Most people are more familiar with Fungible Tokens such as Bitcoin, Ethereum, Ripple and other cryptocurrencies. But, for good measure, cryptocurrencies are a digital currency. Transactions are verified and records maintained by a decentralised system using cryptography rather than a centralised authority.
Cryptocurrencies, as well as NFT's, run on the technology known as a Blockchain. Blockchain is a system of recording information that makes it difficult or impossible to change, hack, or corrupt the system. Meaning that there is safety and protection in the way this database operates. By its very nature, the system makes an irreversible timeline of data when implemented in a decentralised manner. This means that a significant degree of trust and certainty build into the system, which the perhaps traditional way of transacting has fallen short on. The result often was a denial of agreement or how reached it.
However, Non-fungible tokens (NFT's) are relatively new. As digital artist Mike Winkelmann, better known to some as Beeple, recently sold his NFT digital art collage "Everyday: The First 5000 Days" for over $6.5 million at auction.
With regards to NFT's, it has "tokenised" artwork to create a digital certificate of ownership that can be bought and sold on a Blockchain as with Bitcoin or Ethereum. However, unlike cryptocurrencies, the NFT still retains its uniqueness. NFT's are thus a "one of a kind" asset in the digital world that can be bought and sold like any other piece of property. Its application in the entertainment sector means that it holds the potential to be very beneficial for the specific artist or musician involved, where the artist or musician can be compensated for their work by taking a cut from any future sale of the digital token that has been created. A "smart contract" can be described as a self-executing transaction written in computer code and performed automatically. This could therefore create an opportunity to apply the principle to other assets, perhaps even fixed property. It may also allow the general public to own assets they may previously be excluded.
At the moment, although still very unclear, from a tax perspective, the South African Revenue Service (SARS) is of the view that cryptocurrencies are not regarded as legal tender. For purposes of income tax or capital gains tax, but rather regarded as intangible assets which can value to ascertain an amount received or accrued for tax purposes.
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