A hot topic in the world of professional arts, entertainment and sports is NFTs. Business management and accounting firms like ours who cater to high net worth athlete and music artist clientele have had to increase our knowledge and awareness on the subject.
NKSFB Tax Partner Bob Jason, who recently provided his insights to the Wall Street Journal after Bob Dylan sold his catalog to a publisher (see: Bob Dylan’s Catalog Sale Highlights a Tax Advantage for Songwriters), has the following to say about NFTs:
“NFT alchemy is just the latest answer to the age-old question: how can I make money from nothing? Cryptocurrency in general is a prime example of this magic, because computers working around the clock literally create value where there once was none. NFTs are in the same category – although with NFTs there has to be something to start with, but it doesn’t have to be much. For example, Jack Dorsey famously turned his first tweet – “just setting up my twttr” – into an NFT and sold it for over $2.9 million, or about $600,000 per word. Examples like this abound and suggest strongly that NFTS are likely to have a strong run, at least in the short term.”
WHAT ARE NFTs?
NFT stands for non-fungible token. An NFT is a digital asset – which can be in the form of artwork, photo, video, audio, a collectible card or other type of memorabilia as well as other representations of digital media (such as a Tweet or GIF) – that are mostly registered within the Ethereum cryptocurrency blockchain.
Similar to fine art collecting, the value of these digital assets change over time and independently from one another. Unlike investing in gold, which is “fungible” because one ounce of gold is no different from another ounce, an NFT is “non-fungible” because it is one-of-a-kind, an original item and scarce.
HOW MUCH ARE NFTs WORTH?
An owner of an NFT gets exclusive ownership rights. In other words, an NFT can only have one owner at a time. Blockchain technology assigns unique data to the NFT to easily verify its ownership. The creator of the NFT can store specific information inside the blockchain, such as a signature.
The value of NFTs range from a few cents to millions of dollars. For example, the creator of Twitter, Jack Dorsey, sold his “first tweet ever,” written in 2006, in March 2021 for $2.9 million. DJ Steve Aoki teamed up with Tom Bilyeu to create a sci-fi comic series in the form of NFTs, titled Neon Future which has reached over $4 million in sales. A single LeBron James highlight NFT sold for $200,000. Celebrities everywhere are releasing unique memories and artwork as NFTs.
HOW ARE NFTs SOLD?
There are several dedicated online marketplaces for NFTs such as OpenSea.io and Rarible. In order to participate, both the creator and the consumer must possess a digital wallet that allows you to store NFTs and cryptocurrencies that are accepted in the marketplace. Traditional auction houses have even hopped on the bandwagon, including Christie’s and Sotheby’s – but a great allure of the NFT marketplace is that the artist can sell their work directly to the consumer, no longer having to rely on galleries or auction houses and also allowing the artist to keep more of their profits.
Sources:
1. The Verge, “NFTs, explained”
2. Forbes, “What You Need to Know About Non-Fungible Tokens”
3. BBC.com, “What are NFTs and why are some worth millions?”
4. Artnet, “Here Are the 14 Most Expensive NFTs Sold to Date…”
