You thought Bitcoin is King and NFTs Were Over—That’s Exactly What Governments Want
NFTs and the Battle for Digital Sovereignty
What began as a niche trend of digital collectibles has rapidly evolved into a foundational element in the contest for global digital power. Non-fungible tokens (NFTs), unique cryptographic tokens that represent ownership of digital or physical assets, are now situated at the crossroads of technology, finance, culture, and governance. Far from being dismissed as speculative novelties, NFTs have been integrated into an expanding ecosystem involving everything from decentralized identity systems to tokenized real estate and luxury verification. This paper critically examines how NFTs are being appropriated and regulated by major global powers—namely the United States, China, Europe, and Dubai—as well as emerging and smaller nation-states seeking to harness NFTs to gain strategic advantage in the digital age.
The Rise and Correction of NFTs
The explosion of interest in NFTs during 2021 marked a watershed moment for blockchain adoption. Cultural icons such as CryptoPunks, Bored Ape Yacht Club, and NBA Top Shot captured billions of dollars in market activity. NFTs provided a new mechanism for creators to monetize content, collectors to verify authenticity, and speculators to profit from volatile digital assets. Investment from institutional capital and venture funds flowed into marketplaces like OpenSea, reinforcing the legitimacy of the space and fueling innovation.
However, this parabolic rise was followed by an equally dramatic correction. By mid-2022, NFT markets contracted sharply as speculation gave way to scrutiny. Trading volumes collapsed by over 90% from peak levels, and widespread scams, oversupply, and value dilution led to a loss of consumer confidence. Nonetheless, the correction helped refocus attention on the core utility of NFTs—highlighting that the underlying technology was not merely a speculative vessel, but a versatile protocol layer with real economic and institutional applications.
From Hype to Infrastructure: Emergent Use Cases
In the post-hype landscape, NFTs have begun transitioning from digital novelty to integral components of various economic systems. Their programmability and verifiability have enabled them to play diverse roles in emerging digital infrastructures:
Gaming Economies: NFTs are used to tokenize in-game assets—ranging from cosmetic items like skins and avatars to functional elements like weapons, vehicles, and virtual land. This tokenization allows for true ownership of digital property, enabling users to buy, sell, or transfer their holdings outside the confines of centralized platforms. These assets are often interoperable across games built on the same blockchain network, further strengthening player agency. Emerging trends in this area include “play-to-earn” models and GameFi—integrating gaming with decentralized finance—where players can earn real financial rewards through gameplay.
Tokenization of Tangible Assets: NFTs are increasingly being used to represent ownership of physical goods. Properties can be divided into fractionalized NFTs that represent partial ownership or equity in real estate developments, lowering barriers to entry for retail investors and democratizing access to markets traditionally dominated by institutional players. Similarly, artwork, luxury watches, rare wine, and even commodities like gold are being linked to NFTs to improve liquidity and transferability while enabling real-time valuation and global access.
Supply Chain Authentication: In industries vulnerable to counterfeiting—such as luxury fashion, art, pharmaceuticals, and electronics—NFTs are deployed as immutable proof of provenance. Each product is associated with an NFT that contains a detailed history of its production, certification, and ownership. Brands like LVMH and Prada use NFTs in their supply chains to provide consumers with transparent access to the origin, authenticity, and lifecycle of their purchases. This enhances consumer trust, minimizes fraud, and provides companies with traceable analytics.
Creative Rights and Revenue Sharing: NFTs are fundamentally reshaping intellectual property management. By embedding smart contracts into tokens, creators can automate royalty distributions every time their content is sold or resold. This allows musicians, visual artists, writers, and filmmakers to receive ongoing compensation, independent of intermediaries like record labels or galleries. In addition, decentralized marketplaces are emerging to facilitate peer-to-peer licensing agreements, giving artists greater control over how their work is used and monetized.
Verifiable Digital Identity: NFTs are being integrated into decentralized identity systems to create tamper-proof credentials. Educational institutions issue diplomas as NFTs, while professional licenses, medical certifications, and even personal IDs are being deployed on-chain. These NFT-based credentials are borderlessly verifiable, resistant to forgery, and easily portable across platforms. Governments and employers are beginning to explore their utility in streamlining bureaucracy, combating credential fraud, and improving administrative efficiency.
