Still mysterious for many French, NFTs are a new bet for many Internet users. But the risk of losing everything is significant.
These three letters are questionable, dreamy, or irritating. NFTs (“non-fungible tokens”, or “non-fungible tokens” in French) have been talking about them for several months. Despite a concept that remains unclear for many, they have already attracted 3.5% of the French. But turning to NFTs often turns out to be a risky bet. Explanations.
• What is an NFT?
On paper, the definition of an NFT is elementary: it is nothing more and nothing less than a certificate of digital ownership. Which is a document that proves that an individual 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 a bitcoin is worth any other bitcoin, an NFT will always be identifiable, and prove ownership of a unique item.
“NFTs can represent different, digital objects, or for example show tickets, which have a unique character” summarizes Willem van den Brandeler, executive of the specialized company Chainalysis, with BFMTV.
• What is not an NFT?
“There is a lot of confusion about what an NFT is,” admits Willem van den Brandeler, however. Through confusion, the NFT is sometimes equated with the object to which it is attached – for example a work of art. By analogy, this error can be equivalent to confusing a sales receipt of the product where it tracks the purchase.
The NFT is also not a certificate of intellectual property of a work of art. As with the sale of a classic painting, the buyer does not benefit from the rights to reproduce the work itself. In the same way that the buyer of a disc does not get the royalties of the pieces of music it contains.
Additionally, NFT is not an exclusive right to a digital work of art. 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 saved and used by anyone, free of charge.
• What is NFT for?
If there is no exclusivity of the work of art associated with it, the ownership of a NFT is simply recognized as the sole owner of this work, without any benefit from any advantage over others. 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, no “original” version exists in the real world, where the owner can benefit from it.
In this context, an NFT has no intrinsic function and is merely a speculative asset. For the buyer, the goal is to sell it later at a higher price to make a profit.
• Should NFT be speculative?
“Most people fully understand that this is a speculation. But in the medium and long term, NFTs tend to be used and not only artistic speculation” expects Owen Simonin, whose YouTube channel popularizes the subject of cryptocurrencies now exceeds 500,000 subscribers.
While NFTs are often associated with works of art, these ownership certificates can be attached to anything. For example, the Coachella music festival recently put tickets on sale 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 its price increases.
• Why do many people want to invest in NFTs?
“The starting point of this craze is March 2021, with the sale of an NFT from Beeple for $69 million. There will be less than 10,000 people with NFTs, then there will be a transition event in those person who entered cryptocurrencies for two years and who did not know this phenomenon “remembers Jean-Michel Pailhon, executive of the company. Ledger, specialized in storing cryptocurrencies, and himself a NFT collector.
“It is an attractive market that is growing very fast. In 2020, we had 106 million dollars in transfers, in 2021, we went to more than 44 billion” recalled Willem van den Brandeler.
In addition to the purely speculative aspect, the NFT craze is carried by some stars such as footballer Neymar or singer Justin Bieber. By offering NFTs attached to monkey drawings – immediately raising their prices, they inspired many of their fans.
“NFTs are both something that belongs to a community and it has value to some. There is a status component, like someone who plays with his status by having a Rolex. In social networks, hundreds of people to know that you have an NFT” summarizes Jean-Michel Pailhon.
• What are the main risks of NFTs?
When it comes to buying a work of art, the main risk is the loss of value of the same work. But this use seems to make some Internet users dream of making money. But the lack of knowledge in this area, which is now as easy as everything, can lead to great risks.
“As in the traditional world, very few works have real value. If it is no longer fashionable, it is easy to transfer it to another way” Owen Simonin of BFMTV was angry.
But the specialist mentioned another big risk: the fall in the price or interest of Ethereum, the cryptocurrency used for the exchange of NFTs and in which buyers are forced to invest to access this market. “In this case, interest in NFTs may collapse,” he argued.
Along with these market developments, one of the main risks for investors is linked to the large presence of scams, which are set up by fraudsters who want to take advantage of the madness around NFTs.
• How to recognize an NFT scam?
Among the main NFT-related scams, experts mention “wash trading”. A scam that involves creating NFT and then creating multiple accounts to buy the digital asset from yourself at a higher price. The goal is to mimic market interest by creating a fake surge in NFT prices.
To detect these manipulations, a good knowledge of technical tools is essential, starting with blockchain, the technology behind cryptocurrencies and NFT. It is a digital ledger that is open to everyone, showing the history of all transactions made around a digital asset.
“We can, for example, compare the transactions linked to an NFT with other transactions of the same type. Knowing that the fees apply to each exchange, it will be interesting to see if the evolution of the price is based on a small number of transactions. A sign that might suggest it’s a scam” specified 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 craze” added Willem van den Brandeler. For the potential buyer, spending time studying the enthusiasts of an NFT collection is of the utmost importance.
Another main risk concerns the large number of NFTs based on works where the seller is not the true author. On paper, there is nothing to stop unscrupulous Internet users from storing a photo or video found on the Internet to resell it as NFT.
On the Opensea exchange platform, the most popular in the NFT market, 80% of property certificates are thus linked to fraudulent practices. For the buyer, it therefore remains important to know about the legitimacy of the seller’s account, and about the work history he wants to acquire.