The explosion of NFTs in all industries from gaming to music has proven the attractiveness of this virtual asset. Although the number of projects in this field is increasing rapidly in recent years, not all projects are fully aware of NFT’s legal issues. This article will give NFT creators another perspective on the products they are creating.
1. A simple understanding of NFT
NFT or Non-Fungible Token is a non-fungible unit of data representing a virtual asset on a blockchain. This blockchain acts as a ledger that ensures the authenticity of both the assets and the owners. Put simply, an NFT is like a certificate or a virtual presence of the underlying asset.
Unlike other infinitely reproducible digital objects like Ethereum, each minted NFT has a unique identification code and belongs to a unique owner. However, it is possible to generate multiple NFTs with the same presence from a single underlying asset.
Example: A picture can be used to mint 100 NFTs that look the same but each has a different identification code.
2. The legality of creating and trading NFT
Each exchange has different standards and processes for creating, buying and selling NFTs. For example, OpenSea (an Ethereum-based NFT marketplace) allows users to mint NFTs with just their artwork and digital signatures.
However, the creation and sale of NFTs is still a grey area in several countries. Singapore – one of the pioneers in the blockchain regulatory framework still does not have clear regulations for NFT. NFTs are not regulated by the Monetary Authority of Singapore (MAS) since they are not considered legal tender in Singapore. As they are non-fungible and can be exchanged for only specific goods, NFTs may fall under the scope of “limited purpose digital payment tokens”, which are exempted from regulation under the PSA. Even if the NFTs can be regulated by the PSA, the regulations may come mainly in the form of detecting money laundering and terrorism financing risks because of the cross-border and anonymous nature of cryptocurrency transactions.
Current taxes on NFTs
3. Risks for NFT traders
Anyone can create an NFT for anything. Some NFT platforms do not require ownership verification before the NFT can be listed for sale. Or some NFT platforms may require ownership verification, but have no means of verifying whether the creator is the actual owner or has the right to create and sell the work. This paves the way for fraud and forgery. In fact, It has been reported that artists have seen their work on NFTs that they did not mint themselves. Therefore, NFTs buyers are advised to do their own research to ascertain the veracity of the vendor’s title to the work before buying the NFT to it. Otherwise, buyers could fall prey to scams.
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Auth. Zed Nguyen