2021 year-end inventory: how far can NFT go?

NFT is undoubtedly a big black horse in the field of art this year. Artists have minted coins, exhibited, and participated in auctions, while investors have bought, sold and traded one after another.

On November 14, the Tezos-based non-fungible token (NFT) market Hic Et Nunc — meaning “here and now” in Latin — suddenly closed. Artists are beginning to worry about their NFT's first NFT exhibition "Ethereal Aether" at the Hermitage Museum (November 10 to December 10) and the first NFT exhibition of Art Basel Miami, "Human + Machine: NFT and evolving Art World" (December 2 to 4) exhibition.

Diane Drubay, the founder of We Are Museums and one of the NFT casters on Hic Et Nunc—she curated a panel discussion at Art Basel Miami—explained to me: “Of course, see Hic et The closure of Nunc was an impact, but people immediately regarded it as a new step in their journey. Because when the website was closed, our NFT was saved on the chain, without any loss, artists can safely continue to rely on their NFT makes a living. The mirror image or new version of HicEtNunc.art was opened only a few hours later, which provided the necessary support for artists to continue selling, buying, and exhibiting NFT.” She added:

"The community is now organizing, creating a decentralized autonomous organization (DAO), and continuing to conduct decentralized experiments on Web 3.0."

This unexpected incident is curious: Will the "International Year of Creative Economy for Sustainable Development" announced by the United Nations General Assembly be recorded in the annals of history as the first year when NFT enters the mainstream? Or NFT will eventually only become a temporary epidemic in the global period when the shadow of the new crown pandemic is overwhelmed, and will eventually disappear in the long river of history? The author hopes to find the answer through a series of research and interviews.

NFT's environmental impact, value and supervision

NFT is a digital asset on a blockchain platform that can be traded like a digital card in exchange for encrypted currency or even legal currency. They are usually used as evidence of the ownership of digital assets, but the specific rights attached to the NFT are different. Some NFTs use "smart contracts" as part of their tokens, which are automatically executed when a prescribed event occurs.

Computer scientist "Antsstyle" criticized NFT:

"In short, NFTs are bad for two reasons. 1. They are bad for the environment because they rely on cryptocurrencies that cause a lot of carbon emissions... 2. Their only value is to serve as money laundering, tax evasion, and larger scale Tool for investment fraud."

Antsstyle's long-form analysis provides a comprehensive overview of the proof of stake (energy saving) and proof of work (energy intensive) NFT platforms.

A. J. Woloszynski, manager of Eisner Advisory Group LLC under EisnerAmper, further pointed out that the subjective value of NFT is determined by how much people are willing to pay for it. "For example, let’s take a look at the picture below. There is no problem with your computer; what you see is an ordinary gray box. This is an NFT called'The Pixel'. Produced by an artist named'Pak' and sold at Sotheby's auction in April 2021 for approximately $1.3 million." Other major art auction houses such as Christie's, Phillips and Portion also started this year Auction NFTs minted on various NFT platforms.

According to CryptoArt data, Pak is the second-highest-selling cryptocurrency artist of all time, with a market value of approximately $65 million for his artwork. NonFungible ranked Bored Ape Yacht Club first, and the final sale price of "Bored Ape #9449" NFT exceeded $1 million.

Although not on the list of NonFungible, Larva Labs’ computer-generated CryptoPunks’ low-resolution 24x24 images were the first major NFTs. In March, CryptoPunk #3100 was sold for 4200 ETH, which was $7.6 million at the time. This sale was later surpassed by the selling price of "Everydays: The First 5000 Days". This work was designed by graphic designer Mike Winkelmann (also known as "Beeple") and raised $69.3 million on the same day. The digital artwork in the posters reached US$13,800. According to DappRadar, Dapper Labs' CryptoKitties—the first large-scale Ethereum-based NFT project to use the ERC-721 standard—also recorded a daily transaction volume growth of 22,106% in the recent NFT market recovery.

NFTs are not widely regulated. For example, earlier this year, in the leading NFT market OpenSea, after an executive introduced the NFT he purchased on the homepage of the website, he began to hype these tokens—presumably to sell these tokens quickly, because the market The NFT insider trading on the above is not a clear illegal act. In another example, a fraudulent NFT worth 265 ETH (US$1.1 million), claimed to have been issued by Hong Kong-based gaming and venture capital firm Animoca Brands and subsidiary Blowfish Studios, was minted and sold through Discord. In the NFT heist of this century, a hacker uploaded 20TB of NFTs, which were originally minted on the Ethereum and Solana blockchains.

Chainalysis, a blockchain analysis company, estimates that in the $2.5 trillion cryptocurrency market, about 0.34% of the transaction volume, or about $8.5 billion, is related to illegal activities. According to NonFungible data, 265,927 active wallets conducted NFT transactions on the Ethereum blockchain in the third quarter. With the rapid rise of cryptocurrencies and NFTs and their use in money laundering, hacking, cyberattacks, and other illegal transactions, governments around the world—especially the Global Tax Enforcement Joint Conference—have been sharing information in order to investigate cross-border tax crimes And resources.

Earlier this year, the US Internal Revenue Service launched the "Operation Hidden Treasure" in collaboration with personnel from the Civil Office of Fraud Enforcement and the Criminal Investigation Department to investigate the tax evasion of cryptocurrency and NFT users. The latest report from the Criminal Investigation Department of the Internal Revenue Service pointed out that during the 2021 fiscal year, 93% of seizures involved cryptocurrencies, valued at 3.5 billion U.S. dollars. The U.S. Treasury Department also included 57 cryptocurrency addresses on the sanctions list, as well as an exchange—Chatex in Latvia. The Ministry of Finance stated that the exchange facilitates transactions related to "illegal or high-risk activities, such as dark web markets, high-risk exchanges, and ransomware."

Continuing the efforts of the US President Biden's administration in combating ransomware and illegal use of cryptocurrencies and NFTs, more tax regulations have been implemented. HR3684, the "Infrastructure Investment and Employment Act", requires cryptocurrency "brokers"—including “any actor who is responsible for providing any service on a regular basis and realizing the transfer of digital assets on behalf of others”—to report more than 1 to the IRS on Form 8300 Ten thousand dollars worth of cryptocurrency and NFT purchases, including name and social security number, otherwise may face felony charges.

In October, the Financial Action Task Force (FATF) issued new guidelines on NFTs, stating that they are excluded from its definition of virtual assets. However, FATF standards can still be applied to NFTs on a case-by-case basis.

Sustainable NFT

NFT is undoubtedly a big black horse in the field of art this year. Artists have minted coins, exhibited, and participated in auctions, while investors have bought, sold and traded one after another. Nash Islam, an early investor in NFT, said: "For NFT, community actions are mainly focused on Twitter and Discord." He also added:

"Investing in multiple projects in Pak, we have obtained huge multiples of returns, and also helped us understand and establish some principles of NFT investment."

Even Damien Hirst, Britain's richest living artist, launched an NFT series called "The Currency" this year, exploring the nature of value, art and currency. It was minted on Palm, an NFT platform operating as an Ethereum sidechain, and sold through Heni at a unit price of $2,000.

Artist Ilya Shkipin told me that he decided to cast his MonarxNFT series on the energy-efficient, open source Tezos NFT platform. “When we talked to our supporters, Tezos became the only obvious option for us. The Monarx team and the community value low GAS fees and a convenient coinage experience. We finally did what the community wanted us to do, because art is for They are not for us. My MonarxNFT series was inspired by a lost period in my life."