Written evidence submitted by
Alberto Pallotta, Vito Ciciretti, Mann Matharu, Dr Monomita Nandy and Dr Suman Lodh

Non-fungible tokens (NFTs) and the blockchain Inquiry

Executive Summary:

In response to the non-fungible tokens (NFTs) and the blockchain Inquiry, we provide written evidence on the four questions raised by the DCMS. We identify the reason why the UK’s light touch NFT regulation is not sufficient. In our research we find there is a need of strict regulation to protect the vulnerable from the worse effect of NFT speculation. In addition, we recommend that introduction of relevant regulation will create confidence among UK investors to take active part in the NFT market, which will allow the stakeholders of the market to generate economic benefit in long term.


Q1.Is the UK’s light-touch NFT regulation sufficient?

The UK's light touch on NFTs regulation is not sufficient and we have identified several unresolved legal issues regarding NFTs:

NFT Royalties.

In the case of art-related NFTs, the royalties, and the relative term and conditions are enforced by a smart contract.

A current problem is if the NFTs are sold on a different platform ,the art creators may not receive their dues. Furthermore, at the moment, the resale rights for NFTs are not legally enforced in the UK.

Recognising resale rights for NFTs, will grant authors of original works of art the right to receive a royalty each time their work is resold through an art market professional. Thus, it will provide a solution for unpaid resale royalties.


The buyers of most NFTs believe that they own the art associated with the NFT itself and they are not aware that  the only person with the right to copy,  modify or sell the artwork is the art creator (Chalmers et al., 2021). The situation is made more complicated because it is currently unclear whether minting a digital token can grant legal ownership of an asset in the UK (Purtill, 2021). It is therefore crucial to create intellectual property and specifically copyright laws to regulate the relationships between NFTs buyers, art creators and exchanges  

 Financial regulation

It is well-known that NFTs can be used for money laundering and, to evade economic sanctions (Kafteranis et al., 2022).

In the UK, NFTs are not currently regulated unless they contain features that would bring them within the category of regulated products such as securities or electronic money, with NFTs falling into the unregulated category.

Consequently, is not easy to enforce KYC (know your client) and AML (anti-money laundering) to NFTs, and it is well-known that criminal organizations are using them for illicit activities.

One of the ways to make sure that all the necessary regulations will apply could be to create an NFTs category.


Data protection

Some NFTs include sensitive data, and personal information and this develops a growing concern, especially with the implementation of the General Data Protection Regulation (GDPR) and the Data Protection Act 2018.

These laws aim to protect privacy rights and give individuals more control over their personal data. However, the blockchain is an immutable ledger, meaning that it is impossible to erase personal data stored on it. This presents a problem, as the GDPR requires that personal data can be erased and storing personal data on the blockchain may violate data protection principles.

New laws are necessary to make sure that data protection principles are respected in the context of NFTs and blockchain.


Typical NFTs related frauds

There are several types of fraud that have been observed in the context of NFTs and that should be where specific laws might be necessary. One such type is tokenization, which refers to the unauthorized creation of digital tokens representing ownership of a real-life asset.

Another is wash trading, in which an investor creates the impression of high demand for an NFT, thereby manipulating its value or raising its profile. 

A practice known as sleep-minting involves hackers transferring NFTs to their own wallets in a sophisticated way that does not trigger security checks and convinces potential buyers that the hacker is entitled to sell the NFTs. 

It is necessary to implement new laws or regulations specifically designed to address the unique characteristics of this new technology, including consumer protection, anti-fraud measures, and efforts to ensure the security and integrity of NFTs marketplaces.

Q2: What are the potential harms to vulnerable people of NFT speculation?


NFTs, or non-fungible tokens, are digital assets that are unique and cannot be exchanged for other assets on a one-to-one basis. They have gained popularity in recent years as a way to represent and sell digital artwork, music, and other forms of media. While NFTs have the potential to revolutionise the way we think about and value digital content, they also come with risks, particularly for vulnerable people.


