The popularity of non-fungible tokens (NFTs) soared in 2021. Multimillion-dollar sales of the blockchain-based ownership certificates featured everything from an autographed tweet to virtual sneakers. Not everyone is impressed. The steep carbon footprint of the digital assets irks environmentalists; their opacity worries those combating money laundering and tax evasion.
The art market already provides opportunities to launder money. Secrecy is pervasive, a US Senate report found last year. But the difficulty of transporting and storing art does not apply to NFTs. By buying and reselling NFTs, criminals can move coins linked to illicit activities into wallets unrelated to them.
Sales of individual NFTs at record prices are too high profile to be suspect. But tax authorities do not have a good grip on the NFT market. It is worth $14bn this year and growing fast, according to Jefferies. NFTs were invisible by design, said Internal Revenue Service boss Charles Rettig earlier this year, as he warned that cryptocurrencies were contributing to a $1tn yearly shortfall in US tax revenues.