Unlike most digital items which can be reproduced each NFT has a unique character which makes it one of a kind. Tokens are often bought with cryptocurrencies and the blockchain keeps a record of transactions. While anyone can view the NFT it is the buyer who is the official owner, a bit like in the 'real' world where only one person owns the original of a piece of art but prints of it are available to buy. Significantly, buying an NFT of an image or video doesn't mean the purchaser acquires the copyright, which could be great for the developer or an artist who earns a fee each time the item is sold.
All kinds of digital objects can be bought and sold as NFTs including GIFs, tweets, virtual trading cards, images of physical objects, video game skins and virtual real estate. The auction house Christie's sold an NFT by artist Beeple – his real name is Mike Winkelmann - for $69 million in 2021. A Gif of Nyan Cat was sold for $500,000 and the first tweet from Twitter founder Jack Dorsey sold for $2.9 million. A young lad from Indonesia has taken a selfie of himself everyday for the past five years as part of a school project. Each photo is virtually the same and as a gimmick he turned them into NFTs and sold them for $3, but his project went viral and people are now paying $12,000 each for them. A nice way to become an accidental millionaire!
Interest has evolved in parallel with the growth of eCommerce and social media and their appeal is they provide a platform for keeping possessions in online and virtual environments. Rapidly rising prices has meant there has been some big returns and some buyers "flip" NFTs, selling them on within a few days or even hours for profit. Price gains in cryptocurrencies such as bitcoin has also created a new group of crypto-rich investors who can spend their cryptocurrencies on NFTs.
However, anybody can create and sell an NFT and there is no guarantee of its value. In a market where many participants use pseudonyms, fraud and scams are also a risk. In the Isle of Man digital currency businesses must comply with the Isle of Man's anti-money laundering (AML) laws and the government amended proceeds of crime legislation to cover crypto related companies operating from the Island.
With almost 10 years' experience in the sector the ILS World digital team understands the enormous potential of the blockchain and has given guidance on NFT's for a number of major projects.
For further information please email Richard.MacNee@ils-world.com
Please note: ILS World does not offer legal or tax advice and would therefore recommend you obtain your own advice, if you require an introduction to an adviser we would be happy to assist.