Traders Are Selling Themselves Their Own NFTs To Drive Up Prices (engadget.com) 146
The NFT marketplace is rife with people buying their own NFTs in order to drive up prices, according to a report released this week by blockchain data firm Chainalysis. Engadget reports: Known as "wash trading," the act of buying and selling a security in order to fool the market was once commonplace on Wall Street, and has been illegal for nearly a century. But the vast, unregulated NFT marketplace has shown to be a golden opportunity for scammers. The report tracked instances of the same traders selling the same NFTs back and forth at least 25 times, a likely incident of wash trading. It identified a group of 110 alleged NFT wash traders who have made roughly $8.9 million in profit from this practice. Researchers also discovered significant evidence of money laundering in the NFT marketplace in the last half of 2021. The value sent to NFT marketplaces by addresses associated with scams spiked significantly in the third quarter of 2021, worth more than $1 million worth of cryptocurrency, according to the report. Roughly $1.4 million dollars of sales in the fourth quarter of 2021 came from such illicit addresses. "NFT wash trading exists in a murky legal area. While wash trading is prohibited in conventional securities and futures, wash trading involving NFTs has yet to be the subject of an enforcement action," wrote the authors of the report.
Unregulated finance (Score:5, Insightful)
means that all the tricks made illegal in past can be used again.
Who, except the scammers, would think that is a good idea?
Re:Unregulated finance (Score:5, Funny)
But dont forget, its The Man who wants to steal your money, not these people
Re:Unregulated finance (Score:4, Interesting)
That's the beauty of DeFi: The Man is now decentralised. The kind of grift that was previously only available to the ultra-wealthy is now available to the merely-affluent.
Everyone knows that the problem with the old neoliberal financial system was that not enough people got their turn to be the boot.
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Re:Unregulated finance (Score:5, Interesting)
I know it's meant as a joke.
But this is seriously what I don't get about everyone warning you about everything:
Why can't they BOTH want?
It's always as if saying "but it's really the government that's evil" means that corporations aren't. Or as if saying "corporations want to exploit you" means the government doesn't. But most of the time, what we see is two evils fighting over who gets to enslave us. Maybe we've all seen too much Hollywood with the good vs. evil cliche?
Re: Unregulated finance (Score:2)
Good vs evil is ingrained into the Abraham religous areas. It is a core concept of all religions of Abraham.
Other cultures have a more open view of their gods that are more blended and less clear cut.
If you dont know what is a religion of abraham, then you havent studied them enough.
Re: Unregulated finance (Score:5, Interesting)
Interesting that you should bring up religion, especially Abrahamic religions into a finance discussion. Those religions typically have a belief that God will punish people who do wrong. This enabled people of those religions to trade much more freely at a time when governments were not as strong. Without a strong government to enforce contracts and punish fraud and the like, there was much more risk in traveling to a distant village where you did not know anyone and trading. But if both parties knew that the other believed in a God that would punish bad behavior, they could better trust in each other.
Even in Christianity, where forgiveness is a central tenet, what tended to be preached for many centuries was very "law" based -- if you sin, you will be punished (unless you had money, in which case you could buy your way out of Hell). It wasn't until the 1500s, when at least in Europe there were stronger governments to enforce good behavior, that protestant revolution occurred, which reintroduced the "gospel" part to the religion.
I haven't made a thorough study of this; I've just heard the concept in a podcast, and it was intriguing. As the podcast pointed out, the system is somewhat Darwinian. It's not that the religions were designed to meet this need, but because they did, they and the societies that embraced them thrived at the expense of other belief systems and societies.
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Good vs evil is ingrained into the Abraham religous areas. It is a core concept of all religions of Abraham.
That is true, though they didn't appear out of nowhere, either. Ancient Greece had a much more nuanced view, and so did Ancient Persia and Ancient Egypt. So where in the desert inbetween was the ability to think in shades of grey lost?
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I think the applicable cliche is "Two wrongs don't make a right."
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But dont forget, its The Man who wants to steal your money, not these people
Well ...
