It's THE trend of the moment: no normal human being with a broadband connection could escape it. Since the already legendary auction organized by Christie's on March 11, 2021, during which a completely impalpable digital artwork reached the considerable sum of 69 million dollars (Beeple, Everydays-The First 5000 Days), everyone wants to take part in the NFT business. Lindsay Lohan, Grimes (singer and wife of wacky billionaire Elon Musk), rappers Ja Rule and Lil Pump, youtuber Logan Paul, Paris Hilton, Steve Aoki and a host of other more or less famous personalities are now getting into the crypto-transaction business.
1. What is an NFT?
NFT stands for Nun Fongible Token. They are virtual elements, a kind of cryptographic tokens, registered by identification codes and metadata (name of the author, signature, date...), which make them unique and non-interchangeable. They are non-fungible because they cannot be automatically replaced by an equivalent of the same value.
Beeple, Everydays: the First 5000 Days, sold for $69.3 million at Christie's (2021).
In layman's terms, NFT is to artwork what Bitcoin is to currency. Here is a simple example to help you understand: a cryptocurrency (bitcoin, ethereum...) is like a €1 coin or a $1 bill: they are fungible goods since they can easily be replaced or exchanged by an object of the same value: another bill or another coin, it doesn't matter. In contrast, NFTs are like collectibles or artworks: to be exchanged or replaced by goods of the same value, they must first be sold or liquidated, and then the amount of money corresponding to the value of the sold work can be exchanged for another good (collectible or artwork), of the same value. However, the artwork sold and the artwork acquired will again be very different, although of similar value: it will simply be another artwork.
To summarize: a Bitcoin can be traded because it has the same value as another Bitcoin. An NFT cannot be traded because it has a unique value, and cannot be duplicated. Nevertheless, it can be transferred, sold for money, like any other item.
Blockchain guarantees the uniqueness and authenticity of an NFT, thus ensuring trust between actors of this new market. The buyer can acquire as many NFTs as he wants, having a digital tamper-proof guarantee of the reality of his acquisitions, as well as their authenticity and uniqueness.
Now that you understand the nature of an NFT, you must legitimately wonder what virtual objects, what assets can be exchanged in this form, and you're right!
2. What assets are traded as NFTs?
Although the NFT market has become popular in recent months thanks to various digital art sales, the assets traded as NFTs are much broader in nature than just art. NFT market is a paradise for people suffering from a more or less mild form of Peter Pan syndrome (yes, you know, that unfairly stigmatized syndrome that makes you buy Lego figures and collect Pokémon cards even after 40 years old).
You can find everything here, and especially everything that is collectible:
- Collectibles, avatars and rare items from video games, of which Cryptokitties are the most famous example.
- Memes and GIFs, these short formats that are exchanged on social networks, like the very famous Nyan Cat, sold by its creator in February 2021 for the sum of $580,000.
- Metaverses, which are certificates of ownership of virtual plots of land in digital worlds, such as Decentraland for example.
- Trading Game Cards, which are virtual playing cards that can be exchanged, based on the same principle as classic trading cards: several editions, rare cards, common cards...
- Art: whether digital art or video art, photographs not printed on a physical medium... NFTs can also be used as a certificate of authenticity to attest to the regularity of a material, physical artwork, such as a painting or a sculpture.
- And also: NBA videos, virtual pairs of Nike shoes, music, photographs and tweets of celebrities, adult content... Overall, anything found on the Internet can be exchanged as NFT.
Appearing in 2017, Cryptokitties, these small colored virtual cats are the first known NFTs.
For Art in particular, several questions may arise: what exactly are we buying? Is there a particular exclusivity for the buyer of an NFT?
Here, the notion of piracy doesn't exist: NFTs are positioned as unique property certificates of an artwork. The digital artwork can often be viewed, captured or copied by others, but there will always be only one owner of the original artwork, whose title registered on the blockchain will guarantee protection against theft and usurpation. It's not a question of buying a digital artwork and then prohibiting its use by third parties in order to keep the exclusive use of it. It's about acquiring an artwork, supporting artists, developing one's virtual collection and making exchanges. This translates into a process of "gamification", making it possible to include entertainment in the digital art market, for which building collections was previously quite tedious and complex.
Twitter creator's first tweet, sold for $2.9M in March 2021
3. What future for NFTs?
After many high-profile record sales in February and March 2021, it seems that the powerful momentum of this recent segment is beginning to wane. This isn't surprising, since a new market is often synonymous with excessive speculation linked to the attraction of a new and curious clientele, thus disrupting the "natural" laws of supply and demand. It remains to be seen whether we are witnessing the bursting of a speculative bubble, or whether it's simply a correction of trajectory which, in the long term, will stabilize prices and make this high-potential market sustainable.
Today, in mid-April 2021, average daily sales of NFTs have fallen by almost 70%, although the amounts involved remain considerable. We' ve gone from about $19.3 million in daily transfers in the 2nd week of March to about $5.5 million just one month later (source: Nonfungible.com).
For industry professionals, these results are quite normal and predictable. According to Robert Norton, CEO of NFT Verisart, "Such excitement couldn't be sustained at the same levels seen in February and March 2021 ". It's not a gold rush yet, but one thing is certain: NFTs still have a bright future ahead of them. Many buyers are willing to spend a lot of money on these virtual tokens, and the current health situation only amplifies this behavior. NFTs are being traded among collectors and are already the subject of colossal funds movements, as evidenced by the recent resale of a digital artwork depicting Joe Biden and Donald Trump naked, for the modest sum of 6.6 Million dollars.
Beeple, CROSSROAD : this short video was resold on the secondary market for $6.6M in February 2021.
As you can imagine, it is still too early to discern the real strength of this new market. However, there are many signs that point to a bright future for NFTs, particularly in terms of trust that can be placed in these novel assets. Indeed, accessibility and inviolability of the blockchain make it possible to guarantee 100% the authenticity of an artwork, as well as to identify its successive transfers. Where the traditional art market regularly faces problems of counterfeiting and difficulties in establishing the real provenance of certain artwork, NFTs offer unprecedented protection in multiple financial transactions with often exorbitant amounts.
We can also compare the future growth of NFTs with the earlier rise of cryptocurrencies. In 2009, year of Bitcoin's creation, few people dared to invest in it. However, almost a decade later, the price of this virtual currency, like many of its colleagues (including ethereum), continues to rise. These crypto-currencies are rapidly integrating the previously rather reluctant establishment to deal with new modes of transaction, unfairly considered as obscure and risky: old auction house Christie's is now using Ethereum for its NFT transactions, some museums are disrupting the traditional codes by buying artwork in Bitcoin...
Finally, it's necessary to highlight the considerable advantage that this new sector offers to digital artists: NFTs allow the sustainability of the efforts of many artists, who, until now, have found few or no alternatives to finance their long hours of digital realization, where so-called "classic" artists; painters, sculptors or photographers; can benefit from the traditional ways of remuneration: openings, exhibitions, direct or indirect sales of their material artistic production. We can therefore be led to think that this virtuous system will solidify the interest of collectors in the NFT field.