Selva Ozelli is an international tax lawyer and CPA. She writes monthly Expert Take columns about the intersection of emerging technologies and sustainability.
Nonfungible tokens were the most disruptive art form in 2021. Artists created, displayed and auctioned them, and investors bought, sold, and traded them. NFT sales fell 92% since the peak of the market in May 2022. Layoffs.fyi reports that more than 17,000 tech workers lost their jobs in May according to data aggregator Layoffs.fyi. Similar to 2018, when major cryptocurrencies such as Bitcoin (BTC), Ether (ETH), fell by 80% or more, the current downturn is similar.
Related: 2021 ends in a question: Are NFTs here for the long-term?
Web3 developers, institutional investors and regulators who are preparing to tax metaverse gains are not affected by the volatility of the digital asset markets. They continue to do business as usual around the globe, despite the uncertainty.
High-ranking financiers at the World Economic Forum in Davos (Switzerland) might have been a warning to high-ranking financial officials. As central banks tighten monetary policy, they are facing a slowing economy. No longer are central bankers worried about hedge fund managers. They are now more concerned about the new “Metaversians,” who are digitizing different aspects of human life in 3D using artificial intelligence.
Brian Shuster, the founder and CEO Canada-based Utherverse and inventor of more than 100 patents, pending patents, for core internet technologies, and the Metaverse, predicted that there would be a digital asset market crash. He said: “There are a lot of companies out there building the Metaverse. And frankly, most companies that claim to offer tokens and properties have dangerously underestimated how complex the task is.”
“The digital asset market crash is good for companies that offer viable and sustainable Web3 products, technologies like Ethereum and Avalanche. My Utherverse utility token will be launched in the 3Q 2022.
Accelerate Financial Technologies, Calgary, announced that it would create the Accelerate NFT Fund. This fund targets high-net-worth investors who are willing to take on risk with Web3 investment products as well as digital collectibles on the blockchain.
Related: Crypto in Canada: What are our current positions and where are they going?
The floor price for some NFT collections has fallen more than 50% in the last month, despite broad sell-offs. However, this does not mean that infrastructural investments into China’s Metaverse have been slowed down. NFT investment funds and fund or funds are popping up daily.
Yifan He, CEO at Red Date (Hong Kong), Technology — a Chinese state-backed Blockchain company — said to me: “Blockchain based Service Network (BSN), will launch China’s national NFT infrastructure. NFT can be described as a digital certificate, or a unit of data stored on the blockchain. Because of their uniqueness and independence, NFTs are used widely in digital art and copyrighted material. Their potential uses go far beyond what is currently seen in the art industry. An NFT can be used in any situation where evidence of interest is needed, including collectible ownership and IP rights to creative works, documentation like ID cards, academic certificates, licenses, and so on. This technology is used to confirm the authenticity of documents, while also protecting them from being altered or stolen. It can also facilitate verification, confirmation, and tracking.
He said: “But, most NFTs are minted today on public blockchain technologies that aren’t allowed in China. The BSN modified the public blockchain technologies to “open permissioned Blockchains” (OPBs). This is to help overcome China’s regulatory hurdles. It replaced cryptocurrency with fiat currency to pay for gas and required permission to deploy nodes. NFT has been renamed Decentralized Digital Certificate (or DDC) to decouple its natural association with cryptocurrency and public chains.
He stated that BSN-DDC is a network of digital certificates on BSN China, which includes 10 OPBs. BSN-DDC provides network access, core APIs and SDKs – a one-stop shop that allows businesses to create user portals or apps for any type of NFT application. BSN-DDC portals allow payment in fiat currency for all transaction fees and payments. BSN-DDC supports digital certificates beyond art and entertainment collectibles. It also supports all types of digital certificates, documents, tickets and identification.
“The BSN–DDC network is currently the most diverse, transparent and affordable blockchain infrastructure that supports legal deployment of NFTs in China. He stated that it will be officially launched by the end January 2022 in support of the mass adoption NFTs in China.
Related: Chinese Blockchain-Based Mobile Payment Revolution – How China is Become the World’s Largest Producer of Solar Panels
Film industry taps NFTs to fund movies. Nonfungible tokens make a big splash at Cannes Film Festival.
The French investment community will co-produce the film Plush in 2023 through the sale NFTs. NFT holders will be entitled to a portion of the film’s proceeds and special screenings. They may even get to see their NFTs in the movie.
HoloWorld founder Harshavardhana Kikeri is the CEO. HoloWorld hosts metaverses that include “phygital” (physical, digital, and security) metaverses. HoloSuit contains 40 embedded sensors that track movements of the wearer’s arms and legs. These data are presented digitally to enhance interactions within the phygital world.
Sony, a Japanese multinational corporation, plans to lead the metaverse and AI space by leveraging its unique strengths and expertise in gaming technology. This will be the foundation of entertainment experiences in the future.
The company has partnered up with Manchester City FC to create “new entertainment experience” around sporting events. It is also exploring the music industry and the possibility of offering virtual performances by Sony Music artists. Kenichiro Yoshida is Sony’s CEO.
“The metaverse” is a social space that also serves as a live network space, where music, movies, and games intersect.
