普華永道：NFT發展報告-應用場景篇（29頁）.pdf

1、Non-Fungible Tokens (NFTs): Legal, tax and accounting considerations you need to knowForeword2Definition and technology3Market structure5The NFT ecosystem7Collectibles8Gaming 8Physical art 9Sports9Cultural artefacts and history10Real estate real world asset representation 10NFTs in music/ digital ar

2、t11Tickets and any form of access authorisation11Education and research 12The future and the metaverse13Thoughts on how corporations could approach NFTs15Legal and regulatory16Tax21Accounting25Conclusion27Glossary28Contacts29ContentsForewordNon-fungible tokens (NFTs) are unique and non-interchangeab

3、le digital assets stored on a blockchain. The rise of NFTs this year has surprised people in not only the growth of the ecosystem but also the practical utilities of NFTs. Since early 2021, the market has grown exponentially from US$13.7 millionin the first half of 2020, to US$2.5 billion in sales i

4、n the first half of this year1.One of the most remarkable news about the growth of Non-Fungible Tokens was the sale of the Beeple artwork for US$69 million at the auction house Christies2. which made Beeple the third most expensive living artist at auction. In particular, we have seen an explosion o

5、f new methods and tools when creating digital art as NFTs. In certain aspects, this is game changing as there are now viable ways for large and small independent artists alike to monetise their efforts after their NFTs are sold on globally accessible marketplaces.Weekly trading volume of NFTs by cat

6、egory ($m)1212Source: The Block Research, Nov 2021Source: The Verge, 11 Mar 2021Weekly trading volume of NFTs by category ($m)102004006008001000Jan-21 -Feb-21 Mar-21Apr-21 May-21Jun-21Jul-21Aug-21Sep-21Oct-21Nov-21Art and collectiblesGamingNon-Fungible Tokens (NFTs): Legal, tax and accounting consid

7、erations you need to knowForewordDefinition and technology The history of NFTs began with Kevin McCoy on May 3rd, 2014 when he minted a non-fungible token called “Quantum”, an octagon shape with red and blue. However, NFTs started to become well-known from the public when CrypotKitties, a game built

8、 on the Ethereum blockchain in 2017, was responsible for clogging up the Ethereum network because people were rushing to buy cartoon cat NFTs, delaying transactions and increasing the gas price3. In parallel, there have been further developments within the NFT space such as the ERC 721 proposal whic

9、h was introduced in September 2017 and submitted by William Entriken, Dieter Shirley, Jacob Evans and Nastassia Sachs in January 2018. The ERC-721 proposal is recognised as the first standardised interface for creating NFTs on the Ethereum blockchain. However, one of the key issues with the ERC-721

10、protocol is that when the Ethereum blockchain is congested, the cost of minting an NFT increases significantly which impacts the economic viability of minting new NFTs. This led to one of the most recent proposals which was the development of the ERC-1155 standard by Enjin, which supports non-fungib

11、le tokens (NFTs) and fungible tokens. It improves upon the ERC-721 standard by making the NFTs faster and more efficient to use in batch transfers. According to some estimates, gas fees are cut by 90%.NFTs exist on a blockchain, which is a distributed ledger that records transactions. NFTs are most

12、commonly distributed on the Ethereum network but are increasingly seen on other platforms such as Solana, Flow by Dapper Labs as well as layer 2 platforms such as Immutable X, which is built on top of Ethereum.There are many permutations of NFTs, one of which is generative art, and the most well-kno

13、wn one is Artblocks. Artblocks is an Ethereum-based NFT project that generates original digital artwork pieces via an algorithm. Another form is “Profile Picture” (“PFP”) where a certain number of digital avatars are created or “minted” that can be used as profile pictures on social media platforms.

