Part 2: NFTconomics advice on blockchains & regulation
By Elise Lingeridis
Wading through all the NFT information out there’s overwhelming. So, this blog post has collated the NFT essentials around two of the most important NFT issues: blockchains and regulation.
After all, if you’re even considering diving into the NFT space you need to nail the NFTconomics. Even Mike thinks it’s important 🤑:
Which blockchain should I choose for an NFT project?
Anyone entering the space must know which blockchain technology is optimal for minting. The search can be daunting, though, especially for those with no prior knowledge of blockchains and crypto.
Things to consider:
- What is it going to cost you (a.k.a. gas fees)? This can differ from blockchain to blockchain. You need to also consider marketplace limitations. Opensea, for example, will only allow you to mint on Ethereum, but there are others, such as Rarible, let you can choose from Ethereum, Tezos, and Flow. For a list of blockchains, specifically made for artists, click here.
- Does the blockchain company have a future roadmap? How will it be supported, and how can it support you? Here is a roadmap that Flow published a few years back, with things you should look out for. You can also go here for Ethereum’s merge roadmap.
- What’s the commission for minting the NFT? Is the blockchain specialized for certain types of NFTs? For example, Samsung recently decided to drop NFTs on Theta Network, because Theta has “cut a niche as a specialized blockchain for video, media, and entertainment”.
Remember: Each blockchain has its own crypto! That means you’ll be using the cryptocurrency of your selected blockchain for all your transactions.
You also need to keep in mind the Ethereum Merge. This happened in mid-September and merged the current Ethereum mainnet into something called the Beacon Chain. What’s important here is to know that the current proof-of-work mechanism is being replaced by a proof-of-stake mechanism.
Analysts say that it was the largest technological upgrade since the dawn of crypto.
The upgrade affected every product and service that relies on the blockchain, including NFT marketplaces. So for a marketplace like Opensea, which relies on Ethereum, there might have been some anxiety circulating at their headquarters — but the truth is, that things seem to be shining. The total number of traders on the platform increased 9% within the past week, totaling 156,000 unique wallets!
So, look into it. Ethereum could now be a great platform for your project.
Ethereum vs Others: Can anyone actually beat its success?
It’s probably unsurprising to most that Ethereum is crowned the Queen of Crypto. And with it boasting an enormous 224 billion dollar market cap, it’s hard to see how anyone can dethrone Vitalik Buterin’s baby.
However, the general consensus is that there are two main competitors right now, and though they are a long way from even being close to that market cap, they have been gaining traction over the past few months:
Solana might be the only blockchain that passed Ethereum’s NFT trading volume, even if it was for 24 hours. And that it is because it offers incredibly fast speed and lower fees — a winning point for NFT artists, collectors or anyone who enters the space. Moreover, the largest NFT marketplaces like Rarible and Opensea have allowed integrations with the blockchain, and platforms like Meta announced that Solana was one of the four blockchains selected for adding NFT’s to their network.
With the above in mind, it’s clear that Solana is worth giving a shot — and that many people are thinking this way, since Ethereum’s NFT sales are gradually falling. Solana is geared closer to those who want to understand the diversity of NFT’s and experiment, rather than those who are financially driven and are looking for the next great Cryptopunk.
Another blockchain on the rise is Polygon. Although not as prominent as Solana or Ethereum, it’s definitely been gaining traction after securing some massive partnerships with some of the biggest global corporations (coca-cola, reddit). For example, Coca-Cola used Polygon to airdrop generative art NFTs of Coca-Cola bottles to existing Coca-Cola NFT holders to celebrate Friendship Day. Moreover, Polygon is hailed to be one of the most climate-friendly blockchains out there, making it an inviting solution both from individuals and corporates alike.
So the question remains: which blockchain are you going to pick?
What about regulation? What are the legal precedents around NFTs?
While there are plenty of educational articles on the issue of NFT regulation and taxation in the United States (see the video below), the subject remains massively undocumented in Europe.
This is not that surprising. Europe is much further away from mainstream adoption.
Thankfully, there’s a great Medium article with research by Francesca Ducos, stating the rights and duties of NFT holders in Germany. Specifically, Germany has no comprehensive legal framework for non-fungible tokens. She mentions:
German law does not lay down rules explicitly governing NFTs, it does nevertheless provide for several “categories of financial instruments in tokenized form”.¹ This means that, for the time being, the identification of rights and duties relating specifically to NFT ownership will require a checking exercise to ensure that the NFT in question falls within the scope of the relevant legislation.
Essentially, this means that to date there is no legislation specific to NFTs, but larger legislation that takes into consideration several tokenized assets. Furthermore, when it comes to NFT taxes, she says:
Because tax law does not explicitly address taxation of income from receiving, exchanging, holding or disposing of tokens, the traditional taxation principles must instead be applied. Thus, NFT holders will be under an obligation to follow the relevant tax provisions — what these are will largely be determined by the type of NFT they hold, and its value.
For further information on how your NFT should be taxed, it’s advisable to contact a lawyer who specializes in NFTs. To take that first step, you can also read this comprehensive article by MSE.
Baby steps around the world
Nevertheless, there are baby steps that are being taken in other countries. In the U.S, on September 26th, the White House published a fact sheet outlining a new framework and policy recommendations for the responsible development of digital assets.
Part of this fact sheet delineates that Non Fungible Tokens will be evaluated by July 2023, as well as completing an illicit finance risk assessment on DeFi by February 2023.
If the White House is taking such action, maybe other countries will soon follow suit. This could pave the way for a comprehensive set of regulations that can provide confidence to those already in, or wanting to enter, the world of NFTs. (source here)
Meanwhile, in Europe, the European Union has completed the Markets in Crypto Assets (MiCA) legislation. This step amounts to a major achievement in the history of digital assets. It will set out certain requirements by issuers of crypto assets, such as publishing all-inclusive white papers with their technical roadmaps, stablecoin issuers to hold capital, and platforms to register with the authorities — once passed into law.
These texts are called “recitals”. These recitals introduce an EU law and set out its motivation. The situation around NFTs is still vague, however. Since a leaked draft — supposedly — doesn’t apply to unique NFTs, but “the issuance of crypto-assets as non-fungible tokens in a large series or collection should be considered as an indicator of their fungibility,”. This could mean that MiCA could cover only parts of the NFT market but not all of it.
Finally, there is other news that the European Union is planning to introduce the “Metaverse Regulation Project”, which has been hailed as a “key step” by European Commission President Ursula von der Leyen.
So, keep your eyes peeled. Things are changing fast, and they could affect you!