NFTs: I point, laugh, and ignore. And lose no money to them at all.
The Taxman: Not so much.
(Those notorious right-wing fanatics The Beatles agree with me ... )
You know how to end this shit? (Score:5, Insightful)
Just charge them sales tax, and make sure they report the sales on their taxes. That shit will end in an instant.
Re:You know how to end this shit? (Score:4, Insightful)
Just charge them sales tax, and make sure they report the sales on their taxes. That shit will end in an instant.
Oh, this will happen sooner than later, IMHO. Purchasing a digital asset is a taxable event, so every time you shuffle your NFTs between wallets you end up owing money to the tax man - and he doesn't take crypto.
Making purchases between accounts you own, in a medium where all transactions are public and forever recorded is... well, not smart.
Re: You know how to end this shit? (Score:2)
Transferring money between your own bank accounts is not taxable.
Re: You know how to end this shit? (Score:5, Insightful)
Ah, but crypto is not money. The IRS classifies it as property - so you're buying, and holding, an asset. Which is indeed a taxable event.
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Which, you are. You're effectively trading tokens (assets) with yourself.
Re: You know how to end this shit? (Score:3)
You canâ(TM)t sell an asset to yourself. You can only move it between accounts. Which is not taxable.
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You're acquiring assets every step of the way. These cannot normally be written down as expenses.
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Nope its a capital gain.. at least here in australia. You bought it for $1500 sold it for $2000, you pay tax on the $500 gain. Which you can only offset with capital losses on the same asset type. So if you originally bought it for $1 then sold it to yourself 10 times and then sold it to a sucker for a million, you are still paying tax all the way up.
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Are you sure? If you have a thinly traded stock and put a sell orders at a high price and then had a buy orders at a different broker capturing those high prices I bet your paying tax on those wash trades.
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Even if it is a taxable event, you get taxed on profit right?
No, sales tax is based on the purchase price, regardless of how much profit anyone made.
Re: You know how to end this shit? (Score:2)
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Just charge them sales tax, and make sure they report the sales on their taxes. That shit will end in an instant.
No, it won't. This is a very old scam. We've see it countless times, from fine art and old coins to comic books and video games. If you think an additional 6% is going to make any difference, you're out of your mind.
They're taking something worth nothing and driving up the "value" potentially into the millions.
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No, it won't. This is a very old scam. We've see it countless times, from fine art and old coins to comic books and video games. If you think an additional 6% is going to make any difference, you're out of your mind.
Not really, but it shows that you don't understand how the scam works.
I heard about this happening quite some time ago earlier, when a NFT was traded with the funds originating and being delivered to the same wallet in the same block, through some sort of instantaneous loan scheme. Basically, obviously a wash sale if you examined the crypto flow. Remember, crypto is NOT anonymous; everything can be tracked forever!
Okay, to explain why a sales tax would certainly work to discourage this stuff, if it's char
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Not really, but it shows that you don't understand how the scam works.
I was thinking the exact same thing.
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Corporations are doing so much better at controlling our lives.
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Could you please tell the Social Security Administration that you will renounce any Social Security and Medicare for your future self. Also contact the FAA and tell them they need not ride shotgun over any airlines you may use. Come to it, please also inform the FDA not to bother requiring the reams of studies for any drugs you be needing to take as you get older. Joe's Fish Bait and Real Drug Supplies are good enough for you and your kin. And don't leave out OSHA, you do not need no stinkin' workplace heal
just wait for them to do hardtime and get asked (Score:2)
just wait for them to do hardtime and get asked what are they in for?
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That's how it's designed to work. Code is law, and if they code is buggy then exploiting it is completely legal and expected behaviour.
Actually that's kinda like the real world with loopholes in real laws, as often as not put there deliberately.
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Seriously, watching the scammers, pumpers, etc move from penny stocks into crypto using the exact same tactics has been pretty fascinating.
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I'm old enough to remember this scenario with junk bonds, history repeating.
