NFTs are assets that enable the exchange of digital content. While the media coverage of NFTs has been accompanied by record sales in the art market, companies are now using the growing popularity of this medium to associate all types of goods and services with it.
One can consider the NFT such as a new asset type. Implemented on the blockchain, they allowexchanging property rights of digital objects. According to a report published by Nonfungible.com and L’Atelier de BNP Paribas, NFT revenue reached $17 billion in 2021, a 21,000% increase over 2020. However, this data should be viewed with caution. Indeed, according to The Block media, the trading volume was divided by four between May and June 2022. There is every indication that the price of NFTs fell victim to a speculative bubble in 2021.
What is an NFT?
NFTs – for non-exchangeable token (literally, “non-fungible tokens”) – are certificates of ownership associated with a digital object (image, text, sound, etc.).
It is about tokens that cannot be replaced by others. Indeed, NFTs are uniquely identified on the blockchain. They are thus different from crypto currencies whose tokens are fungible, i.e. exchangeable (one Bitcoin is always equal to one Bitcoin).
Quantum by Kevin McCoy is considered the first NFT in history. In 2014, this maker of digital works is looking for a way to reward digital artists for the fruit of their work. He then turns to the blockchain to publish there Quantum.
NFT’s Biggest Sales
1 – The MergeSuit, sold at $91.8 million (December 2021), initially composed of several hundred thousand NFTs placed side by side, this work is represented by white spheres of equal size, but which merge and grow when a person holds multiple NFTs of the work.
2 – Every day: the first 5000 daysBeeple sold at $69.3 million (March 2021), since 1er May 2007, the artist Beeple has in mind to make progress in digital art and draws one digital work a day. everyday brings together the first 5,000 days of his work.
3 clockSuit, sold at $52.7 million (February 2022), Clock is an NFT that counts the number of days Julian Assange, the founder of WikiLeaks, has spent in detention.
4 – HumanOneBeeple sold at $28.9 million (November 2021), described by the artist as a “portrait of a human born in the metaverse”, the work is a 3D rendering of a human that the artist modifies over time.
5 – CryptoPunk #7523Larva Labs, sold $23.7 million (February 2022), CryptoPunk #7523 is part of the CryptoPunks pixel collection created in 2017 and is the only one with a surgical mask.
Unfortunately, the difference between an NFT and the underlying is not always understood. Without the NFT . to have purchased Quantum, anyone can download the artwork file and view it at home. The NFT does not provide ownership of the digital object. So, what the acquisition of the NFT provides is the link between the digital object and the blockchain. The buyer has the guarantee of an immutable signature of the exchange between the maker (or a previous holder) and himself.
In January 2018, the establishment of a standard NFTthe ERC-721, makes it possible to creation and exchange of NFTs on the blockchain Ethereum. Widely adopted by the creators of NFT, the standard enables the development of trading platforms and the use of NFT by the uninitiated.
Multiple uses of NFTs
Often cited as an example, art is just one of many possible applications of NFTs. Owning certain NFTs guarantees the right to services or goods. This type of token is known as an NFT utility i.e. a utility token.
the Bored Ape Yacht Club is a collection of NFTs containing 10,000 tokens. Each token is represented by a monkey generated by an algorithm of 172 different properties. Token holders have access to privileges such as private events or access to group chats. This network, based on NFT’s ownership, has attracted many celebrities such as Eminem, Neymar, Serena Williams or Justin Bieber.
In short, a Utility NFT can integrate more or less any service. An NFT can be used as a certificate for the purchase of real estate, as a profile picture on a Tweeter account, as a support for the purchase of specific elements in a video game or even for the purchase of concert tickets. In fact, ever since the hype of NFTs, companies have been brimming with ways to incorporate these digital assets into their trades.
Financing a film through NFT?
On May 20, 2022, 50,000 NFTs were auctioned for €1,250 each to fund the animated film Plush. In return, the animation studio promised 80% of the film’s receipts to NFT holders, as well as the right to vote on the direction of the script. Amid a drop in the price of crypto assets, the operation turned out to be a failure. Only 1,247 NFTs found buyers that day.
Problem, if the movie is not made then the investment will not be refunded as the purchase is the NFT (represented by a plush image with unique characteristics for each NFT sold). The contract is therefore very risky because if the project is not executed, the intrinsic value of this NFT collection could be called into question. Investors are likely to lose the entire stake, in fact, they replace the producers and therefore bear the risk of the project.
Before investing in a financing project through NFTs, it is important to pay attention to the risks associated with it. You may also wonder why the company uses NFTs instead of “classic” crowdfunding.
Nevertheless, assuming that this movie (or any other that also uses NFTs to fund itself) is released in theaters one day, the buyer has two options from an economic point of view:
• keep his token and wait for him to receive his share of the movie receipts;
• resell his NFT in the market if he estimates his profits higher than those made by holding his token.
An interesting question is the value of the film’s NFTs after the receipts have been distributed. If these NFTs retain a monetary value, it means that the utility tokens can be converted into collection tokens once the service is rendered, such as those associated with works of art.
In addition, for the creators of NFTone of the great advantages is that you can insert conditions related to all future exchanges of their NFTs. For example, an artist selling an NFT may require a percentage of the profit in the event of any appreciation in future resale. Since the contract is immutable on the blockchain, the transfer of the percentage is automatic and does not need to be renegotiated at each exchange.
For the time being, with few exceptions, NFTs are excluded from the scope of the European regulation – known as MICA – which regulates the public offering of crypto assets. The European Commission will assess over the next 18 months whether or not it is necessary to regulate the NFT market. It is therefore necessary to be particularly careful with these products, which are currently not subject to any regulations.