The emergence of non-fungible tokens in the world of art has led
to the risk of widespread copyright infringement, while the
promotion of crypto assets in professional sport is putting
supporters at risk of financial harm and potentially damaging the
reputations of clubs, MPs warn today.
In its report NFTs and the Blockchain: the risks to sport and
culture, the Culture, Media and Sport
Committee notes that while sales of NFTs peaked last
year and that they may not reach the same level of popularity
again, concerns remain over how traditional regulatory regimes
have been exposed by the emerging technology.
Highlighting evidence of misleading and fraudulent advertising of
NFTs, the report calls for the Government to ensure that all
those involved at each stage of the marketing of crypto assets
take responsibility to protect consumers.
The Committee also urges the Government to work with NFT
marketplaces to address the scale of copyright infringement in
the art world. A creator’s rights are infringed in cases where
their work is made available to the public without permission,
with the process of having work taken down time consuming and
difficult compared with the ease at which NFTs can be
minted.
With regards to sport, the report recommends that the use of fan
tokens in football do not count as an acceptable measure of
engagement in the forthcoming regulation of the game. The
Committee highlights the price volatility of such tokens and
reservations from fan groups.
, Chair of the CMS
Committee, said: “Traditional regulatory regimes
have failed to protect both creatives and consumers caught up in
the volatile new crypto world. Artists are at risk of seeing the
fruits of their hard work pinched and promoted without permission
while fraudulent and misleading adverts add an extra layer of
jeopardy for investors involved in what is already an inherently
risky business. The Government must make sure that everyone in
the crypto chain is working to properly protect consumers and the
rights of creators.
In the world of sport, clubs are promoting volatile
cryptoasset schemes to extract additional money from loyal
supporters, often with promises of privileges and perks that
fails to materialise.
Fan token schemes must not be used as a substitute for
meaningful engagement with supporters.”
Main findings and recommendations
Art and culture
- Blockchains and NFTs have some unique potential applications
in art and culture. NFTs, for example, can create new markets for
artworks and encourage artists to develop new digital skills. The
Committee found however that there are real risks and harms to
creators and consumers in their use.
- The most pressing issue discovered by the Committee’s inquiry
relates to risks to intellectual property. The report notes how
the risks of copyright infringement are exacerbated given how
easy it is to mint an infringing NFT relative to how time
consuming it is for artists to enforce their rights. The sheer
number of NFTs hosted across NFT marketplaces makes individual
enforcement through repeated notice-and-takedown requests
impractical.
- The Committee recommends that the Government engages with NFT
marketplaces to address the scale of infringement and enable
copyright holders to enforce their rights. The Government should
also address the impact of safe harbour provisions by introducing
a code of conduct for online marketplaces operating in the UK,
including NFT marketplaces, that protects creators, consumers and
sellers from infringing and fraudulent material sold on these
platforms.
Professional sport
- NFTs are becoming increasingly popular within professional
sport because they offer a new revenue stream for professional
athletes, clubs, international teams and leagues at little cost
to them. The report states that despite having little to no
financial risk for clubs, NFTs have proven to be inherently risky
for fans who invest in them.
- Distinct from generic NFTs, are utility tokens, which in a
sporting context are called fan tokens. They theoretically give
holders access to certain privileges and membership perks such as
voting on club decisions, rewards, merchandise designs and unique
experiences, and thus have more tangible and inherent value. The
Committee however heard criticisms that they are not delivering
on promises of fan engagement and are being marketed as
equivalent to other legitimate club memberships.
- The report concludes that the unique relationship between
clubs and fans means that fan speculation on sport-based
cryptoassets carries a real risk of financial harm to fans and
reputational harm to clubs.
- The Committee is also concerned that clubs may present fan
tokens as an appropriate form of fan engagement in the future,
despite their price volatility and reservations among fan groups.
We recommend that any measurement of fan engagement in sports,
including in the forthcoming regulation of football, should
explicitly exclude the use of fan tokens.
Advertising
- The technical, volatile and largely unregulated nature of
NFTs means that advertising such products comes with a
significant risk of harm to consumers, even for legitimate
products. At their most pernicious, false advertisements and
endorsements can enable scams and fraud.
- The Committee recommends that the Government respond to the
evidence gathered on misleading and/or fraudulent advertising for
NFTs. It should ensure that any regime compels the entirety of
the advertising supply chain take steps to mitigate the risks of
harm to consumers from the marketing of NFTs.
