One now resides in the world where Covid has ultimately impacted humans both in the way we lead and live our lives. This means that the business world must innovate in order to stay relevant. For some businesses and individuals, this means the focus is on creating or converting physical to digital assets and selling them to a willing buyer without ever having to meet. There has been an exponential boom in NFTs (Non- Fungible Tokens) in the past year fuelled by sales from Gucci, Taco Bell and Flurry of a whole line of famous artists.
What is an NFT? How is it used?
An NFT is a form of unique digital asset that has a one-of-a-kind signature. Its name, Non- Fungible Token gives a huge clue to its meaning, where “Non-Fungible” means irreplaceable. An NFT can represent worldly objects like art, music, videos even real estate and more. NFTs can be sold on from one owner to another and are mostly held as part of an Ethereum based blockchain. Just like cryptocurrency blockchains, NFT blockchains hold details of all the owners of the asset, past and present to identify any transactions made on the NFT. All these data is held in a distributed public ledger which means that it makes it secure. NFTs also have special features where percentages of each sale can be paid as royalty to the original creator as it moves from one owner to another.
Is NFT a Cryptocurrency?
The answer is a straight No. Although NFTs are developed mostly from the same Ethereum Blockchain as the cryptocurrency Ethereum, the similarity ends there. Cryptocurrencies like Ethereum, Bitcoin or Dogecoin are fungible which means that 1 unit of any cryptocurrency is equivalent to another unit. However, NFTs are created such that there is no other equivalent and there is only one, it is special. Its ownership can be changed by writing into the metadata, for an agreed price between the current owner and any new owners just like any other object in the world where demand and supply dictate the selling price.
Why are NFTs relevant?
NFTs are an evolution of the blockchain smart contracts technology similar to the concept of cryptocurrencies. The interesting aspect of NFTs is in the range of applications that they can be used for. For content creators, it is a way to creating digital depictions of physical assets on a secure smart contract blockchain network that could potentially be game-changers or disruptors to current industry standards.
NFT’s key advantages
- Creating NFT’s for real-world physical assets allows transactions to be executed efficiently and securely reducing the risk of fraud.
- NFTs unique tokens exist on a distributed public ledger blockchain that cannot be reproduced.
- The ability to track the history of an NFT from its original owners to its transactions to verification of owners.
- The many practical applications of NFT for industries in digital identity management, real estate management, media and content creators.
Managing Digital Assets
NFTs is a digital asset and is still considered an asset with high value in most cases, which means that it will be subjected to Capital Gains Tax or other forms of taxes when transactions are made. This is similar to any stocks or asset class that one sells for a profit. There are many governments that have not considered the classification of digital assets into their tax regime. As businesses move with the digital times and start to hold more digital assets which have a resaleable value, planning must be taken into consideration. There are many corporate structures available out there that enables a business to hold on to digital assets more efficiently with favourable tax rates and therefore reducing overall transaction costs.
If managing digital assets like NFTs are of interest to you and can help your business, please contact us to understand how we can effectively help you in your business planning and be a few steps ahead of your competitors.