NFTs are assets that enable the exchange of digital content. If the media coverage of NFTs coincides with record sales in the art market, companies are now using the growing popularity of this medium to associate all kinds of goods and services with it.
One may consider the NFT it seems new types of properties. Deployed on the blockchain, they allowexchange of ownership rights in digital goods. In 2021, according to a report published by Nonfungible.com and L’Atelier de BNP Paribas, NFT sales will reach $17 billion, a 21,000% increase compared to 2020. However, this data should be viewed with caution. In fact, according to the media The Block, between May and June 2022, the trading volume was divided by four. Everything suggests that the price of NFTs has become a victim of a speculative bubble in 2021.
What is NFT?
NFTs – for non fungible token (literally, “non-fungible token”) – certificates of ownership associated with digital goods (image, text, sound, etc.).
It is tokens that cannot be replaced by any other. In fact, NFTs are uniquely recognized on the blockchain. Thus they differ from crypto-currencies whose tokens can be used, that is to say exchangeable (one Bitcoin always equals one Bitcoin).
Quantum by Kevin McCoy is considered the first NFT in history. In 2014, this creator of digital works sought a way to allow digital artists to be rewarded for the fruits of their labor. He then turned to the blockchain to publish there Quantum.
The largest sale of NFT
1 – The MergerPack, sold at $91.8 million (December 2021), originally composed of several hundred thousand juxtaposed NFTs, this work is represented by white spheres of the same size, but which merge and grow when an individual has more NFTs at work.
2 – Every day: the First 5000 daysBeeple sold at $69.3 million (March 2021), since 1er May 2007, the artist Beeple is in the mind to develop digital art and draw digital work every day. Every day accumulated in the first 5,000 days of his work.
3-ClockPack, sold at $52.7 million (February 2022), the clock is an NFT that counts the number of days that Julian Assange, the founder of WikiLeaks, has spent in detention.
4 – A ManBeeple sold at $28.9 million (November 2021), described by the artist as a “portrait of a person born in the metaverse”, the work is a 3D representation of a person that the artist has transformed over time.
5 – CryptoPunk #7523Larva Labs, for sale $23.7 million (February 2022), œPart of the CryptoPunks pixel character collection created in 2017, CryptoPunk #7523 is the only one with a surgical mask.
Unfortunately, the difference between an NFT and its base is not always understood. Before buying NFT Quantum, anyone can download the artwork file and view it at home. NFT does not offer ownership of a digital object. So, what NFT acquisition offers is the link between the digital object and the blockchain. The buyer has the guarantee of an irrevocable signature of the exchange between the creator (or a former holder) and himself.
In January 2018, the creation of a standard NFTthe ERC-721, makes it possible to standardize the create and exchange NFTs on the blockchain Ethereum. The standard, widely adopted by the creators of NFT, allows the development of trading platforms, and the use of NFT before it is known.
Many uses of NFTs
Often cited as an example, art is just one of many possible use of NFTs. Owning certain NFTs guarantees the right to services or goods. This type of token is known as an NFT utility, ie a utility token.
the Bored Ape Yacht Club a collection of NFTs that includes 10,000 tokens. Each sign is represented by a monkey created by an algorithm from 172 different characteristics. Token holders can access privileges, such as private events or group chat access. This network, based on the ownership of NFT, has attracted many celebrities such as Eminem, Neymar, Serena Williams or Justin Bieber.
In general, 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 of a Tweeter account, as support for the purchase of certain elements in a video game or even for the purchase of concert tickets. In fact, since the hype of NFTs, businesses are full of ways to include these digital assets in their transactions.
Finance a film through NFT?
On May 20, 2022, 50,000 NFTs were auctioned at €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 a right to vote on the direction of the script. Amid the falling price of crypto-assets, the operation turned out to be a failure. Only 1,247 NFTs found buyers that day.
Problem, if the film is not made, the investment will not be paid because the purchase is about the NFT (represented by a beautiful image with unique characteristics for each NFT sold). The contract is therefore very risky because if the project does not materialize, the intrinsic value of this NFT collection may be questioned. Investors tend to lose the entire stake, in fact, they replace the producers and therefore carry the risk of the project.
Before investing in a financing project through NFTs, it is important to pay attention to the risks involved. One may also wonder why the company uses NFTs rather than “classic” crowdfunding.
However, assuming that this film (or others that also use NFTs to finance themselves) will be released in theaters one day, from an economic point of view, the buyer has two options:
• save his token and wait to receive his share of film receipts;
• resell his NFT in the market if he estimates his profit higher than that made by keeping his token.
The question of the value of film NFTs after distribution of receipts is interesting. If these NFTs store a monetary value, it means that the utility tokens can be converted into collection tokens once the service is provided, like those associated with works of art.
In addition, for the creators of NFTone of the major advantages consists of being able to insert conditions about all those future exchange of their NFTs. For example, an artist who sells an NFT can ask to get a percentage of the profit if there is any appreciation in future sales. Since the contract is immutable on the blockchain, the percentage transfer is done automatically and does not need to be renegotiated at each exchange.
Currently, NFTs, with some exceptions, are excluded from the scope of the European regulation – known as MICA – which governs the public offering of crypto-assets. The European Commission will assess in the next 18 months whether or not it is necessary to regulate the NFT market. Therefore it is necessary to be more careful with these products, which do not currently benefit from any regulation.