Government rules but can it enforce its rules?

Last update: Two US States Washington and Pennsylvania To Tax NFTs

Situation update:

โœ… Legal status of NFTs still to be defined in most countries, raising enforceability and financial protection issues for investors.
– The identities or locations of buyers and sellers are not clear.
– NFTs are currently being used mostly as unique digital collectibles.
– Its not clear if they are securities according to the #sec

โœ… The US SEC wants to determine if creators and exchanges are using NFTs to raise funds, like traditional #securities. Securities are fungible and tradable financial instruments used to raise capital in public and private markets.

โœ… But let us remember that NFTs are not:
– Equities (they do not generate dividends),
– Debt (they do not generate interest).
– Options (they do not give the right to buy or sell anything).

This all means there is no easy way to value them for tax purposes. Regulation will come for identification of creators and investors, and classification of projects according to their utility.

The future

๐Ÿ”ฎ It will be increasingly challenging for NFT exchanges to avoid engaging in #AML & #KYC practices. It is inevitable there will be fraud in these marketplaces and regulators will demand more careful vetting of exchange participants.

๐Ÿ”ฎ NFT exchanges will become security exchanges. #NFTs still face the same problems that Initial Coin Offerings (ICOs) face. Centralized marketplaces help increase the value of digital assets, but that comes with a price.

๐Ÿ”ฎ New EU crypto laws might create a de facto ban for most projects. The EU #MiCA widens the scope of existing #regulations by requiring NFT issuers to consolidate and centrally register their assets.

๐Ÿ”ฎ In the US it will be up to each state. A state may take the position that the sale of an NFT is taxable and that the seller or purchaser may have sales or use tax obligations.

(to be continued)