Re: Unregulated finance (Score:2)
Is NFT even finance? It sounds more like trading baseball cards.
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Of course they are. (Score:2)
It's almost as if (Score:2)
I've said it before and I'll say it again, regulations are written in blood. The only question is whose blood and how many people are going to jump out of Windows over this?
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how many people are going to jump out of Windows
Very few if they keep moving the latch every new version.
Re:It's almost as if (Score:5, Interesting)
There is a softer and more slow-motion form of wash trading that is already rampant in the "legitimate" art market. Ultra-wealthy people with a large collection of, say, Andy Warhol prints, will buy another at a highly inflated price because it makes their existing collection worth more. If you can successfully claim that NFTs are "art" rather than securities, it seems likely that this might resist regulation for a bit longer than we might hope.
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There's nothing soft about the wash trading in the art market. I guess it's slower though.
Everyone in art knows it's corrupt as hell, and most of them will freely admit it.
That really isn't a wash sale though? (Score:2)
I gotta say though, even if the owner of a bunch of paintings buys another to "increase the value of his collection", even at an inflated price, that still isn't a "wash sale". It'd be a wash sale if you took your $1M(invested) art piece and sold it to your non-estranged wife for $10M(on paper), with the $10M coming from shared funds and going right back to shared funds. You announce that you "sold" that piece for $10M to an unnamed buyer. Later, you offer different pieces of art from that collector to t
The Wild West (Score:5, Insightful)
This gets back to the most basic thing to understand about cryptocurrency and the whole economy surrounding it. The whole point of crypto is to recreate the existing economy but call everything by new names so they can claim existing laws don't apply. The main reason those laws were enacted is to keep con artists from robbing everyone else blind. Maybe crypto will succeed and maybe it won't, but nobody should put any money they can't afford to lose into crypto until there is some reasonable regulation in place.
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nobody should put any money they can't afford to lose into crypto until
Wrong tense. Nobody should put any money into crypto anymore.
Like any good pyramid scheme, you could seriously profit from it as long as you got in early. It's not early anymore.
Do I wish I bought a ton of Bitcoin back when they were a few bucks? Sure I do. Am I stupid enough to think that means I should buy a ton of them now? Hell no!
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Ya, like the housing bubble of the 2000s or the current round of inflation.
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When they go belly up, and there will come a day they implode with 100% certainty, the crypto market loses probably 80% plus that day. Maybe more.
Really? (Score:5, Funny)
Researchers also discovered significant evidence of money laundering in the NFT marketplac
A completely unregulated market is complicit in money laundering? Who could have possibly seen this? It's unimaginable.
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Not really. You just have to break the chain that leads from the crime the beneficiary. It doesn't matter if the beneficiary looks shady, what matters is what you can prove.
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Money laundering is when you use a legit looking business to clean money for a shady enterprise. Is the NFT marketplace supposed to be the legit looking business or the shady enterprise?
NFTR marketplace is mutual mental masturbation. As legit as that love affair you and that woman you saw on Pornhub are having.
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NFTR marketplace is mutual mental masturbation. As legit as that love affair you and that woman you saw on Pornhub are having.
Seriously, a doubt of investment for any reason is seen as being a plant for The Man.
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NFTR marketplace is mutual mental masturbation. As legit as that love affair you and that woman you saw on Pornhub are having.
Seriously, a doubt of investment for any reason is seen as being a plant for The Man.
I could be yaknow!
The definitive video on NFTs (Score:2)
Here is the best video on NFTs I’ve seen.
Strap in, it’s a wild ride.
https://youtu.be/YQ_xWvX1n9g [youtu.be]
NFT = New Fool Theory (Score:5, Funny)
If you hype it enough, they will come!
Um, this is news? (Score:5, Interesting)
Wash trading is rampant in the NFT world. A lot of people are going to face an interesting tax season this year, because if the IRS happens to link you to the wallets used to pump your ape jpeg, each and every transaction between them counts as a taxable short-term gain.