One potential harm of NFT speculation is the risk of financial loss. The market for NFTs is highly speculative and volatile, and the value of an NFT can fluctuate greatly in a short period of time (Wang, 2022). This can lead to significant losses for those who invest in NFTs, especially if they are not financially literate or savvy. Vulnerable people, such as those who are financially illiterate or have low income, may be more at risk of falling prey to scams or making poor investment decisions that result in financial loss.


Another potential harm of NFT speculation is the risk of fraud. The digital nature of NFTs makes it easier for unscrupulous individuals to create and sell fake or counterfeit NFTs. This can result in financial loss for those who buy the fake NFTs, and it can also damage the reputation and trust in the NFT market as a whole. Due to lack of knowledge or understanding of the technology make people more vulnerable and they may be more susceptible to falling victim to NFT fraud.


In addition to the financial risks, NFT speculation can also have social and cultural impacts. Some have argued that the rise of NFTs and the attention they have received from mainstream media and celebrities has contributed to the commodification of art and other cultural products (Kapoor et al., 2022). This commodification turns art into a commodity to be bought and sold rather than a source of artistic expression or cultural heritage. This can be harmful to marginalized communities who may not have the same access to the NFT market and may lose control over their cultural artifacts (Nobanee and Ellili, 2022).

Finally, NFT speculation can contribute to environmental harm. The process of creating and trading NFTs requires significant energy consumption, contributing to environmental degradation (Howson and Vries, 2022).


Overall, NFT speculation carries potential risks and harms, particularly for vulnerable people. While NFTs have the potential to bring about positive change in the way we think about and value digital content, it is important to be aware of these risks and to take steps to mitigate them. This may involve educating oneself about the technology and the market, seeking the advice of financial professionals, and being cautious of fraud and scams. A relevant regulatory framework will protect vulnerable to be victim of possible NFT frauds and will allow to generate utility from the NFTs.


Q3. Do blockchains offer security to British investors?

Before we answer this question, it's important to understand the basic principles of what a blockchain can do and then consider its attributes. Blockchain technology allows data and funds to be transferred in a completely secure manner thanks to sophisticated coding, encryption and quite often a consensus algorithm to verify the information passed through the network. Not all blockchains have to be public, some are private but most will have a ledger of sorts which records past and present transactions. Not all transactions are financial related.

From the inception of the blockchain, we find several cases of hacking and fraud, which raise questions about the security of the technology. Each bad incident related to blockchain technology raised the same question gain and again. Some of the incidents related to blockchain technology are related to smart contract vulnerabilities3, application vulnerabilities4, cloud infrastructure/server breach5, insider breaches to social engineering breaches.6 (Zamani et al., 2021). But how the lack of security in the technology could still be the interest to invest remains unclear. If the question is whether British (or any) investors can have some confidence in knowing their investment or the information surrounding their investment is secured and recorded on the blockchain, then blockchains do offer security to investors. However, it's worth noting that if an investor is looking to invest in a blockchain based cryptocurrency, token, NFTs or other digital assets, the blockchain itself cannot guarantee its success.



Q4: What are the potential benefits to individuals and society of NFT speculation?


The NFTs have garnered significant attention in recent years as a new way to buy and sell digital art and other cultural artifacts. NFT speculation, in which investors buy and sell NFTs with the hope of making a profit, has also become a popular activity. While NFT speculation has been criticized for its potential harms, such as contributing to economic inequality and environmental degradation, it also has the potential to bring benefits to individuals and society.


One potential benefit of NFT speculation is that it can provide economic opportunities for artists and creators (Okonkwo, 2021). NFTs can serve as a new avenue for artists and creators to sell their work and earn a living. This can be especially beneficial for artists who may have difficulty reaching traditional markets or who may not have access to traditional forms of funding. For example, an artist who creates digital art may struggle to sell their work through traditional galleries or art fairs, but can use NFTs to directly sell their art to collectors. Additionally, NFTs can allow artists to retain ownership and control over their work, rather than having to rely on galleries or other intermediaries.