14、 The most notable PFP collection is “Crypto Punks” that was created by Larva Labs. Crypto Punks is a collection of 10,000 uniquely generated pixel art avatars that were launched on June 23rd of 2017. Each avatar comes with unique combinations of randomly generated features that are supposed to repre

15、sent different personalities.3A general reference for approximate transaction fees on the Ethereum blockchain, gas price refers to theamount of ETH (in a small unit called gwei) that must be paid to miners for processing transactions on thenetwork.3Non-Fungible Tokens (NFTs): Legal, tax and accounti

16、ng considerations you need to knowDefinition and technology - 500 1,000 1,500 2,000 2,500 3,000Jan-21Feb-21Mar-21Apr-21May-21Jun-21Jul-21Aug-21Sep-21Oct-21Nov-21OpenSeaAsync ArtFoundationMakersPlaceSuperRareNifty Gatewayhic et nuncApart from minting an NFT directly on a blockchain or purchasing an N

17、FT in an auction, NFTs can also be bought and sold on marketplaces such as OpenSea, SuperRare, Nifty Gateway, MakersPlace and Async Art. These marketplaces take commission for the sale of NFTs similar to traditional auction houses and a number of these generated significant revenue in August and Sep

18、tember 2021. These platforms are seen as the start in bringing wider adoption of NFTs to larger communities as well as different industries.NFT market place monthly volume ($m) 44Source: Markets Insider, 7 July 20214Non-Fungible Tokens (NFTs): Legal, tax and accounting considerations you need to kno

19、wDefinition and technology 5Market structureNFTs are game changing for art, creative contents and how intellectual properties are handled. Much like how cryptocurrencies continue to disrupt the financial markets, by reducing the need for intermediaries or middlemen, and in a similar vein, NFTs are s

20、hifting the balance of power from intermediaries to content creators. This powerful shift in the market is only just the beginning but will have a far-reaching impact. Many content creators, artists specifically, are used to being paid on delivery of their content only to watch future buyers of the

21、piece go on to sell it for multiples of the original sale price time and time again. With NFTs that no longer needs to be the case. Through the use of NFTs, because blockchain technology is utilised, royalties can potentially be easily tracked and paid directly to the artist indefinitely. This means

22、 that when a piece of art is used commercially the artist would see continued benefits, which is a significant change to the business models for the creative content industries.With the advent of countless social media platforms and communication tools it is getting easier for people all over the gl

23、obe to communicate and bond over common interests. As NFTs expand beyond simple collectibles to digitally represent ones identity online, they are becoming more ingrained in society. One of the largest social media platforms have seen a rise in users putting their NFTs as their profile picture. NFTs

24、 are offering the possibility to engage consumers in a new and exciting way. NFTs offer the ability for the creator of the NFT or brand to connect directly with the consumer, whether it be through special perks or a conversation about the product. They offer traditional business new revenue streams.

25、 As we begin to exit the pandemic the shift towards a preference for experiences over material possessions will be further accentuated further promoting the growth of experiential NFTs such as Generative NFTs which are generated through artificial intelligence or algorithms. Non-Fungible Tokens (NFT

26、s): Legal, tax and accounting considerations you need to knowMarket structureFractionalisation: DeFi platforms can create liquidity by allowing the fractionalisation of certain digital assets by substituting the digital asset with a different pool of tokens that can then be traded on the secondary m

27、arket. The concept of fractionalisation also helps to enable those users that have been priced out of participating in the initial project the opportunity to be a part of a “wider community” without having to mortgage their home to do so.Collateralisation: Following the same logic as collateral toke

28、ns, currently issued by various exchange platforms, NFTs can act as a security to loan issuers. This is because NFTs can represent the digital ownership of certain assets and can be traded in an open market, having therefore a recognisable value. The fact that transactions are transparent means that

29、 the same assets cannot be collateralised twice, providing more trust and transparency to the market. This transparency and automation can decrease the cost of financing arrangements.Creator rewards: A newer trend in the NFT space is rewarding holders of a project with a percentage of the fees earne

30、d from sales. Part of the power of NFTs is that instead of secondary sales benefiting only the current owner of the piece, a portion of the sale can be paid back to the creator when designated as such.1Maybe most interesting is the intersection between NFTs and Decentralised Finance (“DeFi”), where

31、the boundaries of NFT use cases are being tested. DeFi describes a set of financial applications built on a blockchain to disintermediate centralised exchanges and traditional financial services. Due to the aforementioned growth of the market, some generative art and NFT collectibles have “mooned” o

32、r increased in price to levels that they can become a persons most valuable asset, even more than ones home. The world of DeFi can offer multiple ways to monetise assets without requiring an owner to sell it. There are three keyways:236Non-Fungible Tokens (NFTs): Legal, tax and accounting considerat

