It seems that the market has arrived at a consensus: proven ownership of digital assets can increase digital value. So how does it work, and where will this technology be useful?
- NFT is short for "Non-Fungible-Token", and it is essentially a special token with a unique ID that is impossible to replicate.
- NFT trading was worth $250 million in 2020, a 300% increase from the previous year.
- NFTs have seen a first application in digital art, as they were used to prove ownership over digital creations from renowned artists and illustrators.
- They can also be used to represent a piece of music or coded into a music merch so that every sale on the secondary market can remunerate the artist.
- NFTs could replace concert tickets, limiting the price at which the ticket can be resold.
- NFTs are often used to prove ownership of trading cards, collectibles, or video games artefacts.
- They will soon be used as collateral in decentralized finance.
What is an NFT?
NFT is short for "Non-Fungible-Token", and it is essentially a special token with a unique ID that is impossible to replicate. They are used to create a verified ownership of a digital asset in the worlds of crypto art, crypto collectibles, and all sorts of other crypto assets.
The token is, like cryptocurrencies, part of the blockchain, a permanent ledger accessible to anyone with a computer and internet. The non-fungible aspect of the asset means that each NFT is totally unique. Two people could buy NFTs for the same price, but it does not mean that they are interchangeable. One NFT could be an illustration made by a famous artist, whereas another may be an exclusive song by a musician.
But what is the use of NFTs and where will they make a difference in the way we exchange assets? Here are our top 6 trends for NFTs in 2021 to watch out for:
NFTs and digital art
NFTs have seen a first application in digital art, as they were used to prove ownership over digital creations from renowned artists and illustrators. In exchange for bitcoins, Ethereum or other cryptocurrencies, you can now play the patron and acquire art available online.
The question is always the same: what stops someone from simply downloading the image you acquired? Well, nothing. A bummer, right? Anyone can still download the image, have it on their computer, use it as a wallpaper or whatnot. However, the piece of media they have on their computer is worth nothing, as only you hold the key through the NFT. You have the original, with the value that comes with it. In the same logic, you can buy a poster of a Da Vinci painting. It looks the same, but it is only worth $30 because it is not the original. In this regard, any downloaded image looks pretty, but holds no value. It is scarcity that makes the NFT valuable.
What is more: the fact that the image is available can even increase the value of the original. Why? Because having more people seeing and knowing about the illustration contributes to its perceived cultural value.
NFTs and music
What would you think of a future where artists are paid adequately? What if we could directly reward artists every time a ticket or merch is sold? Here it comes!
In addition to making it possible to acquire exclusive pieces of music, NFTs could be a wonderful solution to the music industry as a whole. It would be possible to implement code in the NFT so that the owner gets paid every time one of its merch item is transferred, creating a kind of merch loyalty. This would replace the one-time revenue with a long-term, longer lasting source of revenue that would keep rewarding an artist for extensive fame.
NFTs as tickets
What if the secondary ticket market was no longer broken by scalpers looking to make a quick profit? Have you ever bought a concert ticket 4 times the original price only because someone was looking to make a quick and easy profit? This could be a dead practice soon.
NFTs could hold tickets with a limit on price. It could be coded into the asset that there is this number of seats, that this ticket is valid for this row and column, that the price is $50 and that it can be resold at maximum $100 – with of course, a part of the premium going directly to the artist and concert venue, as you can also code where the money is supposed to go. This solves a very simple issue: the secondary market for music tickets is a ten-billion-dollar market from which artists, concert venues and labels do not perceive a dime.
Of course, this solution would not only be applicable to concerts, but could be used for sports events, theatre plays and all forms of events needing tickets to attend.
NFTs and collectibles
Collectibles is probably the area where NFTs have made their most solid stance so far. NBA Top Shots is a collectibles platform where basketball fans can purchase their favourite “moments” of the NBA league – often in the form of videos, such as a cool 3-pointer or an awesome dribble. Over $123 million of sales were generated over 5 months as of October 2020. The concept of taxing the secondary market with a portion of the resale going over to the creator becomes even more important when we learn that out of these $123 million, only $6 million were from the primary market.
