NFTs, digital assets could soon fall under new rules in New Jersey, as lawmakers discuss blockchain technology

A person walks by displayed images of NFTs available for sale.

File photo: A visitor wearing a face mask walks past artwork displayed at an NFT (non-fungible token)-themed coffee shop at the China International Fair for Trade in Services (CIFTIS) in Beijing, Sept. 3, 2022. NFTs may be subject to regulations in New Jersey if the Legislature passes a new bill. (AP Photo/Mark Schiefelbein, File)

New Jersey is one step closer to passing new cryptocurrency and blockchain regulations after the state Senate Budget Committee advanced legislation requiring people to apply for a license to engage in digital assets business operations with the Bureau of Securities.

Though the bill advanced with unanimous support from both Democrats and Republicans on the committee, some lawmakers and lobbyists expressed concerns about how certain non-fungible tokens, or NFTs, would be treated under the current proposal.

NFTs are unique digital assets that “represent ownership of real-world items like art, video clips, music, and more,” according to Business Insider.

Like cryptocurrencies, NFTs are documented on a blockchain, a secure, decentralized digital ledger that records digital asset transactions. They have become increasingly popular in the last few years, functioning as a kind of digital collectible.

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During Thursday’s hearing, Jon Potter, a lobbyist representing Dapper Labs and Sorare — two highly influential NFT companies — asked lawmakers to exempt certain digital art and sports card sellers from the bill’s broad “financial services” regulations.

“Our specific concern is that the bill’s definitions of digital assets and digital consumer assets unequivocally capture all sellers of NFTs regardless of whether there is financial utility or risk,” Potter said. “To be clear, I’m not sure if NFTs have ever been used for investment, payments or any financial services, but if and when that happens, they should absolutely be covered and regulated by this legislation. But digital baseball cards should not be.”

Several members of the committee said they shared Potter’s concerns despite approving the measure.

Committee member, and co-sponsor, Sen. Andrew Zwicker (D-Somerset) said his priority is protecting consumers.

“There’s two different things here: someone could make one of these NFTs and not worry about selling it. Then we’re not talking about any sort of financial concern,” Zwicker said. “When you’re selling it, like anything else, you want to make sure that it’s done without any fraud, and we’re protecting New Jersey residents. So that’s the goal of what we’re trying to get accomplished right now, as we know that blockchain technology is going to continue to expand.”

The bill is different from the Digital Assets and Blockchain Regulation Act, sponsored by Sen. Robert Singer (R-Ocean), who stated in November that he wants New Jersey’s digital asset and blockchain laws to be “industry friendly.”

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Also in November, New York Gov. Kathy Hochul signed a law imposing a first-in-the-nation two-year moratorium on proof-of-work crypto mining. This type of mining is considered hazardous to the environment because it requires large amounts of fossil fuel energy.

Zwicker said he “would not advocate for a moratorium” in New Jersey.

“I think what’s going to happen when it comes to the environmental impact of blockchain technology is like anything else, we’re going to see new ways to be more efficient and use less energy. And so I fully expect technology to help us solve that particular problem,” Zwicker said.

The Assembly passed both measures last fall. However, the lower chamber would need to vote again on Zwicker’s bill if it passes in the Senate due to recent amendments.

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