, price claims must not mislead consumers by omission, and the minting or method of selling NFTs may incur costs. In a case where an NFT was auctioned (Barcelona), the advertisement was considered misleading because it did not make clear that the buyer was required to pay additional fees at the hammer price to the auction house. The ASA also found that fees that typically apply to NFTs, such as minting fees or gas fees, are material information that should be in the announcement (Turtle United NFT December 21, 2022).

For further guidance on non-streaming advertising for NFTs, our copy advice team is on hand to provide free,personalized advice.

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