Non-fungible tokens, NFT – are cryptographically secured tokens, the history of the change of ownership and information about the current owners, which is stored on the blockchain.
NFTs are also unique bits of code on the blockchain associated with a particular item. These tokens can be the expression of any asset, from jpeg digital art to mp3 songs and mp4 videos, both certain physical goods and services. Storing NFT transactions on the blockchain allows you to own public digital proof of ownership and authenticity, without worrying about the risk of paying twice for the same product or unauthorized interference with the history of previous transactions.
NFT is the key to active and efficient operation of primary and secondary markets for digital goods, for the functioning of which intermediaries are not needed, and thanks to them, authors get the opportunity to get more from their own works.
There are currently three key areas of application within the NFT environment: art and digital collectibles, gaming, and the metaverse (digital identities and spaces).
In particular, NFT is also a new approach to the concepts of digital property, digital identity and digital spaces.
The key market feature of NFTs comes from the fact that NFTs are a piece of computer code that can be programmed. This allows developers to include programmable royalty payment (or resale) features in the token that automatically transfer the required amount of cryptocurrency to an on-chain wallet of one or more authors, copyright holders, or participants in an NFT project each time an NFT is sold (or even transferred) on the blockchain. . This technology opens up numerous new opportunities to reward those involved in an NFT project and, most importantly, allows authors and copyright holders to directly benefit from the increased resale value of NFTs.
The difference between fungible tokens (FT) and NFTs
|Fungible Token (FT)||NFT|
|Interchangeability. FT of the same type can be exchanged for other tokens of the same type, their value does not change from such a replacement.||Non-interchangeability. NFTs of the same type (for example, created on the same blockchain) are not interchangeable.|
|Uniformity. FTs of the same type have the same characteristics, all such tokens are identical||Uniqueness. Each NFT is unique. No two are the same.|
|Divisibility. FT can be divided into smaller units of equal value||Indivisibility. NFTs are indivisible and one token is the base unit, proof of having a local office is required.|
|Convenience. FT is easy to split and exchange||Safety. These tokens are unique and can be used in many different areas (such as gaming).|
|ERC-20/TRC-20 standards on the Ethereum protocol and the TRON protocol, supporting the launch of OMG, SNC, TRX tokens and others.||New ERC-721/TRC-721 protocols on Ethereum and TRON supporting the launch of NFTs (e.g. encrypted versions of collectibles)|
Features of regulation of NFT projects
Most jurisdictions have not yet introduced legislative and other norms to regulate NFT specifically, however, a certain part of the legislation may apply to NFTs.
This application will depend on various factors:
- properties and features of tokens;
- what operations are performed with tokens;
- territorial coverage of the operation of certain acts.
It is worth remembering that NFTs are modeled more like art than currencies or stocks, which means that they are not subject to the same financial regulations as other types of crypto assets, but there are still risks of violating intellectual property rights or consumer protection law.
If we talk about the taxation of NFTs as types of cryptoassets, then although tax authorities around the world have made significant progress in publishing guides on the taxation of cryptocurrencies, the issue of taxing other cryptoassets, in particular NFTs, remains unresolved. Most jurisdictions treat crypto assets as property for tax purposes.
The Finance Business Service legal team assists in the conversion of ownership of a wide range of objects in NFT, in particular, on:
- digital and non-digital art
- collectibles and other gaming assets
- remuneration (the right to receive a product or service) as elements of marketing activities.
If you are an investor, author or company that owns various intellectual property objects, or just want to create an NFT project, Finance Business Service can provide you with the following services:
|Advice on the most profitable platforms and blockchains for issuing NFTs.|
|Legal support during the creation of a marketplace for the issuance and trading of NFTs, including as securities.|
|Support in the development and design of an AML program for NFT trading.|
|Structuring and tax planning of NFT transactions|
|Drafting and reviewing NFT-related contracts for applicability and compliance with the law|
|Due diligence of transactions with NFT in order to ensure the security of clients in the event that the transaction did not complete or from fraudulent transactions|