Digital art frenzy raises questions for tax, law enforcement
Caitlin Reilly, 13 April 2021
The sale last month of a digital piece of art for a near-record price raises new questions about a technology that the financial sector sees as offering great opportunity.
Christie’s auctioned the artwork for $69 million and recorded the transaction on a public blockchain as a “non-fungible token,” or NFT. The digital collage incorporating 5,000 separate digital images was created by Beeple, whose real name is Mike Winkelmann, and can be seen on the auction house website.
The price exemplifies the frenzy involving NFTs, which rely on the same technology that powers cryptocurrencies, including bitcoin and ether. The tokens are unique records that represent another asset. Unlike cash or cryptocurrency, a non-fungible token isn’t completely interchangeable with another.
The flurry in activity and soaring prices of NFTs are raising questions for federal officials about whether the assets are susceptible to money laundering, manipulation or tax evasion. The art world’s experience may also give federal regulators a hint of challenges in the future — as well as a tool to address those challenges. One area of vulnerability is blockchains where both cryptocurrencies and NFTs are bought and sold.