33、ions you need to knowMarket structureThe NFT ecosystem7$69mIn March 2021, the NFT “Everydays: the First 5000 Days” was sold for US$69 millionOver $94mIn 2020, the total amount of volume generated by the NFT collections tracked by DappRadar equalled $94,862,807 Increased704% NFT trading volume surged

34、 in the third quarter of 2021 to US$10.67 billion. Thats a 704% increase from the previous quarterSource: The Verge, 11 Mar 2021Source: Markets Insider, 7 July 2021Source: CNBC.com, 6 October 2021Education and researchNFTs in music/ digital artTickets and any form of access authorisationReal estate

35、real world asset representationSportsGamingPhysical artCultural artefacts and historyCollectiblesNon-Fungible Tokens (NFTs): Legal, tax and accounting considerations you need to knowThe NFT ecosystem8CollectiblesScarcity is a desired property for any collectible item. The Blockchain immutability and

36、 transparency create the uniqueness of virtual or physical objects. The value of collectibles can be readily available to potential buyers if those are traded within a public blockchain environment. An example of an already established NFT collectibles initiative is the NBA Top Shot, a blockchain ba

37、sed platform that allows fans to buy, collect and trade a predefined number of officially licenced video clips of NBA players and other highlights. Less than a year since its launch, it has already reached more than US$700 million in total sales and more than 1 million users. GamingWhen it comes to

38、gaming, NFTs can serve as digital certificates of achievements or ownership of items in the virtual world. This can potentially allow trading of such items through an in-game marketplace or through any form of open market. Cross platform transfer of achievements and game items is also possible if in

39、teroperability is allowed between the relevant networks. The most successful games in the market have developed in-game economics. By offering NFTs, game creators could offer a whole set of new possibilities to attract even more players and create profitable economies for both developers and in-game

40、 players.For example, through the application of NFTs for items/ avatars/ skins/ characters released in-game, gamers could eventually see the opportunity to sell these assets on marketplaces after playing and developing them for years. Additionally, those NFTs could outlive the games for which they

41、were created and could be used in the future as collectables rather than items per se.The combination of blockchain technology and gaming is expected to face exponential growth in the near future.Non-Fungible Tokens (NFTs): Legal, tax and accounting considerations you need to knowThe NFT ecosystem9P

42、hysical artThe traditional approach for the proof of authenticity of physical art involves participation of various experts which is often time consuming and costly. Blockchain transparency allows investors to trace transactions of NFTs, associated with a specific piece of art, to the original creat

43、or in order to verify ownership. Apart from the obvious benefit to NFT holders of the proof of ownership of an authentic piece of art, tokenisation of such assets can evolve the way that the market functions. For example, smart contracts linked to the NFTs may include clauses with regards to the per

44、centage of royalties that will be paid to the original creators account from every transaction, ensuring that artists are treated and compensated fairly.Increasingly, sports brands as well as sports teams have started to partner with crypto companies in order to offer their fan base a new way to str

45、engthen their engagement with their favourite athlete and teams. For example, the National Football League has partnered with a NFT related company to issue virtual highlights as NFTs which could be a GIF or video rather than a still photo. Other European football clubs decided to partner with NFT r

46、elated companies to create football player digital cards, which have varying degrees of rarity. In addition to being just sports collectibles, some of these NFTs are expected to become usable in fantasy games in the future, which provides collectors with further utility.Additionally, sports companie

47、s have also been reportedly investigating the metaverse and possible uses for NFT items. For example, Nike have reportedly been planning to release digital shoes through the metaverse, allowing people to collect digital footwear for their avatar. Sports Non-Fungible Tokens (NFTs): Legal, tax and acc

48、ounting considerations you need to knowThe NFT ecosystem10Cultural artefacts and historyCertain media outlets started to express their interest towards NFTs. The Economist, the international weekly magazine, has announced a plan to auction off the front cover of its September 18 DeFi edition as an N

49、FT. The South China Morning Post in Hong Kong SAR, published a litepaper in July 2021 presenting a standard for recording accounts of history and historical assets on the blockchain, thereby ensuring immutability and decentralised ownership. The standard, called ARTIFACT, will use NFTs to allow anyo

50、ne to trade historical moments.Other non-media related projects such as the Beeples Wenewplatform aims to place the most celebrated moments in history on the blockchain, allowing collectors to own and pass down NFTs for the most celebrated moments in music, fashion, sports and politicsReal estate re