Non-fungible tokens (“NFTs”), a type of digital asset, are the latest crypto talk in town. On 19 February 2021, the NFT featuring the iconic Nyan Cat meme was sold for US$590,000. Barely three weeks later, the world’s most expensive digital art and the most expensive NFT – Mike Winkelmann’s digital art piece “Everydays: The First 5000 Days” – was sold for US$69.3 million, becoming the third-highest auction price achieved for a living artist, after Jeff Koons’ ‘Rabbit’ stainless steel sculpture and David Hockney’s 1972 “Portrait of an Artist (Pool with Two Figures)” painting. On 22 March 2021, Twitter CEO Jack Dorsey’s first tweet was sold for US$2.9 million. Most recently, TIME Magazine has released three special edition NFT magazine covers for auction, featuring the topical questions “Is God Dead?”, “Is Truth Dead?” and “Is Fiat Dead?”

Unlike other kinds of digital tokens like Bitcoin, NFTs are not the same and not interchangeable, and therefore, each NFT possesses a novelty value. Most NFTs are built on the Ethereum blockchain and are digitally embedded onto the purchased item. As such, by recording the details of an item’s ownership on a digital ledger, NFTs serve as unique digital certificates of ownership of digital assets.

However, NFTs do not confer onto the buyer the underlying copyright ownership. Digital artworks, songs, memes or tweets embedded with NFTs remain easily available online and can be copied readily. The rising demand for NFTs therefore seem to be attributed to something more than a blockchain certificate of authenticity for digital collectibles.

In fact, the hype over NFTs appears to lie in their nature as an emerging asset class. As more investors pile on the marketplace to trade NFTs, there is an increasing expectation on the value of acquiring the digital asset’s rights. For example, it may even be possible for NFTs to be minted in a way to ensure that the original NFT issuer receives a share of the proceeds every time the NFT is sold. As such, if sold with the promise of instant liquidity or return or capital appreciation, NFTs can be seen as possessing characteristics similar to securities and would likely be regulated then under existing securities legislation. It remains to be seen if NFTs will fall within the purview of the Payment Services Act 2019 (“PSA”), Singapore’s primary legislation to regulate cryptocurrency payments and exchanges.

The PSA came into effect in 2020 and was most recently amended in January 2021. Pursuant to the PSA, a person must have a licence to carry out a business of providing digital payment token services. The recent amendments have expended the scope of the definition of “digital payment token services” to include (a) the transfer of digital payment tokens, (b) the safeguarding of digital payment tokens or digital payment token instruments, and (c) facilitating the exchange of digital payment tokens where the service provider does not come into possession of money or digital payment tokens.

At present, NFTs do not appear to be a medium of exchange accepted by the public as payment for goods or services, and would therefore not fall within the definition of a “digital payment token” under the PSA. However, given that NFTs can be easily converted into digital payment tokens, they may well be used as a means to bypass the regulations under the PSA (and the requirement for a license) for the purposes of trading digital payment tokens. If so, this would be a cause for concern for regulators.

Nonetheless, there has been much debate on whether the digital asset boom is sustainable, and the recent trend in NFTs has even been critiqued as a repeat of the 2017 ICO mania. The world of cryptocurrency remains in a state of flux, and is as much a place of opportunity as it is a place of risk. Unlike artists profiting out of the current excitement over NFTs, Elon Musk made light of NFT investors by offering to sell one of his tweets as an NFT and later turning down a $1 million offer for it. It remains unclear whether NFTs are another bubble waiting to be burst. In the meantime, proactive lawmakers may have already begun works on legislative amendments to the PSA to regulate the sale of NFTs in Singapore. After all, it was a Singapore-based buyer who purchased the most expensive piece of digital art in history.

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