Another potential benefit of NFT speculation is that it can increase the value and recognition of digital art and other cultural artifacts. By using NFTs to sell digital art and other cultural artifacts, artists and creators can validate and increase the value of their work. This can lead to increased recognition and support for artists and creators, as well as greater appreciation for digital art and culture within society. NFTs can also help to bring attention to lesser-known or emerging artists, providing them with a platform to showcase and sell their work.


In addition to these economic benefits, NFT speculation can also facilitate the preservation and distribution of cultural artifacts. NFTs can be used to preserve and distribute cultural artifacts, such as Indigenous art or traditional music, in a way that is more secure and easily accessible. This can help to promote cultural exchange and understanding, as well as the preservation of cultural heritage. By using NFTs to digitize and distribute cultural artifacts, communities can ensure that their cultural heritage is not lost or forgotten, and can make it more widely available to others.


In summary, by answering the questions raised by the DCMS, we show that an intervention of regulation will allow the individual in the NFT market not only to get richer on paper but also to create utility when they belong to an exclusive community. Any NFT purchase is highly speculative but still there is a popular market for the NFT. The reason is higher possibility of potential benefit in NFT, as a proof of unique ownership carries a higher prospect of selling in future. There are several valuable NFT communities where the founding team get a limited number of valued members in the community and these members believe in long term values. To mint the NFT, founders can stick to certain platforms which have mission focused holders. The founder can trade in unique token when the NFT follows ERC-721 standards. Some NFT traders join such expensive community because they are focused on long term utility and are rewarded for their attitude of holding the token for long time. The vetting process in these communities are very transparent which reduce the chances of dealing with short term speculators. In an open space, the NFT price can move up and down as other traditional asset only when the founders are focused on long term utility as that will reduce the possibility of short-term speculation. If the exclusive communities are built following certain regulation, then there is a higher possibility to generate higher utilities for the society through NFT trading.                 



Chalmers, D., Matthews, R., Hyslop, A., (2021). Blockchain as an external enabler of new venture ideas: digital entrepreneurs and the disintermediation of the global music industry. Journal of Business Research 125, 577–591.

Howson, P., & de Vries, A. (2022). Preying on the poor? Opportunities and challenges for tackling the social and environmental threats of cryptocurrencies for vulnerable and low-income communities. Energy Research & Social Science, 84, 102394.

Kafteranis,D.Abukari , A., and Turksen, U , (2022) https://blogs.law.ox.ac.uk/business-law-blog/blog/2022/05/money-laundering-non-fungible-tokens

Kapoor, A., Guhathakurta, D., Mathur, M., Yadav, R., Gupta, M., & Kumaraguru, P. (2022, April). Tweetboost: Influence of social media on nft valuation. In Companion Proceedings of the Web Conference 2022 (pp. 621-629).

Nobanee, H., & Ellili, N. O. D. (2022). Non-fungible tokens (NFTs): A bibliometric and systematic review, current streams, developments, and directions for future research. International Review of Economics & Finance.

Okonkwo, I. E. (2021). NFT, copyright and intellectual property commercialization. International Journal of Law and Information Technology, 29(4), 296-304.

Purtill, J. (2021). Artists report discovering their work is being stolen and sold as NFTs. ABC Science.

Wang, Y. (2022). Volatility spillovers across NFTs news attention and financial markets. International Review of Financial Analysis, 83, 102313.

Zamani, E., He, Y., & Phillips, M. (2020). On the security risks of the blockchain. Journal of Computer Information Systems, 60(6), 495-506.



Written Evidence Submitted by:

Alberto Pallotta[1]; Vito Ciciretti[2]; Mann Matharu[3]; Dr Monomita Nandy[4]; Dr Suman Lodh[5]




[1] Lecturer, Middlesex university London, UK & D&D Capital Management, UK, head of R&D


[2] Independent Researcher, Quantitative Risk methodology specialist, Germany


[3] CEO and Founder, Qi Digital Limited, UK


[4] Associate professor in Accounting and Finance, Brunel University London, UK &

Corresponding author


[5] Associate Professor in Finance, Kingston University London, UK