Take Advantage Of NFT: Law Compliance And KYC — Read These 5 Ideas!
Remember the last time you had a piping hot steak and the sad celery next to it? Well, to put things in perspective, NFTs are like steak and the taxes that come along are celery. Sure, you aren’t interested in it, but it’s there! Read more to get the best of it!
How do NFTs work?
An NFT is a Non-Fungible token that represents real-world objects like artworks, in-game items, music, and videos in the digital world. These are sold and bought online with cryptocurrencies. Generally, NFTs are also encoded with the same software as most cryptos such as Bitcoin and Ethereum to ensure safety.
NFTs are unique and are of a limited number with specific codes to help them to be identified. To understand better, let’s look at what fungible tokens mean. Physical currency and cryptocurrency are “fungible”, meaning that they can be exchanged or traded for one another. They are equal in value.
- That is, one dollar will be worth another dollar.
- Likewise, one Bitcoin or Ethereum is equal to another Bitcoin or Ethereum.
- It is due to this fungibility of cryptos that makes it a credible source of performing transactions on the Blockchain.
The term suggests the description of a medium like video art or performance art. The vast majority of NFT art utilizes non-fungible tokens as a mechanism for sales, not as the medium of sales. Such NFTs are a certificate of authenticity or a deed, and it’s recorded on a blockchain.
So if you are wondering how this has started taking the art world by storm? Continue reading to find out how that happened!
Let’s forget about art for some time and focus on what an NFT represents; a digital form that we may not have thought of as something that has value is now considered as valuable digital art.
An NFT out of an already existing image can be created. For instance, we can take a clip of footage from TV and create an NFT out of it. The NFT officially belongs to you and can be sold by you to anyone who pays the right price.
It is a system that has supported artists worldwide to create their own digital artwork and upload it on blockchains for sale. This incidentally has found traction with many creators, artists, and gamers.
Is it possible to have only “Digital Collectible” instead of art?
Many of us have little or no idea as to how art is valued or how to understand the nuance of artwork in real life. Those who understand the intricacies of art are still a small percentage of the entire human population — restricting artists to let people know of their talent. With NFTs taking the digital world by storm, artists have found a unique market for themselves.
Although artists have found an amazing platform to showcase their work and possibly even make a fortune out of it, it is still unclear whether this will replace actual art in the future.
People who love to acquire collectibles focus on how rare and scarce it is, leading to a rise in the value. With NFTs, the question of rarity is undisputed. This has brought the attention of the collectors of the world towards spending their money on digital art.
Ardent video game fans have always been known to have collections of items that have been part of their favorite video game. Now that NFTs are being issued in-game, it appeals to them to collect more digital art than real art.
Wash trading and Money Laundering through NFTs:
With any new advancement in the scientific world, rumors always find their way into the mix. Money laundering is one of those rumors. The transparency of blockchain technology does not allow for something like that to happen easily. Nevertheless, law enforcement agencies have a vigilant approach when a high value transaction occurs.
Wash trading is a well-known and documented form of manipulation and misleading the market into purchasing a certain commodity or stock for a higher value. It has found its way to the NFT marketplace.
In the stock market, wash trading is the practice in which an investor purchases and sells the same commodity/stock investment at the same time. It is also referred to as round trip trading. In essence, you are quintessentially ending right where you started, with an increase in the value of your portfolio of investment.
Fortunately, if you are looking to start your own digital collection of art, use the expertise of Scour from bitsCrunch, is a watch-dog that utilizes Artificial Intelligence to assess the quality and provides a fair-value assessment of the NFT in question for purchase.
AML and KYC:
KYC is the first step in the process of AML. The term Anti-Money Laundering or “AML” talks about the set of regulations and legal procedures put in place to monitor illegal activities and prevent profit from that.
KYC is the short form for Know Your Customer/Client and is the mandatory process of verifying the user’s identity. It is the first step in the battle against NFT money laundering and wash trading.
It is becoming necessary for cryptocurrency exchanges to protect themselves from all forms of financial crimes. In particular, NFT Art money laundering, and to keep up with the increased regulations and rules. Law agencies are making it mandatory for new customers or users to onboard themselves with KYC at the initial stage of signing up onto a marketplace.
With the evolution of cryptocurrency and NFTs, there is a possible avenue for new financial crimes. Criminals will try to find innovative ways to utilize technology to launder money with NFTs.
Crypto & Laws:
There was a time when mankind was living without any laws to guide them, but that wasn’t promoting a sustained form of living. Eventually, laws were put in place to ensure that everything functions in an acceptable manner.
Cryptocurrency exchanges offer users anonymity with which they can conceal the profits they make. Thus, creating a need for regulation that will curtail tax evasion and money laundering.
As mentioned earlier, many cryptocurrency exchanges are equipped with KYC registration procedures when transferring funds or opening a new account.
Cryptocurrencies are not legal tender in most countries globally. But cryptocurrency exchanges are. They act as money transmitters because cryptocurrencies are taken as substitutes for currency in their value.
Countries worldwide are now looking to create their own cryptocurrency and their regulatory framework to eliminate any sort of competition or illegal activity.
The following countries were the first to take the initiative, starting with Malta, Switzerland, Japan, Australia, Ecuador, and the latest to join the bandwagon is India. India’s latest budget suggests levying a 30% tax on “Crypto-Assets”.
Safe Marketplace Creation:
Cryptocurrency technology is dynamic and is constantly changing, while regulatory policies take time before they are updated. The chances of facing outdated laws and policies being introduced for a technology ahead of time are high.
With countries working smartly to frame the rules and regulations for Crypto markets, users spend their money on cryptocurrency, purchasing NFTs, or investing in Metaverse stocks.
- It becomes the responsibility of the marketplace to keep its platform safe and free from any kind of criminal activity.
- Users now have many reliable tools which are offered by bitsCrunch to make sure that they are not taken for granted.
Blockchain technology in itself is very secure. The transparency it provides is above par. Yet, we come across several reports suggesting that people are scammed. The reason how these scammers get caught quickly is due to the efficiency and transparency of technology.
Crypto markets are being pervaded by scams and illegal activity, creating the need for NFT compliance. Learn more about how you can purchase NFTs without being cheated. Protect your investment and yourself with bitsCrunch while staying compliant with regulations.
Are you feeling confident that you know better about how laws might affect the world of Crypto-assets? Try taking this simple quiz and see how well you have understood.