Is there a value for tokens, is NFT-token really a 2021 asset with a perspective, or just another hype? Such questions increasingly arise in the digital asset market. What are non-fungible tokens and why have they become a trend? According to experts, NFT is a unique coin, which confirms the ownership of a digital asset. This is evidenced by the fact that the total market capitalization of these tokens in 2020 gave the maximum profit for the entire period of their existence – $ 8 billion.
NFT-token: uniqueness and perspectives
Cryptocurrency coins are fungible because they have identical value and equality to each other. NFT is an asset, a certificate. The token is unique in terms of its information entered into the smart contract, it can be identified. Thus, it is possible to distinguish objects from each other, to confirm their value and belonging to the owner. In my opinion, this is a great way to ensure ownership of any digital object, the ability to see the transition of owners’ rights on the blockchain. And most importantly, it is through tokens that you can verify the authenticity of items. What can become an object? Paintings, sculptures, other art objects, songs, movies, games, digital heroes. I will highlight the features of the token:
- NTF-token – is accepted as collateral for a loan from one user to another in the cryptocurrency system.
- It confirms the rights to an asset, the price of which increases within minutes. An example is the sale of a token by artist M. Wilkerman (Beeple), the initial cost of which was $ 1000, the final one – 69.3 million. Or the paintings that was sold by the singer Grimes for $ 5.8 million in a few minutes. Each painting in the War Nymph series had its own non-fungible token.
NFT tokens created on the basis of the blockchain can develop in the cryptocurrency system.
Legal regulation of NFT tokens
The topic of taxation of non-fungible tokens is new and is not yet regulated by many countries. However, the market is developing, the consequences of multimillion-dollar transactions are not yet clear, but in some countries they are already talking about taxes.
For example, digital assets are legalized in Belarus. Actions with them are not subject to taxation till 2023. If you buy a token and sell it before that time, then you do not need to pay tax on it. But if you sell it after the law comes into force, you will have to transfer taxes on the amount of sales.
In the US, all transactions of buying and selling tokens are already subject to taxation, since virtual money is recognized as part of the capital, any actions with it are considered as a taxable event. Therefore, there are two options for legal regulation in the country:
- for those who create tokens, they are required to declare profits from the sale of tokens;
- for investors, taxes are identical to normal cryptocurrency transactions.
Taxes do not apply to investors from other countries, those who bought cryptocurrency and immediately NFT. If the token is a collectible, it can be taxed at 28%. In general, it is still difficult to track the amount of unpaid taxes on tokens.
In Russia, the situation is still uncertain, since the main provisions regarding digital currency have not been adopted. Taxes are provided for in the draft law, but it has not yet entered into force. Therefore, it is not yet possible to apply the concept of a tax event to tokens. Moreover, according to experts, this draft law does not provide for the regulation of NFT. If cryptocurrencies in Russia are recognized as taxable property, then tokens are not assets and can only fall into the legal field if the owner declares them.
In Ukraine, the basis for legislative regulation of the cryptocurrency market, and especially the NFT, is still missing. The participants of the transactions are still outside the legal influence of the state. The only document related to digital currencies was adopted in December 2020 as the draft law “On virtual assets”. All digital income is recognized as intangible goods. If tokens are attributed to them, then only the seller can be taxed. In my opinion, there are several options for possible taxation:
- if the sale is made by a VAT paying company;
- if it is recognized as an object of art, it is possible to pay with the difference from the sale;
- alienation or purchase of ownership rights of the underlying asset token;
- purchase of tokens abroad.
As a result of the legal settlement in the country, the token can be recognized as property (on the underlying asset) or property. Based on the above, it is naive to assume that with such transactions and hype around the token, government regulators will pass by such a segment of the digital asset market.