Non-fungible tokens (NFTs) — the latest innovation to emerge from the decentralized financial world — are making their way onto Canada’s small and micro-cap exchanges.

Following the explosion in popularity of NFTs in early March (digital artist Beeple made history after selling an NFT for $69 million just a few weeks ago), a handful of TSXV and CSE-listed blockchain/cryptocurrency issuers are beginning to announce plans for NFT products and services. Some companies are even looking to facilitate the fractional ownership of non-fungible tokens — a way of providing investors with exposure to cryptocurrencies, not unlike Bitcoin ETFs.

However, they may be running before they can walk.

According to Zerohedge,

“[SEC Commissioner Hester Peirce] . . . suggested fractionalized NFTs (i.e. selling partial interest in a single, expensive NFT) could run the risk of being unregistered securities.

Peirce’s comments add yet another new wrinkle to the NFT gold rush. ‘You’ve always got to ask those questions,’ she said. ‘As we’ve seen, the definition of a security can be pretty broad.’”

Regulatory concerns aside, non-fungible tokens present a host of other potential issues as well.

According to a recent article from CNN Business,

“The main challenge is that a blockchain by nature is decentralized, which means anyone can create an NFT or cryptocurrency with very little oversight. And . . . there’s no central authority you can go to with your grievances — and figuring out which real-world laws might apply to blockchain-related disputes is incredibly complicated.”

And that from an environmental standpoint,

“Mining and trading cryptocurrencies uses up massive amounts of electricity, and many artists are beginning to sound the alarm about the ecological costs of NFTs. By one estimate, ethereum — the cryptocurrency system on which most NFTs are built and traded — now consumes as much electricity as all of Ireland. . .”

NFTs Could Present Opportunities for Canadian Speculators

From “digital” cannabis to athletes tokenizing parts of their body, non-fungible tokens are creating radically new segments in the digital economy. Given that Canada’s junior exchanges have long been home to early-stage, speculative investment opportunities, it makes sense why Canadian small and micro-cap companies are beginning to embrace NFTs — but the question remains, should (and will) the tokens be subject to regulatory oversight?