Riaz Mehta is the founder and CEO of Singapore-based Ritestream. She explained to me that Ritestream is a platform for watching to earn. Ritestream allows you to distribute, fund, monetize, and distribute content using blockchain technology. You can view your favourite shows, get $RITE coins, enjoy metaverse cinemas, and date night virtuals. You can also support actors and celebrities by buying limited edition NFTs. These NFTs can be used to help fund the shows. They also give users the opportunity to purchase and own a portion of the show, which will allow them producer credits and future earnings potential. Stealing McCloud is our exclusive film. It was inspired by John McAfee (the controversial software mogul) who was discovered dead in a Spanish prison cell for tax evasion in the United States in 2021. With an app that is free and easy to use, we are excited to revolutionize how we consume and fund content.
Metacurio VS Singapore is a joint venture between Metacurio, VS Media. It will house VS Media’s intellectual property and be the only home for VS Media. This includes segments such as creating, marketing, and distributing NFTs. Metacurio will share its expertise in Web3-focused creativity and NFT collectability strategy development. It will also be bringing its client base, which includes relationships with more than 70 top brands and talents.
Persistence is building a network of multichain Web3 products that retail and institutional users can use. This will allow for the creation and exchanging of NFTs across multiple chains, and allows for products to address the challenges and generate opportunities in a multichain environment.
Related: Why Singapore is the crypto-friendly country
Nelson Mandela was a revolutionary leader and anti-apartheid leader. He served as the first democratically elected president in South Africa between 1994 and 1999. The Mandela Education Program is a project that expands access to books for children across Africa and the world. It is funded by four NFT collections.
Related: South African President Resigns as Banks Accept Blockchain Technology
The first Spanish Ethereum conference will take place in Barcelona from July 6-8, following Avalanche’s first summit in Barcelona. In the midst of the market meltdown, Vitalik Buterin, co-founder of Ethereum, is calling for Federal Deposit Insurance Corporation protection for small crypto investors.
Roberto de Arquer is the co-founder of Spain-based Gamium and chief metaverse officer.
“We are creating the first decentralized social metaverse, and the digital identity for humans.”
Gamium World, a fully immersive 3D environment, allows users to connect to Gamium’s social metaverse. Gamium software development kit allows players to create their own worlds and build experiences, such as buying and selling land.
Holders of NFTs in relation to videogame real estate have suffered losses of thousands to millions of dollars due to transaction fees, phishing attacks and rug pulls. Reddit commenter u/MDKAOD recently described the virtual real estate industry: “Entropia Universe (formerly Project Entropia), has had land deeds ever since the early 2000’s.” John ‘Neverdie” Jacobs, a big-name DJ, owns a whole space station in the game. There are now whole ‘partner planets,’ owned (at minimum in history) by Lemmy, Michael Jackson’s estate, and at least one other high profile name.
“Virtual real property has never been available and, as far as my concern, has always been a means to launder money.”
Similar: Spain fights corruption using blockchain AI and amends to its anticorruption laws
Mehmet Eryilmaz is the founder of Turkey-based Faro. He explained to me that Faro is a tokenized entertainment business that produces TV content and music, owns music catalogues and IP, manages live entertainment, Web3 representation rights, and manages films and TV. Faro capitalizes on the country’s high interest in local content, Turkey’s export success, and live entertainment demand post-COVID. The company also has forward-looking Web3 themes that allow for collective ownership and fan-based utility focused new businesses. Faro’s operations can be backed by recurring media revenue assets in the physical world. Faro tokenholders have the ability to invest in and benefit from all Faro productions, assets and revenue rights. They also get access to all fan-centric NFT offerings and generate revenues.” He said, “Faro hopes to expand its business into emerging markets using the same model.”
RefikAnadol, who was the first artist to use artificial Intelligence in an immersive public art — and whose work was displayed at the Museum of Modern Art in New York — has not been affected by the NFT market slump. He continued to sell his NFTs in April and May. His “An Important Memory for Humanity”, collection sold for $6.2 million. A one-of-a-kind NFT titled “Living Architecture, Casa Batllo” sold for $1.38 million at Christie’s.
Similar: Turkey’s digital future is regulated by NFTs and crypto.
United Arab Emirates
Lokesh Rao is the CEO and co-founder of Trace Network Labs, which has offices throughout the United Arab Emirates. He explained that his platform “enables brands especially fashion to create new categories of digital products which can be used for product details exchange with various Web2 or Web3 platforms which can be used with multiple Web2 and Web3 sites.” Gucci, Dolce & Gabbana and Louis Vuitton also discussed the future of fashion at the Decentral Art Pavilion, Venice.
Metaverse technology will contribute $4 billion to Dubai’s economy by 2030 and help create 42,000 virtual jobs.
Related: United Arab Emirates’ green digitization vision
The popular NFT collection Bored Ape Yacht Club was created by Yuga Labs in the United States. Its floor price fell to 88 Ether (about $153,000) on 5/27, from 138 Ether (over $390,000.) one month earlier.
Reddit commenter u/Dr_Eastman shared his market analysis of the drastic drop in prices.