These evolving use cases underscore a migration from speculative financial instruments to essential infrastructure in the decentralized digital economy, indicating that NFTs are increasingly woven into the foundational layers of Web3 ecosystems and institutional adoption pipelines.
Engineering Scarcity in a Post-Digital Context
A critical economic premise of NFTs is the notion of scarcity—yet digital content is inherently reproducible, presenting a unique challenge for creators and platforms aiming to create perceived and actual value. Unlike physical commodities such as oil, gold, or real estate, which derive scarcity from natural or production limits, NFTs must manufacture scarcity through deliberate technological and social mechanisms. This engineered scarcity is vital to maintaining economic value, cultural prestige, and long-term demand. Several mechanisms are commonly employed to establish and sustain this scarcity:
Immutable Supply Constraints: Most NFT collections rely on smart contracts that specify and lock the total number of tokens in circulation. These contracts are transparent and immutable, ensuring that creators cannot later inflate the supply without undermining the integrity of the collection. This predictability mirrors scarcity models found in Bitcoin and other cryptocurrencies, giving buyers confidence in the long-term scarcity of their assets.
First-Mover and Cultural Significance: NFTs that were launched early in the ecosystem—such as CryptoPunks and Rare Pepes—often maintain high valuations due to their status as historic artifacts in blockchain culture. Their significance transcends aesthetics or even utility; they serve as symbols of early participation and digital identity. As the space matures, this kind of cultural and temporal primacy continues to drive value, especially among elite collectors and institutional investors.
Community Governance and Curation: The success and exclusivity of many NFT ecosystems rely heavily on community-driven governance. Communities frequently reject unauthorized derivative projects or copycat collections, enforce social norms around what constitutes legitimate participation, and reward members who contribute to long-term growth. This form of decentralized gatekeeping plays a vital role in ensuring that the brand, narrative, and value proposition of an NFT collection remains intact.
Functional Scarcity: Beyond mere ownership, many NFTs grant users exclusive access to a range of benefits: private Discord servers, live events, special product drops, or token-gated experiences in the metaverse. These features add layers of utility that are tied to the ownership of the NFT itself, reinforcing its perceived rarity. As such, scarcity is not just about supply, but about access and privilege—creating a digital analogue of elite membership clubs or limited edition merchandise.
In some cases, developers also incorporate time-based mechanics—such as limited minting windows or “burn” mechanisms that reduce supply over time—to further reinforce scarcity dynamics. These features introduce gamified scarcity, adding psychological urgency to purchasing decisions and enhancing collector engagement.
Breakdowns in any of these mechanisms—whether due to unchecked oversupply, failed community engagement, poor product roadmaps, or declining relevance—can lead to rapid devaluation. A collection that fails to sustain its narrative or utility often sees trust erode quickly, resulting in falling floor prices, reduced trading volumes, and ultimately, a loss of cultural and economic significance. In this sense, scarcity in NFTs is not a static condition but a dynamic process—one that must be carefully cultivated and continuously defended in order to preserve long-term value.
Regulatory Divergence: NFTs Through a Geopolitical Lens
As NFTs transcend mere commerce and encroach on areas such as finance, identity, and property law, state actors have begun to assert control through diverging regulatory strategies. These differences are not merely legal—they reflect deeper ideological and economic motives about how value should be controlled, distributed, and taxed in a digital age.
United States: The Securities and Exchange Commission (SEC) increasingly interprets NFTs that promise future value, revenue streams, or participation in profit-sharing as unregistered securities. This classification is rooted in a broader goal: to maintain U.S. supremacy over global financial infrastructure by extending the jurisdiction of capital markets regulation into emerging digital asset classes. The Internal Revenue Service (IRS), for its part, is developing frameworks to ensure NFT profits are captured within the national tax base, treating many NFTs as capital assets subject to gains and losses. A primary motive here is to close potential loopholes that might allow wealth to migrate outside traditional oversight mechanisms. Beyond legal concerns, the U.S. sees NFTs as both an innovation opportunity and a threat to regulated financial stability, particularly when leveraged through decentralized platforms that lack identifiable intermediaries.