Mind you, this is not exclusive of the NFT scene either. People launching new cryptocurrencies/tokens actively tell you about their plans to pump their value nowadays. It's considered a good sign!
Re:Um, this is news? (Score:4, Informative)
Exactly. [youtu.be]
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God, that video is so good.
It was hilarious to see a shitload of YouTube crypto shills coming up with replies boiling down to "ah, this guy is wrong! come debate us!".
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Folding Ideas is one of my favorite YT channels. I realize this video is slightly biased, but the points he's making are pretty salient and sensible. And he's funny as hell.
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He's basically right in this video but my god he put in a lot of crap nobody cares about at the beginning, it was like a college student's first term paper. Yes a large part of the crypto craze is people who realized the system is rigged in 2008, that's all that needs to be said, move on.
It's quite relevant to the overall point he's trying to make. Olson is not the first person drawing parallels between the crypto market and the 2008 subprime crisis. [nytimes.com]
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Wash trades are always at a loss. There's no tax liability. A wash trader with a good accountant could even carry the loss forward to later tax years to defray actual gains.
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Eh, I don't think that really applies here, though it might. Technically you're not re-acquiring the NFT at a later date since you're selling it to yourself. There's t=0 amount of time between you owning it and then owning it again as you sell it to yourself. You have to pay exchange fees to carry out these transactions which affects your cost basis.
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You're probably a nice guy but you are out of your depth in this conversation and you should avoid talking about crypto in general because it makes you sound like a fucking idiot. And yes I see you are modded up to +5 which means you're
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I can understand how dumb people will think that wash trading is rampant. Look at the numbers though. If $1M seems rampant to you, you're a hick, and if you're not considering the real cost in gas fees of moving floor price for a nft collection, you're a retard. No offense.
Fuck you, i do take offense. Did you even bother to READ the articles linked to this story? Because yes, people do spend a shitload of money in ETH gas fees and, yes, most do this at a loss. This is people trying to make a profit of shitty procedural JPGs, so we're not exactly talking about quantum physicists here.
Not yours, though. Yours are super cool dude.
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The crypto markets are global. The IRS may count this as a taxable event, but the IRS is meaningless in the rest of the world.
This is not a taxable event in my country.
Re:Um, this is news? (Score:5, Interesting)
You're not just moving, you're paying to inflate your asset price. It's effectively a sale.
If you mint a shit NFT and sell it to yourself for, say, 50 ETH (roughly $3000 at current prices). The wallet that you sell from, which you own, has now a recorded $3000 short-term capital gain. These are normally taxed at ~30%, so you now owe the IRS $900. Do this a couple times, back and forth between wallets, and you can pump your NFT to a (artificial) very high value. The problem is that you'll rack a shitton of tax debt in the process.
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You're not just moving, you're paying to inflate your asset price. It's effectively a sale. If you mint a shit NFT and sell it to yourself for, say, 50 ETH (roughly $3000 at current prices). The wallet that you sell from, which you own, has now a recorded $3000 short-term capital gain. These are normally taxed at ~30%, so you now owe the IRS $900.
No, you don't. You offset that with the money it cost you to make that capital gain. Net is zero, tax is zero. It's a wash.
Do this a couple times, back and forth between wallets, and you can pump your NFT to a (artificial) very high value. The problem is that you'll rack a shitton of tax debt in the process.
No, what you pay is subtracted, what you make is added; it's a wash in the eyes of the IRS.
What isn't a wash is if you're using the NFT trading to launder money: you buy a NFT for pennies, sell it to an anonymous wallet (which actually holds the proceeds of your illegal activities) for thousands, and claim you made thousands. THAT you will pay tax on.
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What was missing from my original example is the fact that every back-and-forth buy increases in price - which is, of course, the overall point of wash trading. And yes, every time you sell stuff within wallets you own, at increasingly inflated prices, is an individual taxable event.
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But each purchase is an expense that you can count against your taxable income. Certainly each gain is taxable, before deductions. But it also still adds to zero.
