The American Treasury recently stated that all sales over $10,000 in relative value of NFTs need to be reported to the IRS in a new attempt at regulating the cryptoworld due to the belief that “Cryptocurrency already poses a significant detection problem by facilitating illegal activity broadly including tax evasion.”1
This narrative is nothing new to the cryptoworld; we’ve heard for years about how the anonymity the blockchain offers users, encourages illegal trades, money laundering and such. What is new, however, are the regulations that are beginning to filter in and impacting marketplaces like our own, as well as others such as Opensea, Rarible and more out in the metaverse.
Can nations ban Crypto?
India, Turkey and China are some of the nations currently trying to ban crypto.
The People’s Bank of China, the nation’s central bank, says it plans to “block access to all domestic and foreign cryptocurrency exchanges and (Initial Coin Offerings) websites.”2
In March, India announced they were drafting new legislation which includes not just banning the use and trading of cryptocurrencies, but also the seizure of digital assets.3
The knock on effect of these very public announcements, reports and media interest, in a world where those writing laws and articles are uneducated in the decentralized world of blockchain is that coin and token prices plummet, people stop buying NFTs and fear strikes right into the heart of our communities.
The continuing knock on effect
Knowing your customer (or KYC as it’s fondly known in the acronym world) is a big thing right now and crypto companies are having to find ways to prove the identity of buyers who appreciate the ability to hide their identity.
It’s a catch 22 situation as the ones with the large wallets, or the Whales as they’re more widely known, are people who hold a significant amount in not only cryptocurrencies, but in very high valued NFTs. Their anonymity allows them to live outside of the Forbes 2021 rich list, thus staying out of the media spotlight so they don’t fall foul of scammers, hackers and thieves.
On the NFT marketplace side of the fence, we, and others in our industry, are also facing a dilemma as we are seeing reduced activity, declining token prices, and sales that are unable to be completed because bidders or buyers are failing the KYC checks we now have to do in order to comply with legislations that are coming down the line.
The most recent example of where this impacted us here at Terra Virtua HQ, is with the auction of The BR8VE by the insanely talented VESA. 1 bidder, $500k and a heartbroken artist who put everything into the creation of this masterpiece as the bidder failed our compliance checks.
The legislation being implemented by nations around the globe in order to regulate our industry is only going to continue and we need to work out how to limit the impact that it has on not just our business, but all businesses in the crypto and NFT space.
The reason this is so important is that for the first time, content creators have the ability to really own their IP and be paid fairly on not just the primary sale, but the secondary market too, a market that has never been accessible to them before.
So, as we, and other marketplaces in our space adapt to ensure we meet the relevant legislations, please do be aware that some extra checks may be required when buying or bidding on high priced items. It’s not us being pernickety; we’re just doing what we have to, to ensure we stay within the laws as a business operating around the globe, while also trying to protect our incredibly talented artists and creators from the heartbreak of finding out their buyer isn’t able to complete the purchase.