European Union: The EU’s approach under MiCA (Markets in Crypto Assets) reflects its longstanding regulatory tradition of separating financial innovation from systemic risk. Europe largely exempts non-financial or cultural NFTs from heavy oversight while regulating those with financial characteristics—such as fractionalized ownership, yield-generation, or utility token properties—as securities. The European model is also deeply informed by normative goals: NFTs are being promoted for cultural preservation, luxury authentication, and green blockchain adoption aligned with ESG (Environmental, Social, Governance) priorities. The deeper motive in Europe is to define global ethical standards for digital assets, much like GDPR did for data privacy. The EU sees NFTs as an opportunity to project “soft power” by setting the global agenda on responsible innovation.
China: China’s outright ban on cryptocurrencies and decentralized NFT trading stems from a desire to maintain absolute control over capital flows, currency sovereignty, and information dissemination. Instead, it promotes state-sanctioned “digital collectibles” hosted on private, permissioned blockchains. These NFTs are non-tradable, non-speculative, and fully surveilled, serving dual political purposes: reinforcing national ideology through controlled content and promoting adoption of the Digital Yuan (e-CNY), China's state-backed central bank digital currency (CBDC). China’s deeper motive is not just financial control—it’s ideological enforcement. By filtering NFT content and tying it to state objectives, the government ensures digital assets contribute to social stability, centralized planning, and technological nationalism.
Dubai (UAE): Dubai’s regulatory openness is part of a broader ambition to become a post-national hub for capital, talent, and digital infrastructure. By creating specialized regulators like VARA (Virtual Assets Regulatory Authority) and digital free zones within DMCC and DIFC, Dubai offers tax exemptions, business support, and legal clarity—especially attractive to startups and DAOs facing uncertain or hostile regulation elsewhere. The emirate’s strategy is rooted in economic diversification and global positioning: it seeks to attract high-net-worth individuals, digital entrepreneurs, and Web3 projects by offering them operational freedom and sovereign neutrality. The underlying motive is not ideological control but geopolitical leverage: by becoming a trusted host for digital capital flows, Dubai enhances its international clout and long-term economic resilience in a post-oil world.
NFTs as Instruments of Geoeconomic Strategy
Different global actors are integrating NFTs into broader statecraft agendas. These align with larger geopolitical narratives and reflect each region’s ambitions to shape the rules, infrastructure, and cultural frameworks of the digital future.
China: Centralized Blockchain Hegemony
China views NFTs not as tools for individual empowerment, but as programmable extensions of state infrastructure. Their deployment is aimed at reinforcing the legitimacy of government-approved narratives, promoting loyalty programs, and developing citizen-facing digital credentials that integrate with the broader social credit system.
By embedding NFTs into state-approved ecosystems, China is testing ways to integrate digital collectibles into its forthcoming national blockchain service network (BSN). The goal is to expand this architecture through Belt and Road digital infrastructure projects, encouraging other nations to adopt Chinese blockchain norms—tightly controlled, centralized, and interoperable with surveillance tools.
Projection: Over the next 3–5 years, expect China to promote NFTs as diplomatic and trade tools, offering infrastructure aid and cultural platforms that come with state-designed NFT standards, further entrenching its influence in Asia, Africa, and parts of Eastern Europe.
United States: Tokenized Capitalism
In the U.S., NFTs are a new domain for financial innovation, seen through the lens of private ownership, entrepreneurialism, and compliance. Real estate, entertainment IP, art, and securities are being wrapped into tokenized formats that allow fractional investment and programmable rights, but only under regulatory clarity.
U.S. financial institutions and tech firms are actively pursuing NFT integrations that reinforce dollar supremacy—enabling cross-border transactions, smart contract-based lending, and regulated marketplaces that funnel new asset classes into traditional capital markets.
Projection: By 2027, the U.S. will likely finalize frameworks allowing large-scale tokenization of regulated financial products via NFTs. We may also see public-private NFT initiatives linked to national infrastructure (e.g., digital land registries, energy credits), bolstering U.S. leadership in fintech.