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But each purchase is an expense that you can count against your taxable income. Certainly each gain is taxable, before deductions. But it also still adds to zero.
Nope. It's only an expense if you are using it as a part of the business activity. E.g. you can write off the gas for your car or the ISP bill. But not something that you intend on reselling.
E.g. if I'm a grocery store and buy a crate of oranges, then there is no taxable event. I then sell the oranges and I will pay taxes only on the profit from the sale. If there's no profit (because I was forced to sell below the cost), I can use the loss to offset the tax.
So yep, people doing wash sales are in for an
Re: Um, this is news? (Score:2)
Nope. It's only an expense if you are using it as a part of the business activity.
That's not even remotely how capital gains tax works. The GP even explicitly said capital gains, but I can't begin to imagine why THEY don't know capital gains tax is on gains.
Crypto and NFT sales are subject to capital gains tax. That's what I read anyway, this thread is making wonder if anyone knows, or if it's just a bunch of ignorance about capital gains tax. Your minds will really be blown when you learn capital losses are also subtracted, geez.
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Re: Um, this is news? (Score:2)
The IRS will be dealing with curiouser and curiouser tax returns for sure.
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No tax until you sell [Re:Um, this is news?] (Score:2)
No, you don't. You offset that with the money it cost you to make that capital gain. Net is zero, tax is zero. It's a wash.
No, it is not. You end up with an artificially inflated asset (a NFT, valued in USD) as well.
But you don't pay capital gains tax on the value of the asset until you sell it.
(That's the number one way that billionaires avoid taxes).
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But they do sell it, many times.
Each time one of their wallets sell it, they have to pay the tax on any profit that wallet made from the NFT. So while they can deduct the price for which the wallet bought the NFT, any price inflation they produce will still be taxed.
Now if they are inflating only a single NFT, and they manage to sell it to a different sucker in the end, they will still have a real profit, and will be able to pay the taxes from that.
But what happens if they just inflate the price of a lot of
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You don't pay capital gains tax on your profits until you sell the asses for a profit. Selling for a profit requires selling it to somebody else. A wash transaction is always a wash, and by definition does not make a profit.
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You're not supposed to pump up the value and hang on to it. You're supposed to pawn it off on some sucker. That's how the scam works!
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...if you even can sell the pumped NFT to begin with. Everyone and their dog are minting these days.
Re: Um, this is news? (Score:2)
If you mint a shit NFT and sell it to yourself for, say, 50 ETH (roughly $3000 at current prices). The wallet that you sell from, which you own, has now a recorded $3000 short-term capital gain. These are normally taxed at ~30%, so you now owe the IRS $900.
You keep saying capital gain, but that's not how capital gains tax works?
If you hold it under a year, it's short term capital gains, otherwise the tax is much lower long term capital gains. You subtract the cost basis, the amount you pay, from the amount you sold it for. You pay taxes on the gains. After you subtract all your losses that year. If you have more losses than gains in a year, you can roll those into next year, they don't expire. You only pay tax on net gains.
Wash trading common, doesn't really work (Score:5, Informative)
In most crypto markets, it's easy to spot wash trading: mysterious low-volume transactions that occur without ever appearing on the books long enough for anyone else to fill the buy or sell offer. By definition, these trades are low in volume. Price discovery achieved through wash trading is flimsy. It doesn't hold up to serious volume. You can sucker people who are impatient and desperate to buy/sell by goading them in a particular direction with wash trades and other forms of order book manipulation. For the patient and/or for those trading in larger volumes, such shenanigans are of little threat.
NFTs are different in that there's only ever one copy of any given NFT, so its price history will be defined by low-volume trading. Still, a disciplined trader will know better than to chase an NFT whose value outpaces the rest of the market for no discernible reason.
Truth be told though, NFTs are purely-speculative anyway, having no utility function whatsoever (versus numerous blockchain tokens that are at least nominally useful for on-chain governance and other applications). Probably best not to trade in NFTs.
