Still mysterious to many French people, NFTs are a new gamble for many internet users. But the risk of losing everything is significant.
These are three letters that ask questions, make you dream or irritate you. NFTs (“non-fungible token”, or “non-fungible tokens” in French) have been talking about it for several months now. Despite a concept that remains very vague for most, they have already attracted 3.5% of the French. But moving to NFTs is often a high-risk bet. Explanation.
• What is an NFT?
On paper, the definition of an NFT is elementary: it is no more and no less than a certificate of digital ownership. Namely, a document certifying that a person is the owner of a physical or virtual object.
The term “non-fungible token” refers to the fact that unlike a cryptocurrency, such as bitcoin, an NFT is unique. If one bitcoin is worth another bitcoin, an NFT can always be identified and certify ownership of a unique object.
“NFTs can represent various digital objects, or for example show tickets, which have the characteristic of being unique”, Willem van den Brandeler, director of the specialized company Chainalysis, summarizes with BFMTV.
• What is not an NFT?
“However, there is a lot of confusion about what an NFT is,” admits Willem van den Brandeler. Because of confusion, the NFT is sometimes equated with the object to which it is attached – for example, a work of art. By analogy, this error would be tantamount to confusing a receipt with the product from which the purchase is being tracked.
The NFT is also not a certificate of intellectual property on a work of art. As with the sale of a classic painting, the buyer does not benefit from the reproduction rights to the work itself. Just as the purchaser of a disc does not receive the royalties on the pieces of music contained on it.
Furthermore, an NFT is in no way an exclusive right to a digital artwork. If it is available online, for example in JPG format on an auction site or on social networks, the image associated with an NFT can be stored and used by anyone for free.
• What is an NFT used for?
Without exclusivity to the artwork associated with it, owning an NFT simply amounts to acknowledgment as the sole owner of this work, without however enjoying any advantage over other internet users, who are also free from it. as wallpaper on their smartphone, or even print it out to display at home.
Unlike a painting, there is no “original” version in the real world that the owner could benefit from.
In this context, an NFT has no intrinsic function and is a purely speculative asset. For the buyer, the goal is then to resell it later at a higher price to make a profit.
• Is an NFT by definition speculative?
“Most people understand very well that this is speculation. But in the medium and long term, NFTs will lean towards use and not just artistic speculation,” anticipates Owen Simonin, whose YouTube channel popularizing the topic of cryptocurrencies now has more than 500,000 subscribers.
While NFTs are often associated with works of art, these certificates of ownership can be attached to any object. For example, the music festival Coachella recently put up for sale tickets that offer ‘lifetime’ access in the form of NFTs. As with any show ticket, the buyer can choose to take advantage of it or possibly resell it if the price rises.
• Why do so many people want to invest in NFTs?
“The starting point of this craze is in March 2021, with the sale of an NFT from Beeple for $69 million. There were less than 10,000 people then who had NFTs, then there was a transitional phenomenon of people entering cryptocurrencies for two years and not being aware of this phenomenon,” recalls Jean-Michel Pailhon, director of the company. cryptocurrencies, and an NFT collector himself.
“It is an attractive market that is growing very quickly. In 2020 we had 106 million dollars in transfers, in 2021 we went to more than 44 billion,” recalls Willem van den Brandeler.
Beyond the purely speculative aspect, the NFT craze has been carried on by certain stars such as footballer Neymar or singer Justin Bieber. By offering NFTs linked to monkey drawings – which immediately boosted their prices, they inspired many of their fans.
“NFTs are both an object of community membership and it is worth something to some. There is a status side, such as someone who would play on their status by owning a Rolex. On social networks, hundreds of people will know that you are an NFT have”, summarizes Jean-Michel Pailhon.
• What are the main risks of NFTs?
When it comes to buying a work of art, the biggest risk is the loss of value of the same work. Yet it is this practice that seems to make some Internet users dream of making a fortune. But lack of knowledge in this area, which now seems accessible to everyone, can lead to major risks.
“Just like in the traditional world, very few works will have real value. If it’s out of fashion, it can quickly go the other way,” Owen Simonin tempers to BFMTV.
But the specialist mentions another major risk: the fall in the price or interest in Ethereum, the cryptocurrency used for the exchange of NFTs and in which buyers are thus forced to invest in order to access this market. “In this case, interest in NFTs could collapse,” he says.
In addition to these market developments, one of the main risks for investors is related to the massive presence of scams set up by scammers seeking to capitalize on the craze surrounding NFTs.
• How do you spot an NFT scam?
Among the main NFT related scams, experts cite “wash trading”. A scam where an NFT is created and then multiple accounts are created to buy the digital asset of yourself at progressively higher prices. The aim is then to simulate market interest by creating a false rise in the price of the NFT.
To detect these manipulations, a good knowledge of technical tools is essential, starting with those of the blockchain, the technology behind cryptocurrencies and NFTs. It is a digital ledger that is accessible to everyone and that shows the history of all transactions made around a digital asset.
“We can, for example, compare transactions linked to an NFT with other transactions of the same type. Knowing that fees apply to each exchange, it may be interesting to see if the price evolution is based on a low number of trades. A sign that may indicate that it is a scam,” said Owen Simonin.
“There is also a risk that the community promoting these NFTs on social networks or Discord are actually bots, to give the impression of a fad,” adds Willem van den Brandeler. For the potential buyer, studying lovers of an NFT collection is therefore paramount.
The other big risk is the plethora of NFTs based on works where the seller is not the real author. On paper, nothing prevents a dishonest internet user from saving a photo or video found on the internet to resell it as NFT.
Thus, on the Opensea exchange platform, the most popular in the NFT market, 80% of ownership certificates are linked to fraudulent works. It is therefore essential for the buyer to ascertain the legitimacy of the seller’s account and the history of the work he wishes to acquire.