There are many other platforms to trade NFTs. The largest and most popular is OpenSea, which averaged $1 million per month in trading volume this year. This number is on the rise, though, with September and October reporting $3.5 million in volume. While the average user has sold a little over $1,000 in digital assets, many items were sold for unprecedented amounts on the platform.
NFTs and gaming
Mix NFTs and Pokemons, and you get Axie Infinity. This is a digital pet community where users can raise, breed and trade digital creatures called Axies. The game is not only popular because it is fun, but also because you can earn cryptocurrencies by levelling up your characters. This is one of the first “play-to-earn” model, with users earning tokens for a value of $4-$7 per hours, which is something, especially amid a pandemic. The game has become a complex world with an actual job market and a complex economy.
Skyweaver is a digital trading card game. To shift the perception of ownership in game, they turned to NFTs to instore a proven and legit ownership proof over the played cards. These cards are stored on a blockchain wallet and can be transferred to any Ethereum wallets.
NFTs and decentralized finance
One of the latest developments for NFTs is their marriage with decentralized finance (DeFi), with new projects such as NFTi seeing the light. NFTi allows borrowers to post digital items as collateral. This would be one of the first platform that allows to use non-fungibles as collateral, whereas other DeFi platforms such as Compound or Aave only used fungibles like ETF or other stablecoins.
“As NFTs re-imagined how we produce and define ownership of digital content online, we’ll also, in turn, begin to re-imagine a whole new category of financial services based on these new building blocks,” Lasse Clausen, a partner at the venture firm 1kx, said in a press release.
There are countless of other projects as well, such as NIFTEX which allows the fractional ownership of NFTs; Mintbase, a platform that facilitates the minting of NFTs; or NFTX, which allows community-owned index funds, meaning that one token could represent ownership of many NFTs.
A speculative danger?
One could be doubtful and think that this is a case of speculative abuse, especially in the collectibles and digital art space. The fact that you can buy a $500 piece of art and resell it 30 times the price – or more – only a few days later seems ridiculous. Even more, why would anyone pay $100,000 for a digital representation of a car?
While it is true that some investors are in it for the money and looking to make a quick buy and flip profit, and increasing amount of investors are here to invest because they love the “object”. Once there are more players in the market, we can imagine that quick profits will rarefy and that each investor will find the objects he likes and can afford. In the end, your famous physical painting might also lose value. Art was never a sure way to make money, people are in it for the passion. While we often hear about amazing profits, this is definitely not the average case, where most people do not make so much money.
A broader adoption on the way
If a trading volume of $13 million in October had already caught some attention, we are entering new levels in 2021: Cryptokitties, one of the earliest applications of NFTs, generated almost half a million dollars in sales in the past week. NBA top shots managed to attract $147 million in sales of the last 7 days. Overall, NFT trading was worth over $250 million for 2020, a 300% increase from the previous year.
Mark Cuban and other celebrities are starting to get interested in the market and an increasing number of online auctions are taking place.
With all their possible uses, it seems that NFTs are here to stay, not only for their initial trading and gambling use, but also for the many applications mentioned above. Although there remain technical challenges – with NFTs primarily being built on ETH, we could think of scalability –, the outlook remains promising, and will all the applications mentioned above, it is safe to assume that NFTs are more than a trend. Once again, blockchain offers us an opportunity to change the way our economy works, likely for the better.
How to invest in NFTs?
Aside from buying NFTs directly on the different dedicated platforms available, you can also bet on the different cryptocurrencies that will work towards NFTs.
As you know, Ethereum is one of the big names, but Polkadot is also working on developing its own solution:
You’ll find the ETPs for these cryptocurrencies on our platform: