The madness of NFTs explained in 6 questions

Artwork, fashion, tweet… the NFT market has been booming for a few months now. But what exactly are we talking about?

What is an NFT?

acronym for non-fungible token, or non-fungible token in French, an NFT makes it possible to certify, buy and sell digital objects (artwork, images, sounds, tweets, etc.). NFTs are stored on a blockchain, a technology that stores and transmits information in a decentralized and secure manner. The non-fungible property of the token means that it is unique: in other words, it is not like a 10 euro note that can be exchanged with any 10 euro note.

A certificate of authenticity is associated with the token. It is equivalent to a digital title deed. Indeed, when a person buys an NFT, it is not the object that he acquires in itself, but data that proves that he owns it. “Acquirers are not buying the rights, the brand, or even the sole property of what they are paying for. They buy the bragging rights, and the knowledge that their copy is “authentic.”specifies an article from New York Times. So even though someone bought the Nyan Cat meme last February, which features a cat galloping and leaving a rainbow behind, for just over $500,000, nothing is stopping the netizens from buying it. Identification principles can be attributed to digital objects, explains researcher Aude Launay. For her, the uniqueness of the NFT introduces the concept of scarcity, which is likely to yield value.

Are NFTs new?

NFTs are nothing new. The first dates back to 2016 with the Rare Pepe cards, based on the Pepe The Frog meme. However, in terms of popularity, we prefer to talk about the game CryptoKitties launched at the end of 2017 by studio Dapper Labs. In it, users were able to breed, trade and sell virtual kittens using the Ether cryptocurrency. The most expensive sold for 600 ethers in 2018, nearly $180,000 at the time. The novelty lies in the popularity of the concept.

What can you buy with NFTs?

Artwork, games, pair of shoes, music, luxury… you can buy anything with NFTs. So Jack Dorsey, the CEO of Twitter, sold his first tweet by NFT for $2.9 million last March. Same month, Kevin Roose, columnist for the New York Times sold one of his items digitally for half a million dollars. In France, the free daily 20 minutes has turned one of its supplements into a non-fungible token to be auctioned in October with the aim of “questioning the value of information”. More recently, the social network TikTok announced the sale of a cult collection of NFTs based on TikToks. It’s called TikTok Moments and will consist of six videos from the most influential creators like Lil Nas X or Bella Poarch. The Chinese platform states in its press release that these NFTs will allow fans to own a moment “culturally important” on TikTok.

The non-fungible tokens are also very present in the contemporary art market. According to Artprice’s annual report, digital works in this form already account for a third of online sales this year. Currently the best-selling digital work is: Every day: the first 5000 days by artist Beeple for $69.3 million.

Who can create NFTs?

With this craze comes the question of who can make an NFT. The answer lies in three words: everyone. It is only necessary to go through one of the specialized platforms such as Rarible or OpenSea, on which the file that becomes an NFT will be downloaded. On the other hand, you have to pay a fee to validate transactions on the blockchain. The creator can then sell the virtual work on the same platforms.

Is the NFT market reliable and sustainable?

According to the media specialized in cryptocurrencies Prototypes, it was at its peak on May 3, 2021, when it reached $102 million in a single day. Sales then fell by about 90% in one month to represent “just” 19.4 million in the first week of June. The specialist believes that the NFT bubble burst in May.

This market is also often described as a “speculative bubble”, with a possible misjudgment of the value of NFTs as the market is still young. “The market is still volatile and subject to speculation, but more sophisticated use cases based on utility, community and competitive elements are emerging. All conditions for a more mature market”appreciated Nadya Ivanova, Chief Operating Officer at L’Atelier. This emerging markets research firm teamed up with Nonfungible.com, an NFT data source, last February to compile a report on this technology.

What is their impact on the environment?

If NFTs consume a lot of energy, it is because of the technology on which they are based, namely the blockchain (chain of blocks in French), like various cryptocurrencies. Similar to information storage, the “blocks” are locked by a code certifying that an NFT is currently purchased by such person. This is called cryptography, a method of data protection, where the key serves as proof of ownership of the original. Only the owner owns. The problem is that generating these codes is a complex operation, requiring powerful computers, resulting in significant energy consumption. On average, making an NFT would therefore have an ecological footprint of more than 200 kg CO2 according to an estimate supported by independent researchers. This is equivalent to 800 km traveled by a typical American petrol car.

Is there a legal framework for NFTs?

Since the craze for NFTs is recent, they are not regulated by law. There is currently no specific regulation for them. It is possible to associate them with different articles of law, but they remain difficult to categorize. For example, certain creations, such as Beeple’s digital work, could be considered works of art and fall under the Intellectual Property Code. However, they are not part of the list of works that qualify as “works of the mind” in Article L112-2 of this Code. On the other hand, it is not so easy to exclude them from this category as the law evolves.

In the same sense, the NFT is not attached to Article 86 of the PACTE Act, despite the definition of digital assets in Article L54-10-1 contained therein: “Any digital representation of a security that is not issued or guaranteed by a central bank or government agency, which is not necessarily linked to legal tender and which does not have the legal status of a currency, but which is accepted by natural or legal persons as a medium of exchange and which can be transferred, stored or exchanged electronically. »

An amendment tabled on September 30 by MP Pierre Person proposes a definition of NFT: “any intangible and non-functioning property that represents, in digital form, one or more rights that can be issued, recorded, stored or transferred by means of a shared electronic recording device that allows, directly or indirectly, the owner of the said property. » This is the definition of the token in Article L-552-2 of the Monetary and Financial Code, to which the term is added “non-functioning”. This amendment, which aims to: “clarify the tax regime for non-fungible tokens” was adopted by the National Assembly on October 5.

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