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Domenico Macellaro

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What NFTs are and how you can use them for your business

What is an NFT and how can they work for my business?

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Since their very first mainstream breakout moment happened last year, NFTs have revolutionized trading, cryptocurrency, digital art and collecting markets as well as fashion and gaming industries.

The word NFT is an acronym standing for Non-Fungible Token, which is a sort of "placeholder" with specific characteristics and functions as a certificate of authenticity and digital ownership connected to the name of its owner as well as to a link that represents the underlying asset to which it is linked - be it an image, a video, an animation, a painting or a cosmetic object to be worn by avatars in video games and in the metaverse.

The authenticity promised by NFTs is guaranteed by the blockchain technology which in addition to representing an indelible signature on the object, it is also able to record all ownership changes, thus providing a real family tree and purchase history ledger to any virtual asset eligible to be traded.

The blockchain is a sort of virtual ledger in which decentralized information is distributed over several "nodes" that allow both to trace and to manage individual transactions without the need for intermediaries - the content of this register is always available for everyone to consult and, above all, it cannot be changed unless all nodes agree.

Taking an example with the world of art, we could say that there are many different copies of the Mona Lisa in the world but the true original painting is only one - in the digital world, that true image would be the underlying NFT asset, which can still be copied but won’t be truly possessed in its original form.

How can NFTs be bought or traded?

it is important to understand how and where NFT transactions take place. There are several online marketplaces, very different one to another, mostly depending on the type of digital asset being sold or traded.

The most common are those in which digital works of art are sold or exchanged, such as Opensea an Magic Eden, but each NFT exists on specific platforms: for example, there are NFTs exclusively available on certain marketplaces and in light of such agreements, their sale can only take place within such marketplace; in other cases, however, some NFTs, especially those dedicated to the videogames world or linked to specific metaverse platforms, are valid and actionable only within those spaces.

To purchase an NFT from any platform, you will first need to purchase Ethereum (ETH) cryptocurrency which will then be stored in a digital wallet called Crypto Wallet, accessible with a CID, acronym for the owner's identification code, or a standard password containing letters and numbers.

Here too, there are several platforms that allow you to manage and access your crypto wallet and you can choose according to your needs which is the most convenient.

Once you have created and replenished your digital wallet, you can connect it to the marketplace of your choice where you can buy any NFT you want just like in a normal e-commerce space.

Purchased NFTs will be stored in your wallet but can also be used on many other platforms - even some social platforms such as Twitter and Instagram have started their first procedures to transform the account profile images into showcasing space to display our own NFTs.

How can NFTs be used?

There are several ways to use NFTs - whether you want to trade privately or are looking for opportunities for your own company.

Primarily, NFTs are relevant in the digital art and collectibles market: any object, sculpture, 3D animation, image, video or music file can be bought or sold in its digital form and exhibited in the physical world via screens or through physical proxies of such asset (which are sometimes sold together

with the non-fungibility token). It can also be used and shown in metaverse platforms such as Decentraland or The Sandbox.

Another possible application is the one in the gaming industry, where NFTs can represent cosmetic objects that your character / avatar can wear in the metaverse and can also be exchanged with other users.

From a business perspective, however, NFTs can first of all be a form of targeted investment, since the value of NFTs, just like any asset, can appreciate its value over time.

Since they function as unalterable certificates, then, NFTs can also have applications in the real estate sector, by recording properties’ transfer of ownership, or in the field of loans and insurance as pure smart contracts appliances.

How do NFTs get taxed?

Last year, the NFT market reached a volume of 17.6 billion dollars - a substantial figure, which obviously corresponds to a tax. Although it may seem very complex, NFT taxation system is quite simple: private collectors are not subject to taxation but if the proceeds deriving from the NFT trade become habitual, they will need to be indicated as income received in their tax return and subject them to personal income tax, if you are in Italy.

For those who buy and sell NFTs as part of an ongoing commercial activity, it will be necessary to open a VAT number to fulfill all the relevant tax obligations. It is clear that trading in NFTs can involve risks.

In the event that the creator of an NFT wants to multiply his profits, he could register the same work on two different platforms or sell the same work multiple times with a minimal modification, even if it was for a single pixel.

The blockchain that certifies the single NFT in fact represents a specific binary code that we see in the form of an image but actually is a long string made up of zeros and ones.

Many specialized law firms are working on creating smart contracts to better regulate rights and deeds for this type of assets.

The problem related to the servers of the various platforms, on which the entire network is based and which could block or be hacked, is also being resolved with the first studies on the use of IPFS protocols (acronym for InterPlanetary File System) capable to propagate a file to all connected people's computers. Moreover, transactions related to NFTs are not properly regulated like other types: cryptocurrency exchanges, in fact, are often used to launder "dirty" money to hide from the eye of the tax authorities.

Conclusion

In conclusion, the advice we would like to give to any beginner is: first of all, to meticulously make sure that the platforms used for exchanging money and buying and selling tokens are legitimate; and, secondly, that of approaching trading with caution, reserving the most important purchases and sales until the various dynamics of the sale and fluctuation of the value of the works are fully understood.

For any clarification or further information regarding the content of this article, our team is happy to answer any inquiry. 
If you like, contact us using the appropriate form in the Contact section.

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