Is NFT a security or an asset?

These are just some of the questions that are currently being asked and explored in the world of NFTs:

·?Is NFT a security or an asset?

·?Do banks and NFTs have a future together?

·?How to track NFTs?

·?Do you pay taxes on NFTs?

·?What is the NFTs mutation?

As technology and the market evolves, it is important to stay informed and up to date with the latest developments and best practices.

Is NFT a security or an asset?

An NFT is essentially a digital certificate of ownership that verifies that the owner of the NFT is the rightful owner of the underlying digital asset, which can be anything from a piece of digital art to a collectible item in a video game. The NFT is stored on a blockchain, which is a decentralized ledger that allows for secure and transparent transactions and cannot be replicated or divided into smaller units.

The unique nature of NFTs has made them popular for buying, selling, and trading digital assets such as digital art, music, and videos. The rise of NFTs has created a new market for digital art and other digital collectibles, allowing creators to monetize their work and collectors to own and trade unique digital assets in a secure and verifiable manner.

Do banks and NFTs have a future together?

Certainly, they do! The wealth management sector has traditionally viewed high-end physical collectibles as valuable assets to be included in an investor's portfolio. With the rise of NFTs, the number of banks exploring NFT collectibles is growing as well. This is because the concept of the "Metaverse" is becoming increasingly popular, where real-world assets can be bought, sold, and traded as NFTs in virtual worlds.

·?The European Union Parliament on January 25, 2023, approved new banking regulations that will allow banks in the EU to hold a minuscule portion of their capital in cryptocurrencies, according to a report by Binance.

·?According to the latest directive, banks can hold a maximum of two percent of their capital in Bitcoin and other cryptocurrencies.

·?JPMorgan opened a lounge in the metaverse where users can buy virtual plots of land with NFTs.

·?Japanese banking institution Sumitomo Mitsui Banking Corporation (SMBC) just announced that it is working on bringing a range of NFT and crypto-related services to its millions of customers in Japan.

The technical architecture of NFTs can support financial institutions in a variety of operations, including the allocation of royalty payments. In some cases, royalties have multiple owners and it's not always clear who should receive payment. With NFTs, it's possible to clearly identify the owner of a particular asset and allocate royalty payments accordingly.

Fintech and banks can also benefit from trading NFTs, just like anyone else can benefit from selling collectible assets. NFTs can offer financial institutions new revenue streams and investment opportunities and provide a platform for new types of financial products and services.

How to track NFTs?

Having almost endless possibilities described above, the potential platform or business where NFTs are traded requires a tailored solution that will allow tracking of non-fungible-token operations the same way it is done with traditional and non-traditional assets. Similarly, to take non-fungible-token operations seriously and assure the efficient functioning of their treasury, financial companies, banks, prime brokerage, liquidity pools, and cryptocurrency exchanges must use general ledger books and accounting systems.

There are dozens of issues that arise when we speak about tracking NFTs because of the variety of channels they go through, as well as the non-fungible-token specific (is it a static one or mutant, which blockchain is it on, is it verified, etc.).

Do you pay taxes on NFTs?

It really depends on the jurisdiction. For instance, the IRS in the US has just released Notice 2014-21 and Revenue Ruling 2019-24 that provide detailed advice on the tax treatment of cryptocurrencies and include NFTs in discussions of digital assets. NFTs have several significant distinctions from cryptocurrencies, but it has not yet addressed how they should be taxed. The key differentiator is: NFTs are not interchangeable with one another, unlike fungible cryptocurrencies like Bitcoin and Ethereum which cannot be immediately swapped for other currencies, products, or services. The regulations are made with greater clarity in the UK:

·?Buying an NFT with fiat currency: Not taxable.

·?Buying an NFT with cryptocurrency: Capital Gains Tax.

·?Selling an NFT for crypto or fiat currency: Capital Gains Tax.

·?Swapping an NFT for another NFT: Capital Gains Tax.

·?Minting an NFT: Not taxable.

·?Farming NFTs: Could be subject to Capital Gains Tax or Income Tax.

·?Gifting an NFT: Capital Gains Tax?(unless gifting to your spouse in which case it’s tax-free).

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HMRC does make it clear that as NFTs are individually identifiable, you do not need to combine these assets when it comes to sharing and pooling.

In France, NFTs can be liable to a 30% flat rate, if considered an asset.?Alternatively, if the NFTs are viewed as works of art, they may benefit from a flat rate of 6.5 % applied to the sale price (with an exemption if the sale price is less than € 5000).

To put it another way, taxes are a sensitive issue, and we assist institutions and their clients in keeping track of them regardless of the number of jurisdictions Therefore, the ability to monitor those operations on a worldwide scale requires a solid general ledger.

What is the NFTs mutation?

An NFT Mutation is an on-chain gamification process that updates the existing image, attributes, and metadata of an NFT for various reasons, such as showcasing an upgraded artwork, creating opportunities to reward holders, or enabling the onboarding of new users to a community. The method varies from project to project, but essentially, the idea is that a PFP NFT (such as Bored Ape and Degen Dojo) can consume an auxiliary NFT, which is typically a consumable virtual item like a drink, serum, or another type of substance (it depends on the lore, really). Then, after the PFP NFT consumes the auxiliary, it will ‘mutate’, and the auxiliary usually gets burned. While this is the common setup being practiced, it is only scratching the surface as new projects are currently exploring ways to innovate mutation mechanisms. Over time, new types of mutations will likely be introduced by up-and-coming collections. The only limit is human creativity and imagination.

The creativity in each business must again be tracked, which is something to think about when you decide to update your NFT account statements in real time to get hold of the situation with your mutated assets, which is something we offer in our platform solutions as well.

We are delighted to be a part of the new market being built and the Elcoin team puts its effort to shape the processes in the development of new ideas which meet their creators in the Web 3.0 space.?

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