“Why the fuck would a monkey pic receipt be bought for more than the original buyer paid?”
This is especially important given the fact that U.S. courts have ruled that computer-generated or AI-generated music and art has no copyright protection.
However, Bill Starkov (founder of the Apocalyptic Apes NFT project) believes that a correction “is super healthy for crypto/NFT space,” as I asked him. The Queen Apes collection, which was female-led, raised more than $1.5 million. It sold out in less than three hours just before the downturn. The downturn is being used by investors in the space to shop NFT like it’s Black Friday. Recently, 15 Queen Ape NFTs revealed themselves to be one-of a kind music NFTs that are paired with songs from emerging musicians. Starkov stated that this is an excellent opportunity for emerging artists to promote their music and attach themselves to a loyal, passionate NFT community. We’re also giving a generous revenue sharing of 45% streaming to Queen Ape music NFT holders. This is a chance for emerging artists to get introduced to thousands who will be incentivized and promoted them.” DeadFellaz and Gutter Cat Gang are other female-led NFT projects.
PolyientX, a Web3 innovator that provides tools to increase value and utility from NFTs has launched a product that allows NFT holders to claim weekly rewards for selected projects. Nick Casares, PolyientX’s Head of Product, stated that two things have become painfully obvious over the years we have been innovating within the NFT space.
“NFTs offer tremendous growth potential, and NFT communities desire additional value.” These opportunities can be combined with PX Drops.
Madonna, the pop star and author of Sex, collaborated with Beeple to create three NFTs that featured her nude avatar and environmental themes. Mogul and Jim Jones, hip-hop’s legend, teamed up to create an NFT. Katy Perry, the musical legend, offered her De Soi NFTs through FlickPlay — “a social Metaverse platform that is interoperable, with Tik Tok like engagement, Pokemon Go-esque gameplay and AR camera features designed to offer real-world utility for digital NFT accessories,” Pierina Merino (FlickPlay’s CEO) explained to me.
Miguel Cabrera, a baseball legend, partnered FlickPlay. Ty Jerome and Andre Drummond were basketball stars who teamed up with Chibi Dinos. Dennis Rodman, a former basketball champion, partnered Jeff Hood of MetaCurio. OKX was also involved in the launch of their NFTs.
Co-founders Joseph Schiarizzi and Patrick Gallagher explained that Treasure.Chess.com was a Web3 startup that established Treasure.Chess.com with Chess.com. This marketplace allows the creation, sale, creation, and collection of NFTs for chess games.
You don’t have to be a star, legend, or celebrity to get noticed in the metaverse. Simone Berry and Akbar Hamid, co-founders of People of Crypto Lab, (POC), are creative and innovation labs that promote diversity, inclusion, and representation in Web3. Its mission is the creation of a metaverse blueprint for inclusion in Web3 through investing, developing and promoting brands that have diverse stories, teams, and projects. Berry explained:
Web3 will only be able to scale if inclusion and diversity are embedded in the foundation of what’s being built. People of color, black women and LGBTQIA+ have a combined spending power that is unparalleled and a cultural influence that surpasses any other community. Web3’s culture is what drives commerce. We need to educate and onboard these communities to ensure a prosperous future.
Meta, Apple, and Microsoft are the leaders in metaverse technology development. Epic, a Web3 game developer, hosted Ariana Grande’s metaverse concert. It has seen unprecedented worldwide scale and revenue throughout the pandemic. It is also involved in a patent infringement suit with Utherverse, and has stated that it will fight Apples and Google to keep Metaverse open.
Fidelity launched 2 exchange-traded funds for investing in metaverse Web3 technologies. A16z launched its 4th fund, valued at $4.5 billion.
Tri Pham, co-founder of KardiaChain founder of Whydah, said to me that KardiaChain was the first decentralized, interoperable and self-optimized Blockchain infrastructure. To create a platform that unites all the strengths of participants, we aim to build the foundation for global Blockchain mass adoption.
Public consultation document of the OECD on digital assets
The challenges countries face in relation to cross-border tax, money launder, consumer protection, and personal data legislation include digital assets and businesses that have been established in the Metaverse. The Organization for Economic Cooperation and Development (OECD), published a document for public consultation on March 22nd on a global framework for fiscal transparency. This would allow for the exchange of information and the presentation of reports regarding crypto assets. The document also proposes amendments to Common Reporting Standard (CRS), which would allow countries to automatically exchange information about financial accounts.
The new framework will allow tax authorities in participating countries to better monitor transactions made on foreign cryptocurrency exchanges by residents. It is expected that the CRS will be adopted by most, if not all of the more than 100 countries involved.
The United States has already taken measures to require taxpayers to report digital tax information.
Related: How to claim tax losses from the US Internal Revenue Service
The crypto industry urged OECD to implement the framework over time at a May 23rd public consultation meeting.
These views, thoughts, and opinions are solely the author’s and do not necessarily reflect the views or opinions of Cointelegraph.
Selva Ozelli, Esq. CPA is an international tax lawyer and certified public accountant. She frequently writes about tax, legal, and accounting issues for Tax Notes and Bloomberg BNA as well as other publications such the OECD.