Can NFTs be Used as an Instrument of Tax Evasion?

The dawn of decentralized finance ushered in a world of possibilities for blockchain users. Even more astounding was the ability to create Non-Fungible Tokens (NFTs), billed as one of the best enablers of blockchain’s mass adoption. Being a very young innovation, the current range of uses for NFTs and blockchain at large are just a scratch on the surface. The applications are bound to increase over time with the potential to touch on people’s everyday activities. Can those with ill intent utilize the unique features of NFTs to evade tax? Read on to find out. Understanding the Nature of NFTs An NFT is a unique unit of cryptographic data or asset stored on a blockchain that can’t be interchanged with a unit of another crypto asset. Unlike other types of digital assets on the blockchain, the underlying metadata can’t be replicated and is therefore always unique to a specific NFT. This uniqueness makes NFTs so different from cryptocurrencies and other tokens. For starters, it can’t be used as a currency or unit of exchange since currencies must be fungible (interchangeable) with units of each other. However, it is perfect for use as a digital representation of unique assets due to its non-fungibility. Possible Avenues of NFT Based Tax Evasion There are some possible avenues through which NFTs can be used to evade paying taxes. They include; Failure to Report NFT related Proceeds as Income NFTs and their marketplaces are increasing...