This publication explores the accounting for nonfungible tokens (NFTs) and spotlights accounting challenges that can arise for an NFT seller, purchaser, marketplace or custodian.
Amidst the excitement of this revolutionary technology, it can be easy to think of an NFT as a new product or asset to be sold or held in and of itself. After all, a bitcoin (BTC) or ether (ETH) token is itself a unit of value. Why would an NFT be any different?
A BTC or ETH’s fungibility and acceptance as an independent unit of exchange gives it value in the marketplace, even though it confers no continuing contractual rights or obligations on parties selling or purchasing the token. Conversely, an NFT, by definition and design, represents, and therefore derives its value from, a unique collection of rights and obligations memorialized on the applicable blockchain (e.g. Ethereum, Solana or Flow). For example:
Correctly identifying the rights conveyed and obligations conferred by the NFT and properly assessing them under the appropriate US GAAP is critical to accurate NFT accounting.
Once the rights and obligations and applicable US GAAP are completely and accurately identified, an entity’s accounting for the sale or purchase of an NFT should not, in general, differ from that which would result from a non-NFT arrangement giving rise to the same rights and obligations.