Sunday Afternoon Open Thread: Goldbricking NFTs

But it’s not just self-delusion (or money laundering) — there’s also scamming the (other) marks! Best explanation of this I’ve seen so far:

Extracts from the longer thread:

Step 1: you draw or have an algorithm create 100 images. You pay to have these coolminted into NTFS. They are, of course, not very valuable and you’d be unlikely to make money selling them. What a shame.

Step 2: you take out a loan and go to Bob. You say “Can you buy this NTFS for me? You don’t need to pay for it, I’m gonna hand you 5100$ and you just turn it into ethernet points and buy it. It’s worth 5000$ so I’ll let you keep the extra 100$”

Bob, of course, agrees.

So Bob buys your NTFS and you get 5000$ back (minus some overhead) , which you turn back into cash, which is of course outside of the EthernetPoints ecosystem.

You now go to Alice, and make her the same offer, but on a different NTFS in your batch. You up it to 6000$ this time. She buys it, you get the money, and all that was lost was some overhead fees and some payment to Alice to do this.

So after doing this for a while, you approach Mark and say “hey look, I’m making these NTFS things and I’ve only got one left. If you look at how much they’ve sold for, it’s 5000-10000$, and prices are going up. You can resell them anytime to get your money back.”

But for you, I’ll give you a discount. You can have this mspaint squiggle for only 4000$. A bargain!

Mark isn’t sure. This doesn’t look like something that’s valuable.

But you can point mark at the transaction history, perfectly preserved in the borkchan: you NTFSes have sold for 5000$ each, 10000$ each, resold for even more!

You’ve got a “market cap” of 5 million dollars!

Because what the borkchan doesn’t know (and can’t know) , is that you used the same money over and over again to purchase EthernetPoints, transfer it around, then cash it back out…

This is an old type of scam, usually called a “gold brick scam”, where the mark is sold something they think is valuable, but turns out not to be. Often you have someone pretending to be an expert, who helps convince the mark that it’s valuable…

And here is how the IRS is going to hopefully stop this:
They’re going to require reporting of these transactions. They’re going to de-anonymize the big cash transactions, and what’s worse, they’re going to consider these things investments and tax you on them.

And now, you have a bunch of worthless NTFS that you were going to scam people with, and the IRS is going to say “because that’s something you could convert into cash, it’s a taxable investment. And clearly it’s worth 10,000$ as you say, because we can see the transactions too”

And you’re going to pay taxes on it like it’s actually worth the inflated amount you were claiming it was worth.

And this is going to destroy the profit potential in this scam, at least in the US. And while you could try to structure it so that all your transactions happen outside the US, I wouldn’t try it. The IRS can see all of them, they’re public on the borkchan…

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