Until last year NFTs were known from a few blockchain aficionados. But in 2021, you can no longer open your Twitter or your Linkedin without any article about the NFTs. So many new NFTs initiatives are created everyday that it’s difficult to follow up. Despite the great buzz around NFTs, some of us still don’t have time to read the hundreds of articles, hence I wanted to write about the minimum to know to look smarter at the next dinner you will attend where people will talk about NFTs. You will discover in this article the meaning and history of NFTs, the size of the market, their common usage in Art, Music and Fashion and their dangers.
What are NFTs and their History
- Definition: NFTs are non fungible tokens and have few characteristics;
Uniqueness: They are digital assets that can not be exchanged or substituted as they are unique. With NFTs, each asset has a digital ownership right or certificate of authenticity attached to it, with information about it such as a unique fingerprint of the file, a token name and a symbol. NFTs are created and stored in the blockchain with their full history. Once in it, NFTs can not be duplicated or manipulated but can be traded.
Indivisible: They can not be split into smaller part. You can only purchase the whole NFT or nothing.
Rarity: Usually they are produced in limited quantities to increase their scarcity and price.
- The History of NFTs
– The first form of NFT appeared in 2012 with the Colored Coins. They were an attempt « to expand the functionality of Bitcoin allowing the creation of tokens to represent assets of interest on the blockchain ».
-The second important step was the creation of Counterparty in 2014, a peer to peer financial platform, open source, built on the Bitcoin platform where digital assets could be traded.
-The boom of the NFTs market came with the release in June 2017 of the CryptoPunks on the Ethereum Blockchain. The Cryptopunks are 10 000 unique generated characters that could be freely claimed at their creation. If you want to buy one of them know, they can be bought on the marketplace. Unfortunately the cheapeast will cost you around $400 thousands and the most expensive one cost around $ 7 Millions now.
-Around the same time in 2017, an other range of NFTs became viral on the Ethereum Blockchain Game the Cryptokitties, which were cats that could be adopted and breeded or traded.
The NFT market and its top marketplaces
The NFT market has been exploding this year and has reached 2.5 billion in sale for the 1st semester 2021.
Digital art collectibles, in-game assets, videos and other types of NFTs are purchased and exchanged on marketplaces. Here is the list of the top 10 ones.
The NFTs and their usages
NFTs are used in a variety of industries from Art, Fashion, Gaming, Finance, Insurance, Real Estate, …
I will focus on few examples coming from the Art, Music and Fashion Industries.
– Art: a booming market for digital artworks
NFTs enable to associate an ownership to a digital art piece. They protect the artists and allow them to make some money over their digital art pieces by taking control over their work. Initially created to empower the artists, there is now a commercial hype around the Art NFTs and wealthy people are investing in it hoping to make huge profits. In March 2021, a digital art asset under a JPEG form broke record and sold at Christie’s auction for $69.3 million . Called “Everydays -the First 500 Days”, the work of art of the artist Beeple, represents all the pictures he has been posting online since 2007.
@source Christie’s
-Music: create a buzz and a new source of revenue for artists
You can attach an NFT to a song or an album by making a digital edition or version of the album. It is a great way to create an extra source of revenue for artists who are generally paid on royalties. In march 2021, an American group called Kings of Leon was the first group to release an album under an NFT form.
The album “When you see yourself “ is available on the usual streaming plaforms like Spotify or Itunes. With the NFT version sold for $50, you get a token that enables you to download the album, an exclusive artwork and a limited edition vinyl. With this NFT sale, the group created a great buzz and generated $2 million of sales.
– Gaming: a popular industry for NFTs
The blockchain universe has its own NFTs Games like the CryptoKitties, I have mentioned earlier. However if you need to know one, the most played and most popular game on Ethereum is now Axie Infinity. It is a trading and battling game similar to Pokemon characters. To start playing, you will need to purchase at least 3 axies or creatures. Each of them has special features or powers. You will then be able to collect, raise, battle and trade those creatures. By playing, you can earn tokens and later on sell them to earn revenue. With the concept of play to earn or cash for playtime, Axie has around 90 000 active wallets and 20000 daily players.
NFTs can as well used in the traditional gaming world that has a global revenue of 177 billion in 2020. In the most popular games from Riot or Epic Games, gamers can purchase skins which are virtual clothes, accessories and use them to customize their avatar. In some games, they can build their own gaming world and map. With NFTs, gamers would be able to own the design and sell them. Furthermore, they would be able to do this within different games which is not possible at the present time.
– Fashion: Use NFTs to offer transparency and traceability and create a relationship with the final customer
In my previous article, I have talked about Virtual Clothes and NFTs. But NFTs can be used in an other way in the fashion industry. Arianee and IBM have announced in July 2021, that they will work together to combine their blockchain leadership in order to provide digital passports to valuable goods. When purchasing a luxury physical good, the owner will receive a NFT that will give him the proof of authenticity and ownership. This NFT is able to track as well all the supply chain from the raw materials to the distribution. With this NFT, the brand is able to create a relationship with the customer through all the lifecycle of the product. Besides, the NFTs will facilitate the resale on the circular economy later on.
The Dangers around the NFTs
- With the craziness around NFTs, scams are unfortunately around.
An anonymous NFT developer has succeeded to gather $2.7 Million from various investors to create a collection of 10 000 NFTs called “Evolved Apes “ that were supposed to appear in a game on the Opensea marketplace. However no NFT was delivered and the developer vanished from social media with the money.
- A lot of concerns rise around the fact that NFTs are not environment friendly . They produce indeed a huge amount of carbon emissions from minting the token to the resale. It is estimated that over its cycle, an NFT will generate 211 Kg of CO² which represent the equivalent of driving 825 Km with a car. Some Proof of Works Networks like Tezos promote more “Clean NFTs” by insisting on the fact their NFTs produce less energy. This aspect of the NFTs will have to be taken seriously when we look at the rapid growth of the NFT market.
A market full of opportunities
They are so many usages of the NFTs that the list would be too long to describe them all. What is sure is that the appetite for NFTs is growing very fast and that new projects are appearing everyday from various industries.
The scope of commercial opportunities of NFTs are endless.
- It is source of authenticity and transparency which is more and more requested by the young generation. Hence it can attract new customers and especially the young ones.
- It can unlock new revenues as we have seen for art, music, gaming, …
- It can create a link between the digital and physical worlds.
- With NFTs, brands could monetize their archives
NFTs offer endless opportunities and we are only at the beginning.
To discover more
https://kyros.ventures/2021/07/02/nft-market-report-2021/
https://capital.com/non-fungible-tokens-nft-definition
https://www.larvalabs.com/cryptopunks
Read my previous article where I talked about NFTs and Virtual Fashion