European Union: Normative Power Through Ethics
Europe’s NFT approach is part of a broader strategy to define the moral and legal boundaries of digital transformation. NFTs are being promoted for cultural preservation, IP protection, and decentralized digital identity within strong privacy and environmental safeguards.
The EU sees NFTs as a lever to set transnational standards—mandating ESG-compliant blockchains, carbon-neutral minting, and user-centric governance models that align with broader European values.
Projection: In the next few years, expect the EU to formalize “ethical NFT” certifications tied to trade access, digital consumer rights, and cross-border compliance. These standards will likely shape NFT adoption in the Global South and influence how global platforms structure their operations.
Dubai: Post-national Financial Sovereignty
Dubai has embraced NFTs as a mechanism for achieving soft geopolitical leverage. With no legacy financial or ideological constraints, the UAE is positioning itself as the preferred jurisdiction for high-net-worth individuals, decentralized organizations, and tokenized asset issuers.
Through regulatory innovation, business-friendly tax regimes, and aggressive marketing of its Digital Free Zones, Dubai is attracting a transnational digital elite seeking legal clarity and operational autonomy.
Projection: Dubai will likely become the world’s dominant jurisdiction for DAO registration, tokenized real estate issuance, and NFT-powered citizenship or residency programs. Expect the emirate to deepen partnerships with Asia and Africa while bypassing Western compliance models.
Strategic Roles of Emerging and Peripheral Nations
Smaller countries are not passive in this transformation. Many are experimenting with NFTs as vehicles for redefining sovereignty and participation in the global economy:
El Salvador: Building on its pioneering move to adopt Bitcoin as legal tender, El Salvador is now positioning itself as a testbed for Web3 sovereignty. The government has expressed interest in issuing national infrastructure-backed NFTs—such as for land titles, geothermal energy credits, and volcano bond investment vehicles—as a way to digitally tokenize strategic assets. There are also discussions about leveraging NFTs for streamlined citizenship and visa offerings for crypto investors, positioning the country as a digital passport economy. These initiatives are designed to attract foreign direct investment, promote tourism, and create new forms of national branding, particularly among global crypto elites disillusioned with traditional finance hubs.
Caribbean Microstates: Nations like Barbados and the Bahamas are offering legal recognition of DAOs, virtual embassies, and NFT-driven digital identity solutions.
Africa: Countries such as Nigeria, Kenya, and Ghana are adopting NFTs to empower creators, digitize land registries, and circumvent corrupt bureaucracies.
Southeast Asia: Nations like Vietnam and the Philippines were among the first to reach mainstream NFT adoption through the explosive rise of play-to-earn gaming, especially with projects like Axie Infinity. In response to both the boom and subsequent bust, the region has doubled down on infrastructure and developer talent. Vietnam is now a hub for Web3 startups focusing on NFT-powered e-commerce and metaverse applications, while the Philippines is integrating NFTs into mobile-first fintech tools for remittances, microloans, and digital wallets. Governments in the region are also eyeing regulatory sandboxes to support NFT use in educational credentials, agritech supply chains, and microenterprise certification. Southeast Asia’s combination of young, mobile-savvy populations and underbanked markets positions it as a long-term driver of NFT innovation from the bottom up.
These initiatives reflect strategic opportunism: leveraging digital tools to gain relevance, circumvent traditional constraints, and court foreign investment.
Ideological Confrontation: Control vs. Autonomy
The global NFT landscape is not only technologically fragmented—it is ideologically contested. Competing philosophies shape each region’s deployment and regulation of NFTs:
China embraces NFTs as instruments of digitally managed obedience, embedding state priorities, censorship frameworks, and ideological controls into the structure of permissible digital ownership. In this model, NFTs serve not only as loyalty tokens and cultural artifacts, but as mechanisms of digital behavioral governance—tying identity and status to state-approved narratives and blockchain infrastructure controlled by Chinese tech conglomerates. Over time, China may evolve these collectibles into programmable NFTs integrated with its social credit system and surveillance apparatus.
