Insight

The ecosystem of non-fungible tokens

Managing potential risks of NFTs while ensuring stakeholder trust

Non-Fungible Tokens (NFTs) are a type of cryptoasset that have redefined the models of ownership and methods in which companies engage with their customers. 

NFTs have gained in popularity leading to an approximately $41 billion market cap*

Simply speaking, they are unique tokens that denote ownership of a digital file in which cryptography and open-source software distribute the information on a public ledger, known as the blockchain. While the primary use case for NFTs has primarily been used to reflect ownership of digital art or media, many new use cases have started to emerge. As a result, over the past year, NFT investment has accounted for some of the largest portion of blockchain/crypto venture deals.

Simply speaking, they are unique tokens that denote ownership of a digital file in which cryptography and open-source software distribute the information on a public ledger, known as the blockchain. While the primary use case for NFTs has primarily been used to reflect ownership of digital art or media, many new use cases have started to emerge. As a result, over the past year, NFT investment has accounted for some of the largest portion of blockchain/crypto venture deals.

*Business Insider, “NFTs ballooned to a $41 billion market in 2021 and are catching up to the total size of the global fine art market,” 2022

NFT risk considerations

There are many challenges facing organizations as they implement NFTs across their services. NFT risks are very similar to those of traditional cryptoassets like bitcoin and Ethereum given the nature of the assets residing on a blockchain and being controlled through private keys. Companies will need a comprehensive framework and crypto-specific capabilities to introduce NFTs into their existing business model.

Specific considerations include:

 

Digital rights

 

Cyber protection

 

Tax and compliance

 

Marketing

 

Governance

 

Financial reporting

 

Contracting

 

Data

 

Talent

 

Enabling technology

How KPMG can help

KPMG offers a broad set of services to help enable our clients to identify, manage, and mitigate risks posed by the adoption of NFTs. Whether it be legacy companies who are routinely subjected to regulatory compliance activities or start-ups looking to build out their risk management framework, our extensive experience in this space can accelerate your company’s crypto strategy and help ensure that risk is aligned with business objectives.

Read more here:

Contact us

Brian Consolvo

Brian Consolvo

Advisory Managing Director, Technology Risk Management, KPMG LLP

+1 757-646-6378
Ahmed Saleh

Ahmed Saleh

Director, Technology Risk Management, KPMG US

+1 402-637-5014