After laying the initial foundation for the Cryptokitties project in 2017, Beeple reignited the market’s interest in NFTs with record sales in the first quarter of 2021, followed by the explosion of NFT projects such as CryptoPunks and Board Ape Yacht. The price increase of many NFT projects in a short period of time has ignited the enthusiasm of the market.
In the second half of 2021, many well-known companies have successively released NFT products, keeping up with the trend of the Internet era and attracting a lot of traffic. First, Ali, NetEase, Tencent, etc. entered the game; then Audi released a series of NFT art works; Burberry cooperated with American game companies to launch limited-edition game characters, players can collect and sell NFT in the game; LV launched NFT games… …Up to now, the concept of NFT in the fields of encrypted artwork, games, digital certificates, etc. has exploded and continued to ferment.
In this regard, industry analysts pointed out that amid all these huge outbreaks and excitement, NFTs must be treated with caution. With the rapid heating up and large-scale investment of NFTs, due to unclear tax guidance and lack of education on how to properly manage NFT taxation, NFT investors can easily fall victim to many traps, especially participating in overseas NFT investment. There are also great risks. Hidden risks, it is necessary to strengthen the accurate explanation of NFT, strengthen investor education for the public, and strengthen the responsibilities of the trading platform.
A Correct View of the Generation of NFTs
Fundamentally, the rise of NFT is the product of the development of the digital economy to a certain stage. William of Huobi Research Institute analyzed that in the era of digital economy, digital artworks do not exist in the form of physical objects. How can we express our exclusive possession of them? Anyone can copy and use it without distinction. How can we ensure that our right to dispose of and benefit from digital art is not violated? The modern property rights theory of the new institutional economics tells us that in a market with efficient resource allocation, its property rights must be clear, exclusive, transferable and operable. The NFT in the digital economy era just brings perfect proof of property rights to these digital artworks.
First of all, NFT provides a unique copyright certificate for the works of creators. Although it is still presented in electronic form, it is different from other copies. Owning NFT also has exclusive ownership, which effectively protects creators. The copyright of NFTs is convenient and quick to circulate and transfer on the blockchain network, and the practical operation is convenient, so that these works can be sold at the most suitable price, which stimulates the enthusiasm for creation.
Today, with the deepening of the digital economy, the sudden outbreak of NFTs is not so surprising, but why we have NFTs to protect the digital property rights of these artists until today. So we can see that more and more artists are trying to create works in the form of NFT. It can be said that the recent prosperity of NFT is the product of the contradiction between the rapid development of digital art and the protection of backward property rights in recent years.
But at the same time, it should be noted that NFT works are created based on blockchain, and blockchain technology itself is borderless and decentralized, which will inevitably give criminals an opportunity, such as using NFT for money laundering. In addition, at present, NFT works lack a unified valuation standard and cannot be open and fair. In most cases, they are supported by consensus. However, NFT itself has poor liquidity. Once the consensus disappears, some NFT products will collapse. In addition, because the NFT market is profitable, infringement incidents occur frequently, which are inevitable phenomena in the early stage of the NFT market.
Wang Yongli, former vice president of Bank of China, once pointed out that in China, NFT is a brand new concept, although as a proof of encrypted rights and interests generated by blockchain technology, it has a good effect on strengthening asset rights protection and promoting transaction circulation. Beneficial exploration can be encouraged, but due to the lack of clear official guidelines and regulatory rules, many self-media propaganda reports are seriously exaggerated and misleading. When the state strictly controls the mining and trading speculation of virtual currencies such as Bitcoin, NFT The rapid heating up and large-scale investment of NFT, especially the participation in overseas NFT investment, also have great risks and hidden dangers. It is necessary to strengthen the accurate explanation of NFT, strengthen investor education for the public, strengthen the responsibilities of the trading platform, and strengthen NFT products and transactions. full-process supervision, especially severe sanctions against related false propaganda, internal speculation, financial fraud, illegal transfer of assets and money laundering.
The Road to NFT Regulation
A report released by Hai Securities pointed out that it is estimated that the size of the NFT market in 2021 will exceed 20 billion US dollars, and the user volume and market supply will exceed one million. This shows that the possibilities and potential of NFTs are limitless. But there are currently obstacles to its mass adoption due to the lack of extensive education on blockchain technology and the crypto world. In addition, the future path of NFTs still faces many challenges, including regulatory hurdles.
In August last year, Panama presented proposals aimed at regulating bitcoin, NFTs and cryptocurrencies, with a draft bill aimed at attracting foreign investment in cryptocurrency mining. Those companies that decide to install equipment in Panama will receive tax benefits if they hire local personnel. The country’s requirements for mining companies include using at least 50 percent renewable energy and employing at least five Panamanians at their facilities. The country will also evaluate the use of digital assets as a payment method for the purchase of products and services.
Last September, according to a policy document from Japan’s financial regulator, the Financial Services Agency (FSA), the agency will begin regulating NFT tokens and initial exchange offerings (IEOs). While the document does not specifically explain what action the FSA will take on NFTs, DeFi, CBDCs and IEOs, the fact that it specifically mentions them in the document suggests that these matters are already on its agenda. It talked about the need for a regulatory framework for these industries.
Additionally, in October last year, Forbes published an article on NFT taxation, stating that while the Internal Revenue Service (IRS) has not issued any specific tax guidance for NFTs, most art-based NFTs (like CryptoPunks) are likely to be classified as collectibles Taste. In this case, there are three scenarios that may trigger taxable events, namely: purchasing NFT with cryptocurrency; cashing out NFT or trading NFT for another NFT; obtaining NFT royalties in cryptocurrency. In addition, the article mentions that users who hold an asset for less than 12 months and sell it will generate short-term capital gains. For the highest tax bracket, the maximum tax rate for short-term gains is 37%, and those with annual income exceeding a certain threshold are also subject to a net investment income tax of 3.8%. Users who hold an asset for more than 12 months and sell it generate long-term capital gains. Long-term capital gains tax on cryptocurrencies is capped at 20%. Likewise, annual income above a certain threshold is subject to a net investment income tax of 3.8%. Long-term NFT income for high earners is taxed at a maximum rate of 28%.
In February, South Korea’s Financial Supervisory Service (FSS) announced in its annual work plan released on Monday that it would step up monitoring of new trading assets, including NFTs. The FSS said it will develop countermeasures against factors that harm consumers in the fast-growing digital asset market. Earlier this month, the FSS said it would step up its scrutiny of IPOs from emerging market companies such as NFTs and Metaverse.
Recently, Tharman Shanmugaratnam, the senior minister in charge of MAS, the Monetary Authority of Singapore, said that there are currently no plans to regulate the NFT space. Even as crypto collectibles are becoming more popular in Southeast Asia, regulators are taking a tech-neutral stance on NFTs. In January, as many as nine companies in Singapore were already involved in crypto collectibles and the Metaverse.
In general, most countries currently do not give clear legal status to virtual assets including NFTs, and there are still many uncertainties in future supervision. However, it is expected that with the development of the NFT market, there will be more mappings of off-chain physical assets, and global regulators may introduce corresponding policies to manage them.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/nft-savage-growth-to-be-regulated/
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