What is an NFT? – Finance for everyone

NFTs are assets that enable the exchange of digital content. If the media coverage of NFTs was simultaneous 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 might consider NFT like one new asset type. Set in blockchainthey allowexchange ownership rights of digital objects. In 2021, according to a report published by Nonfungible.com and L’Atelier de BNP Paribas, NFT sales reached $17 billion, a 21,000% increase compared to 2020. However, these data should be viewed with caution. Indeed, according to The Block media, between May and June 2022, trading volume was divided by four. Everything suggests that the price of NFTs fell victim to a speculative bubble in 2021.

What is an NFT?

NFT – for non-exchangeable token (literally, “non-fungible tokens”) – are certificates of ownership associated with a digital object (image, text, sound, etc.).

It signs that are not interchangeable with any other. Indeed, NFTs are uniquely identified on the blockchain. Thus, they differ from cryptocurrencies, whose tokens are fungible, that is, exchangeable (a Bitcoin is always equivalent to a Bitcoin).

Largest NFT sales

1 – MeltingPackaging, sold in 91.8 million dollars (December 2021), originally composed of several hundred thousand matched NFTs, this work is represented by white spheres of equal size, but which merge and grow when an individual holds several NFTs of the work.

2 – Every day: First 5000 daysBeeple is sold at 69.3 million dollars (March 2021), since 1er May 2007, artist Beeple intends to advance in digital art and draws a digital work a day. every day combines the first 5000 days of his work.

3-O’clockPackaging, sold in 52.7 million dollars (February 2022), the clock is an NFT that counts the number of days that Julian Assange, the founder of WikiLeaks, has spent in custody.

4 – HumanOneBeeple is sold at 28.9 million dollars (November 2021), described by the artist as a “portrait of a man born in the metaverse”, the work is a 3D representation of a man that the artist modifies over time.

5 – CryptoPunk #7523Larva Labs, for sale 23.7 million dollars (February 2022), œPart of the CryptoPunks pixelated character collection created in 2017, CryptoPunk #7523 is the only one with a surgical mask.

Unfortunately, the difference between an NFT and its underlying is not always understood. Without buying NFT Quantum, anyone can download the artwork file and view it at home. NFT does not provide ownership of the digital object. Thus, what the purchase of NFT provides is the connection between the digital object and the blockchain. The buyer has the guarantee of an immutable exchange signature between the creator (or a previous holder) and him.

In January 2018, the creation of a standard NFTERC-721, makes possible the standardization of creation and exchange of NFTs on the blockchain Ethereum. The standard, widely adopted by NFT creators, allows 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 potential uses of NFTs. Possession of certain NFTs guarantees the right to services or goods. This type of token is known as an NFT instrument, ie service mark.

of Bored Ape Yacht Club is a collection of NFTs that includes 10,000 tokens. Each sign is represented by a monkey created by an algorithm from 172 distinct features. Token holders can access privileges, such as private events or access to group chats. This network, based on the possession of NFT, has attracted many celebrities such as Eminem, Neymar, Serena Williams or Justin Bieber.

In summary, a NFT service can integrate more or less any service. An NFT can be used as a certificate for buying real estate, as a profile picture on a Tweeter account, as support for purchasing specific elements in a video game or even for purchasing concert tickets. In fact, since the hype of NFTs, businesses are awash with ways to incorporate these digital assets into their transactions.

Fund 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 NFT holders 80% of the film’s revenue, as well as the right to vote on the direction of the script. Amidst a fall in the price of crypto-assets, the operation turned out to be a failure. Only 1247 NFTs found buyers that day.

Problem, if the movie is not made, the investment is not refunded since the purchase is about the NFT (represented by a plush image with unique characteristics for each NFT sold). Therefore, the contract is very risky as if the project is not carried out, the intrinsic value of this NFT collection can be questioned. Investors are likely to lose the entire share, 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 involved. One might also wonder why the company uses NFTs instead of “classic” financing.

However, assuming that this movie (or another one that also uses NFT to finance itself) will be released in theaters one day, from an economic point of view, the buyer will have two options:

hold his mark and expect to get his share of the movie receipts;

resell his NFT in the market if he values ​​his profit higher than the one made by holding his token.

The question of the value of film NFTs after receipt distribution is interesting. If these NFTs hold a monetary value, this means that service tokens can be converted into collectible tokens after the service is performed, such as those associated with works of art.

Moreover, for the creators of NFTone of the main advantages consists in the ability to enter conditions related to all future exchanges of their NFTs. For example, an artist selling an NFT may ask to receive a percentage of the profits in the event of any appreciation on future resales. Since the contract is immutable on the blockchain, the percentage transfer is done automatically and does not need to be renegotiated at each exchange.

For now, NFTs are, with some exceptions, excluded from the scope of European regulation – says 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 currently do not benefit from any regulation.

Leave a Comment