The White House Is Regulating Digital Assets - Everything You Need To Know!

Estimated Read Time: 5 min

Hey friends,

Welcome back to the latest edition of Morning NFTea. Today we're covering the biggest stories from the last couple of days, including the successful Ethereum POS merge, so let's jump into it!

Worlds power consumption drops by the equivalent of Finland

Ethereum is by far leading the all-time NFT sales volume at over $29 billion (beincrypto, 2022), beating next on the list Solana by over ten times which is at $2.5 billion (beincrypto, 2022), so we would be hard-pressed not to cover the recent Ethereum POS merge. For a quick recap, the Ethereum merge is the blockchain's historic move toward a proof-of-stake (POS) system instead of the energy-guzzling proof-of-work (POW) protocol. POS allows Ethereum to be staked, and have that staked ETH validate transactions instead of the previous computational-intensive POW consensus mechanism. This technological feat went down on Sept 15th when the blockchain architecture was seamlessly converted to POS without any changes to the end user, which had previously seemed impossible to solve for a globally used network like Ethereum. The result is a blockchain that will reduce Ethereum's total carbon dioxide levels by 99.992% according to recent studies. As alluded in the title, this is equivalent to Finland's entire annual power consumption, nullifying many other NFT blockchain's “environmental” advantages, and removing a common pain point for critics of the new technology.

So what does this mean for the future of NFTs? We’ve already covered this topic in a recent newsletter you can find here, so let's use this time to set the story straight on a few misconceptions. 

• The Merge won't change gas fees. Gas fees are mainly determined by the demand for a transaction to be included in the next block of the chain. Unfortunately, the recent merge does not solve Ethereum's scaling issues, and as the network usage is independent of the merge, so are the gas fees. Keep an eye out for the next merge called the “sharding” which aims to address Ethereum's scaling issues.

• Transactions won't be faster. The new POS consensus will have blocks bundled into epochs that validators can vote on and authenticate within a certain amount of time. Once consensus is reached on the authenticity of a transaction, it's marked for finalization. The official Ethereum website states that any transaction time changes from this new mechanism will “unlikely to be noticed by users”. 

• Staked ETH really is staked. To become a validator on the network, you will need at least 32 ETH (although multiple platforms are available to group you with other keen stakers). You will also need to be willing to lock your ETH until the planned Shanghai update sometime set for 2023. However, transaction fee tips and other miner extractable value (MEV) will be immediately available (these are other reasons why gas fees won't change). 

This has been a bit longer section than normal, and not directly NFT related, but is important information for any NFT owner to be familiar with as it marks a historic moment for the current home of the world's Non-Fungible-Tokens.

Disney CEO Looks To Web3 For “next-generation storytelling”

At over double the entire all-time sales volume of NFTs, Walt Disney's expected $81 billion in revenue for just 2022 (companiesmarketcap, 2022) exhibits the true scale of this goliath, and now the Disney CEO has just confirmed its plans to move into the Metaverse. Bob Chapek the Chief Executive of Disney recently spoke at Disney's biennial D23 expo fan convention, outlining how the company looks to move into Web3 through NFTs and the Metaverse. Specifically, Disney wants to use data from the physical and digital worlds to drive its Metaverse policy. They stated that data from theme park visits and consumer streaming habits can help “next-generation storytelling”, such as through campaigns like Disney's recent ‘Golden Moments’ NFT collection that included all the IP from Marvel to Pixar that you would expect to see. 

Bob said, “Disney is absolutely a lifestyle. The question is, how is our next-gen storytelling leveraging what we know about a guest uniquely in this Disney lifestyle, then serving unique experiences”. Brands looking for these “unique consumer experiences” is one of the advantages NFTs offer, and spearheaded Starbucks’ recent NFT announcement. With NFTs opening up new avenues for consumer behavior (catch our coverage of Netflix using NFTs for new engagement data here), it's no surprise Disney is looking to further commit to the bandwagon of Web3, and exemplifies the new potential and benefits that NFTs have opened up for these existing Web2 enterprises.

White House Outlines New Framework To Handle NFTs

Last Friday, The White House released a new framework for regulating digital assets, which includes NFTs. Through the announcement, the Biden administration looks for increased oversight and to acknowledge the risks faced by crypto consumers. The framework urges the Security and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) to “aggressively pursue” unlawful practices. There are also inclusions for the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) to increase efforts for dealing with consumer complaints against deceptive practices by crypto companies. There was also a proposal for an expansion of the Bank Secrecy Act (BSA) to include NFTs, aimed at preventing NFTs use in money laundering and financing illegal activities. As part of this expansion, there will be an “illicit finance risk assessment” on NFTs, which is expected to be completed by July 2023. 

National Security Advisor Jake Sullivan said the new crypto framework intends to position the U.S. as a “leading role in the innovation and governance of the digital assets ecosystem at home and abroad and in a way that protects consumers, is consistent with our democratic values, and advances U.S. global competitiveness”. The statement adds that The White House seeks “continued engagement with allies and partners on these issues, which will reinforce U.S. technological and financial leadership globally”. It is evident that one of the major drawbacks to NFTs and Crypto's mainstream adoption is their attachment to scams and illegal activities. The current landscape comes from the Wild-West nature of early technology paired with the lack of regulations that protect everyday consumers. Frameworks such as this one from The White House are no doubt a net positive to the NFT world, and adds to a long list of governments looking to embrace and support the emerging technology.

Thanks for your support on this latest edition. These were some impressive “big picture” stories as they address two of the major drawbacks NFTs had for people on the sidelines; environmental impact and safer regulations. As always, have a great couple of days and we will see you next time with some more NFTea!

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DISCLAIMER: 

None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.