The U.S. sees NFTs as extensions of market infrastructure, valuable only when tethered to legal compliance, transparency, and enforceability. In the American context, NFTs are a means of monetizing and securitizing new classes of property, particularly in intellectual property, real estate, and entertainment, provided they operate within the federal financial framework. The U.S. is less concerned with what NFTs represent than how they fit into the tax and securities regimes underpinning Wall Street and the dollar's global role.
Europe aspires to embed NFTs within a rights-based framework that prioritizes ethical design, sustainability, and cultural integrity. In doing so, the EU leverages its regulatory influence to ensure NFTs comply with privacy law (e.g., GDPR), environmental goals (carbon-neutral blockchains), and consumer protection principles. Europe's longer-term ambition is to shape global standards around “ethical NFTs,” thereby reinforcing its soft power in the emerging digital commons.
Dubai promotes ideological neutrality and techno-sovereignty, offering digital actors—whether individuals, startups, or DAOs—regulatory shelter, business infrastructure, and sovereign legal standing in exchange for capital, innovation, and brand elevation. Rather than dictating moral or ideological use cases, Dubai focuses on attracting digital capital flows and establishing itself as the Switzerland of Web3—a pragmatic jurisdiction optimized for cross-border tokenized wealth and decentralized innovation.
This divergence reveals deeper tensions over who defines ownership, value, and agency in an increasingly digitized world.
Medium-term forecast for NFTs in the United States
1. Regulatory Clarity—But Only for the Big Players
The SEC, IRS, and CFTC finalize coordinated guidance on NFTs:
NFTs tied to royalties, revenue shares, or fractional ownership are officially classified as securities.
Platforms facilitating these sales are required to register as broker-dealers or ATSs (Alternative Trading Systems).
Creator royalties are largely deemed unenforceable unless built into a regulated smart contract framework.
Smaller NFT marketplaces either shut down, move offshore, or pivot toward consumer collectibles.
2. Institutional Financialization of NFTs
Major asset managers begin rolling out tokenized fund shares, real estate stakes, and collectibles as NFTs:
BlackRock, Schwab, and Fidelity create NFT wrappers for fractional ownership of alt-assets.
New financial products use NFTs to represent locked collateral in lending and structured finance.
Real estate developers tokenize high-end properties in NYC, Miami, and Austin—offering NFTs with embedded rental income rights (under SEC exemptions).
3. Consumer Brand Utility NFTs Rise
Nike, Starbucks, and Amazon expand their NFT loyalty programs:
NFTs unlock discounts, early product drops, and event access—but without being tradable for profit (to avoid security classification).
These “closed-loop” NFTs are exempt from securities law, regulated as digital coupons or brand tokens.
Disney and Netflix experiment with NFT-driven fan engagement, but steer clear of financial incentives.
4. Taxation and Enforcement Ramps Up
The IRS deploys new NFT-specific audit triggers and requires 1099-style reporting for NFT gains and transfers.
MetaMask, OpenSea (U.S. version), and other wallet providers are compelled to integrate tax documentation features.
High-profile enforcement actions target influencers who promoted NFT “drops” that qualify as unregistered securities.
5. Political and Cultural Pushback Emerges
Civil liberty advocates raise alarms about the potential for programmable NFTs tied to identity, behavior, or access rights (e.g., tokenized event access tied to KYC).
Some states (like Wyoming or Texas) push for NFT-friendly local laws, exempting certain tokens from SEC reach—setting up federal vs state tension.
Conservative voices frame regulated NFTs as a “gateway to digital control,” while progressives critique them for financializing everything, including art and identity.
NFTs are no longer speculative tools—they are components of geopolitical architecture. As programmable, transferable representations of value and identity, they offer unprecedented opportunities to reshape markets, culture, and governance. States are responding by incorporating NFTs into their strategic arsenals, each according to their economic models, political ideologies, and regulatory philosophies. Whether NFTs empower individuals or reinforce institutional dominance will depend on whose vision of digital sovereignty prevails. As we enter a new era of global digital competition, NFTs are set to be both a mirror and a mechanism of shifting power structures.