What You Need To Know About NFTs
Investing in NFT projects, while profitable, can be really complicated. Investors need to have a good understanding of the industry, blockchain technology, how cryptocurrencies work and the risks involved. As a fairly new space it has proved very volatile and complicated to enter. While NFTs are currently splitting the internet, there isn’t currently enough regulation to make NFTs a viable investment for the average person. Investing in NFTs can take a few forms, whether it be supporting a popular project like Bored Ape Yacht Club or the Cunning Wolf Society, Play to Earn gaming or creating and minting your own digital NFT collection to flip.
One of the deterrents to investing is a financial barrier of entry. Play to Earn NFT games like Sky Mavis’ Axie Infinity require an initial investment to purchase the in-game NFTs before any profit can be made.. This barrier has inspired a growth in NFT scholarship foundations. The Axie University in the Philippines started a scholarship with the aim to lend or rent Axies, the in-game NFT characters to keen players to help them get started and bypass the initial investment.
Proceed with caution
“The Line Goes Up” – a feature length documentary by Dan Olson of Folding Clothes on YouTube discusses the viability of NFTs and the longevity of cryptocurrency. Olson, like many other cryptocurrency critics, delivers a rather scathing review of both the NFT and cryptocurrency space, pointing to the flaws and pitfalls of the industry. While it’s clear that Olson harbors some resentment to the idea of decentralized finance and the
NFT heists, or rug pulls have thrived, taking advantage of the lack of regulation. Scammers start creating an online persona using an image of a popular NFT, typically a Bored Ape Yacht Club image, as these have the necessary clout and are fairly expensive. From this foundation, scammers will then attempt to garner a following on platforms like Twitter and Discord, feigning interest in the community and touting what may seem like a worthy cause. Predatory tactics like conditional white listing and constant prompts to invite new members may be employed to scale and hype up the project’s progress. After the project launch, scammers will then typically wait for all of the available NFTs to sell before deleting their online presence, including any community channels or Discord servers, often rescinding the digital assets before they can be minted.
As regulation in this space is still lacking, the scammers can effectively “rug pull” again and again. It’s advisable to really take the time to investigate any NFT projects, their aims and their founders. Though anonymity is encouraged and expected in the cryptocurrency space, the best NFT projects will have some visibility. Investors need to inspect the digital assets for similarities with existing projects, existing road maps and visible founders. Take note of the engagement level in any Discord servers or on Twitter as longevity and regular activity can be a good sign.
Regulation is on the way
Earlier this month, the UK tax authority HM Revenue and Customs (HMRC) seized three NFTs as part of a probe into a suspected £1.4 million in VAT fraud which allegedly involved up to 250 fake companies. The suspects are alleged to have hid their identities using false names and addresses, unregistered mobile phones, Virtual Private Networks (VPNs), and falsified invoices. This seizure “serves as a warning to anyone who thinks they can use crypto assets to hide money from HMRC. We constantly adapt to new technology to ensure we keep pace with how criminals and evaders look to conceal their assets” – Nick Sharp, HMRC Deputy Director of Economic Crime.
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