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In most crypto markets, it's easy to spot wash trading: mysterious low-volume transactions that occur without ever appearing on the books long enough for anyone else to fill the buy or sell offer. By definition, these trades are low in volume. Price discovery achieved through wash trading is flimsy. It doesn't hold up to serious volume. You can sucker people who are impatient and desperate to buy/sell by goading them in a particular direction with wash trades and other forms of order book manipulation. For the patient and/or for those trading in larger volumes, such shenanigans are of little threat.
NFTs are different in that there's only ever one copy of any given NFT, so its price history will be defined by low-volume trading. Still, a disciplined trader will know better than to chase an NFT whose value outpaces the rest of the market for no discernible reason.
NFT's are a form of "art" (well speculation masquerading as art), meaning the value of a piece is set by the community. The price you pay for a piece is influenced by the market price for similar pieces. So lets say you went through the history of every similar piece to eliminate the ones driven up (even slightly) with wash trading. How do you know that the legitimate buyers of the remaining pieces you look at weren't themselves influenced by the prices set in wash trades of other pieces?
Wash trading doesn'
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The answer is, "buy none of them". If the market's price discovery is that poisonous then just don't spend any money.
They sell NFT's (Score:2)
Not murky, just straight-up illegal (Score:3)
"NFT wash trading exists in a murky legal area."
Um, yeah, no.
It's not murky, it's just straight-up illegal.
See the full report from Allen & Overy here [allenovery.com].
It will be interesting to see when some enforcement hammers start coming down on this type of illegal behavior. But there is no question whatsoever that it is, indeed, illegal.
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NFTs aren't virtual currencies.
Who else would pay $20M for junk? (Score:2)
shocked. (Score:2)
Jump the shark nuke the fridge (Score:2)
HONK HONK HONK :slap:
Waiting for the NFT Bozo Show to come to it's spectacular crash and burning end.
Now it's a market in pictures of tulips (Score:2)
Who knew that such a thieves' bazaar would spawn exponentially more exravagant kinds of deception?
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Is stupidity was an olympic event (Score:2)
NFT "investors" would be strong contenders for gold
Heard this story before (Score:2)
Good and this is why (Score:4, Interesting)
NFTs serve no useful legitimate purpose.
Their buyers deserve to be defrauded because they are bad people for promoting such nonsense. The appropriate response is laughter.
I for one will remain unaffected because I don't play that shit.
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NFTs serve no useful legitimate purpose.
Their buyers deserve to be defrauded because they are bad people for promoting such nonsense. The appropriate response is laughter.
I for one will remain unaffected because I don't play that shit.
Is it not the sellers who are bad people?
The buyers are just gullible, buying into the latest ponzi scheme. I've had plenty of people - my wife included - ask if they should buy NFTs because "they're the next big thing." It's not until you explain what an NFT is (well, isn't, really since they're No Fricking Thing) and what crypto really is that these people say "oh, that's not good."
news at 11 (Score:2)
Of course they do. I'm sure that's the top of the iceberg. NFTs are essentially a scam, or at least a tool that has vastly more scamming than honest use-case potential, so we shouldn't be surprised that the whole thing is neck-deep in shit, trickery, deceit and get-quick-rich scheming.
The real question is: Why do we on /. care for that?
Wonder how taxes will hang people? (Score:2)
If you pump your NFT from $1 to $100,000 by trading amongst your sock puppets, then you'll owe capital-gains taxes on the gains between where you first bought in and where you last sold out (and bought in, obviously). Then, since the value provided is more artificial than normal, you risk having the NFT drop back to $1. If you happen to figure out in January of 2023 that you owe taxes on $99,999 in gains, you can sell your NFT for $1, and ... you're in some trouble.
Of course, having sold for $1, now you h
Smart folks knew something was up (Score:2)
Non-fungible Tokens...the name itself says it all. How could you possibly trust anything with most of the words "toe" and "fungus" in the name?
Such an amazing thing! (Score:2)
Oh, cryptocurrency, is there nothing you can't turn into a scam?
This brings new meaning (Score:2)