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Non-fungible tokens (NFTs) gained prominence in the news cycle during March 2021 when $69 million was paid in a cryptocurrency known as Ether for a unique digital art piece titled Everydays: The First 5000 Days. Regulating NFTs is complicated because the technology encompasses varied applications. Therefore, it is the particular use of a given NFT that will determine its appropriate regulatory regime. For example, NFTs may take the form of collectibles, data associated with a physical item, financial instruments, or permanent records associated with a person, such as marriage licenses or property deeds. Just like digital art in the form of NFTs, our laws and regulations are in a constant struggle to keep pace with rapid introduction and diffusion of technological changes. Unlike digital or cryptocurrencies which are fungible, NFTs are not. The effective regulation of United States securities markets has a significant impact on capital formation, job creation, economic security, and growth of both the American and global economies. In recent years, the advent of the internet has created novel regulatory challenges for the U.S. Securities and Exchange Commission (SEC).

The focus of our Article is how and when an NFT becomes a security for purposes of U.S. securities law. We proceed in six parts. First, we briefly explain the evolution of the digital world and emergence of virtual economies within. Second, we describe blockchain technology and the growth in virtual currencies. Third, we provide an explanation of NFTs along with some examples of their various uses. Fourth, we discuss when an NFT is a security. Fifth, we explore SEC interpretations of when a crypto-asset is a regulatable security. And last, we conclude. Given the importance of U.S. securities markets in fostering job creation and global economic growth, we believe this work contributes to the understanding of this new technology and is of considerable interest to securities issuers, investors, and the regulatory community.