Non-fungible tokens (NFTs) are becoming industry standard, but many investors still do not understand what they are and what they do. According to DappRadar, the trade volume of NFTs in 2021 was $24.9 billion–over $95 million more than in 2020.
What Are NFTs?
Artwork is the most renowned form of NFT to date. Additionally, there are online memes, virtual fashion, music, gaming, charity, huge sporting events, trading cards, and event tickets.
Due to its purported blue-chip position in the cryptocurrency industry and potential reputation for smart contracts, Ethereum is the primary blockchain for NFTs. Markets exist for collector item NFTs, as each NFT is unique.
There are a growing number of markets. A marketplace that allows you to mint, buy, and sell NFTs from different collections is OpenSea.io. People can advertise and bid on their recently issued NFTs in an auction. NFT marketing businesses also assist in marketing your NFTs to receive better prices for them.
What Does Non-Fungible Mean?
What exactly does “non-fungible” mean? Something is non-fungible if it is “not mutually interchangeable,” or unique. There is nothing on the internet, in local storage, or in the cloud that compares to any one NFT. Nothing can take its place.
A bitcoin is interchangeable. You receive the same thing whether you exchange one bitcoin for another. With NFTs, things are distinct.
Jack Dorsey’s first tweet sold for $2.9 million as an NFT.
Thanks to a digital signature granted to the token tied to it on the blockchain, the technology behind Bitcoin, Ethereum, Dogecoin, and so on, no screenshot or download of that tweet can ever be as authentic as the original.
NFTs are desirable because of blockchain’s immutability. Every transaction involving ownership of NFTs is validated and recorded on a blockchain, most often Ethereum. The token indicating that your digital copy is the original enables you to verify you possess an NFT.
NFTs, Present and Future
DappRader reports that the NFT trading volume in the third quarter of 2021 increased by more than 700% from the second quarter to $10.67 billion. Additionally, according to a Morning Consult survey, half of the physical collectors surveyed stated they would be “extremely” or “somewhat” interested in collecting NFTs in the future.
The creator economy is now being fuelled and redefined by the plethora of emerging NFT initiatives.
Through decentralized marketplaces like OpenSea, Solsea, and Magic Eden on the Ethereum blockchain, creators may now profit directly from their fans or following. The decentralization of the internet brought forth by blockchain means that creators are no longer reliant on businesses, agencies, and ads to pay them for their work.
The best part is that NFTs provide creators with the assurance of ownership, giving them greater power over how to monetize their output and audience.
The main benefit of NFTs for artists is that they may continue to make money long after the transaction. An artist, for instance, may use one of their works of art to create an NFT and receive a portion of the proceeds from each subsequent sale of the NFT.
The owner of Digital Zen, Jovaughn Brown, explains how NFTs could create tremendous leverage for brand storytelling.
NFTs Disrupting the Art World
The highest price ever paid for digital art was set by an NFT: Beeple’s Every Day: The First 5,000 Days. For the first time, NFTs’ use of blockchain technology enables us to authenticate the source and ownership of digital data.
In 2022, there will be a market for fractional NFTs of actual works of art created by well-known artists. Fractional NFTs make it possible to invest in precious crypto assets for a small portion of the cost.
NFT auctions are held by several international artists, who have turned them into reliable sources of revenue.
Real estate, digital collectables, and music work similarly to art NFTs. There will continue to be use cases in other industries. Mariah Carey recently released her first NFT and opened it up for competition. The winner and a guest received a ticket that looked like a boarding card for “Butterfly Airways,” giving them access to the celebrity’s personal plane and a meal with their hero.
NFTs Transforming Supply Chains
Leading luxury companies in this space, including LVMH and Prada, use blockchain technology to safeguard their brands and clientele.
Customers who purchase (physical) expensive watches, jewelry, purses, or other high-end fashion products may confirm their provenance by using a “digital twin” NFT. The NFT shows the product’s history from factory to shop, thanks to the collaboration that led to the creation of their blockchain named Aura.
NFTs are also used to track diamonds, expensive wine, and other goods in industries with a high prevalence of counterfeit products.
The Risks Associated With NFTs
NFTs come with pitfalls, just like most things in life do. Buyers, vendors, and authorities are all subject to these risks.
Buyers must ensure the NFTs they are purchasing are authentic and come from reputable suppliers. Sellers need to be aware that forgers and hackers are interested in NFTs. Similar to a tangible work of art, fraudsters may make an NFT copy and sell it as a genuine article. Additionally, buyers and sellers need to be aware of the possible danger that hackers may infiltrate NFT markets or personal accounts using sophisticated tactics, move assets to their own accounts, and resell them.
One significant complaint with NFTs is that virtually anybody may “right click and save” the NFT itself, resulting in their own JPEG copy. Even while you may still be liable to copyright rules for keeping and utilizing those NFTs, this still does not provide you ownership of them. As a result, many people have begun to wonder if they are still worth their cost. Additionally, technology has made it easier for thieves to pass off fakes, reproductions, or imitations as authentic.
In a first of its kind, HM Revenue and Customs (HMRC) seized three NFTs in February 2022 “as part of a probe into a suspected VAT fraud involving 250 alleged fake companies.” After receiving a court order, HMRC also seized £5,000 worth of cryptocurrency assets in addition to the three NFTs which have not yet been valued. The first NFT seizure, according to deputy director of economic crime Nick Sharp, “serves as a warning to anyone who believes they can utilize crypto assets to hide money from the HMRC.”
Closing Thoughts
The NFT boom may well continue, but one expectation is that the technology underlying them shall remain useful for the long foreseeable future. When verifying transactions for people and businesses, the authentication component of NFTs proves to be a time, money, and confusion-saving tool.
In a time saturated with news about the upcoming “metaverse” and “Web3,” it’s difficult to see how NFTs won’t be a vital part of our future.
Disclaimer: The information provided in this article is solely the author’s opinion and not investment advice – it is provided for educational purposes only. By using this, you agree that the information does not constitute investment advice. Do conduct your own research and reach out to financial advisors before making any investment decisions.
The author of this text, Jean Chalopin, is a global business leader with a background encompassing banking, biotech, and entertainment. Mr. Chalopin is Chairman of Deltec International Group, www.deltecbank.com.
The co-author of this text, Robin Trehan, has a bachelor’s degree in economics, a master’s in international business and finance, and an MBA in electronic business. Mr. Trehan is a Senior VP at Deltec International Group, www.deltecbank.com.
The views, thoughts, and opinions expressed in this text are solely the views of the authors, and do not necessarily reflect those of Deltec International Group, its subsidiaries, and/or its employees.
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