As the cryptoasset sector marked the so-called "Bitcoin Pizza Day" on 22 May 2024 (crypto's equivalent to a cultural touchstone – the 14th anniversary of two large pizzas being purchased using Bitcoin), the Advertising Standards Authority (ASA) saw an opportune moment to revisit its role in the ever-evolving landscape of non-fungible token (NFT) advertising (available to read here). Whilst the Financial Conduct Authority (FCA) is now responsible for overseeing advertising of cryptocurrencies like Bitcoin, the ASA continues to play a pivotal role in regulating the promotion of NFTs—a cryptoasset that is still within its remit. Advertisers must therefore continue to be vigilant in following the ASA's guidance to stay on the right side of the regulator and avoid investigation, possible sanctions, and reputational risk.
Publication of the ASA's guidance provides a welcome refresher on how it approaches these issues, the lessons to be learned from previous ASA rulings, and how to stay compliant when advertising NFTs.
Understanding NFTs and the ASA's approach
NFTs are digital tokens representing ownership or proof of authenticity of a unique item or piece of content. NFTs are typically minted on a blockchain through smart contracts and can represent anything from digital art to other assets, such as tickets. The ASA acknowledges that the huge diversity of NFTs presents a complex regulatory challenge, and that different categories of NFTs give rise to varying risks and they should be regulated accordingly. This nuanced understanding is crucial as advertisers navigate the complex terrain of promoting digital assets that may not fit neatly into traditional categories.
Assume unfamiliarity with NFTs
Anyone promoting, marketing or advertising NFTs should be aware of Section 3 of the UK Code of Non-broadcast Advertising and Direct & Promotional Marketing (CAP Code) which concerns misleading advertising. Rule 3.3 mandates that adverts must not omit material information which consumers require to make informed decisions. This is especially relevant given the novelty of NFTs and the average consumer's likely unfamiliarity with their functionality. Advertisers should be careful not to take advantage of consumer's inexperience in this area. Advertisers which omit material information may be investigated by the ASA. For example, the ASA's ruling on FC Barcelona considered an advertisement for an NFT depicting Johan Cruyff’s “impossible goal” in 1973. This was found misleading as it failed to make clear:
- the risks associated with NFTs (including that the value may go up or down);
- that auction house fees, sales tax and third-party wallet transfer fees applied; and
- that there were significant restrictions on ownership rights (such as the buyer being restricted from modifying the token in any way or displaying it for commercial purposes).
Investment rules can apply to NFTs
The investment potential of NFTs is a grey area, and one that advertisers must navigate carefully. The ASA has previously stated that some advertisers are prone to trivialising investments in crypto and NFTs, resulting in irresponsible advertising. While some NFTs may be seen as collectibles, the ASA has ruled that they can also be perceived as investment products, thus falling under the stringent rules for financial products, services, and investments outlined in Section 14 of the CAP Code. Advertisements must therefore clearly communicate the risks associated with NFTs, including their unregulated nature and the volatility of their value. Further, due to their volatility, small print disclaimers may not be sufficient. This was a key factor for the ASA when evaluating the FC Barcelona advertisement and one of the key reasons the advert was found misleading, as it didn't state that the value of the NFT could go down as well as up. The ASA has also previously flagged that adverts may need to include information on the tax implications of buying and trading NFTs.
Be clear about technical features of the NFT
The ASA has also emphasised the need for transparency regarding the technical requirements for obtaining and holding NFTs. Advertisements must not mislead by omitting information on the necessary cryptowallet or the blockchain on which the NFT operates. This was seen in the ASA's FanCraze Technologies Inc ruling. Buyers could only trade their tokens with other users on the FanCraze platform, within the FanCraze market place, and required a cryptowallet to purchase the NFTs, which was not made clear in the advertisement.
Due to the average consumer's inexperience with NFTs, advertisers must be careful also not to overstate the benefits of purchasing NFTs. Buying an NFT doesn’t necessarily stop others from purchasing a different copy of the NFT or confer copyright to the purchaser of the underlying material. Advertisers should ensure transparency and not over-promise in their advertising, without stating the technical and legal restrictions on the NFT.
Communicate all costs and fees
Finally, cost is a material consideration in NFT transactions. Advertisements must not mislead by omitting information about additional fees, such as minting or gas fees, which are commonplace in the NFT market (this issue was discussed in the ASA Ruling on Turtle United NFT).
Conclusion
As the NFT marketplace continues to mature, advertisers must remain vigilant and informed about the ASA's evolving guidelines. In a sector where innovation outpaces regulation, staying abreast of the ASA's rulings is not just good practice – it's a necessity for those looking to navigate the exciting yet complex world of NFT advertising.