NFTs: New Fraud Techniques?

When cryptocurrency first blew up, it was seen as a new step towards a digital future. Bitcoin surged to nearly US$20,000 in 2017. In 2021, it reached new highs with a peak value of over US$64,000. As our world develops around us and we witness our society develop into a new age of technology, cryptocurrency appears to be more relevant than ever.

Yet, inevitably, when cryptocurrencies first fell into the focal point of the world, many were skeptical about it. For starters, cryptocurrency is “imaginary”. It exists as a digital representation of a currency with a value that constantly fluctuates – and in large magnitude. Of course, this leads to the question of whether cryptocurrency truly has any value at all.

However, more than 7 years on from when Bitcoin first passed the US$1,000 mark, we have come to accept that cryptocurrencies do have value.

In 2021, during the Covid-19 pandemic, we found ourselves facing a similar situation: NFTs. NFTs, short for Non-Fungible Tokens, refer to the digital ownership of a unit of data. Majority of NFTs exist in the form of pictures or videos. In recent times, it seems that people have paid exorbitant amounts to own NFTs – but what are NFTs truly worth?

Eyebrows were raised when the most expensive NFT ever sold for US$91.8m. Yes, you read that correctly. People paid 90 million US Dollars for a piece of digital artwork. Now, interestingly, this was sold in the form of 266,445 shares, which usually is not the case for other NFTs. However, the point remains that people are willing to spend astronomical amounts for something that seems like nothing more than a picture.

In fact, the usefulness of NFTs does not really appear to exist. Owning an NFT does not mean that you own that art and therefore can charge royalties whenever that piece of art is used. It does not mean you can stop people from taking screenshots of your NFT and sharing it online. All it is a unique digital receipt that you own. So why do people spend their lives’ savings on these pictures?

Some people believe that NFTs are the next big thing in investing. It’s true that people have made large amounts of profits from buying and selling NFTs. Yet, it is difficult to not feel that NFTs are but a bubble waiting to burst – which will cause thousands to lose out, because NFT values are seen as majorly inflated.

Some may even think that NFTs are but a front for money laundering.

Today, the NFT scene continues to develop. In fact, recently, the IRS has reportedly been looking into taxing those who profit from NFTs. While those who splurge on NFTs could hope that they’re in to make big money, I don’t see myself taking that big of a risk.

References

1. Dean, Sam. 2022. "$69 Million For Digital Art? The NFT Craze Explained". Los Angeles Times. https://www.latimes.com/business/technology/story/2021-03-11/nft-explainer-crypto-trading-collectible.

2. DeMatteo, Megan. 2022. "Bitcoin Doubled Its Value In 2021. Here’s A Look At Its Price Over The Years". Time.Com. https://time.com/nextadvisor/investing/cryptocurrency/bitcoin-price-history/.

3. Iacurci, Greg. 2022. "SMART TAX PLANNING Make A Killing On Nfts And Crypto? The IRS May Tax Them Differently". CNBC. https://www.cnbc.com/2022/01/11/make-a-killing-on-nfts-and-crypto-the-irs-may-tax-them-differently.html.

4. Mendis, Dinusha. 2022. "When You Buy An NFT, You Don't Completely Own It – Here's Why". The Conversation. https://theconversation.com/when-you-buy-an-nft-you-dont-completely-own-it-heres-why-166445.

5. Owen, Allison, and Isabella Chase. 2022. "Nfts: A New Frontier For Money Laundering?". Rusi.Org. https://rusi.org/explore-our-research/publications/commentary/nfts-new-frontier-money-laundering.