Non-fungible tokens (NFTs) are digital
certificates with encryption and blockchain verification. The technology first
became popular among investors in 2021, then the market slowed down a bit and
now it is picking up again. The prospects look promising. Currency, the number
of ‘NFT’ queries exceeds the number of ‘Bitcoin’ and ‘Ethereum’ queries and
besides, the value of NFTs is more stable than the value of digital coins.
Many companies around the world see NFTs
as a fund-raising instrument. The tokens can have any format; they can be
digital pictures, articles, songs, etc. Their key advantage is adaptability and
the opportunity to transfer property rights via blockchains.
The Securities and Exchange Commission
(SEC) is a regulatory authority and it wants company assets registered before
they can be publicly traded. The SEC determines if investment objects should
qualify as securities.
Speaking about NFTs, if this kind of
asset is a work of art or a result of some other kind of creative activities,
it should be considered a collectable item rather than a security. NFTs fall
under the SEC’s control if the item has a price tag and it is used as an
investment object.
For example, Nike puts out a collection
of NFTs containing 100 items. Then the company informs the customers that no
new items are going to be added to the collection, which will make the price of
each item grow with time. Now the items look like investment objects rather
than collectable items. In this situation, the company could hardly avoid
registering the NFTs as securities.
Another popular trend is trade in
fractionated NFTs (F-NFT) and NFT baskets. An investor can buy a portion of an
NFT and he/ she can buy portions of several NFTs. Fractional, Neftex and other platforms
help common people buy and sell F-NFTs. The process is similar to trade in
securities or stamps between collectors.
It follows that if a company is planning
to create NFTs, it has to find out if they are going to qualify as securities
or not. Trouble with the SEC should definitely be avoided.
In 2021, the mass media informed the
audience that certain NFT pictures had been sold for millions or thousands of
dollars. People were paying crazy money for such digital products as pictures,
cards, songs, and so on. The investment opportunities in the NFT market looked
great and they still do. In 2021, the market was valued
at 40 billion dollars, then the popularity of NFTs as investment objects fell,
and now it is growing again. Digital products are volatile investment objects
by definition, but a lucky investor could make a fortune by trading in NFTs.
The key characteristic of an NFT is that
it is unique: one NFT cannot be replaced by another NFT. An NFT also cannot be
split into parts. You can exchange one Bitcoin for another Bitcoin and you can
split a dollar into 100 cents. You cannot do that with an NFT.
An NFT is a certificate confirming the
property rights for a certain digital object. The object can be of any nature:
the defining characteristic that it has is that it’s a digital object.
Because the demand for tokens was
growing, marketplaces started to appear where people could buy and sell NFTs.
The largest and the most popular platform – OpenSea – was started in 2017. In
early 2022, its trade volume reached a record-breaking 3.5 billion dollars.
Besides OpenSea, you can buy and sell
NFTs on the following platforms:
●
Niftygateway;
●
Rarible;
●
SuperRare.
All payments are made in ETH and the
marketplace charges a commission for each operation. In addition, any of the
platforms mentioned above allows creating your own NFTs. Moreover, you could
not do without such a platform if you wanted to create an NFT.
It is expected that the NFT market is
going to grow to more than 100 billion dollars by 2026 and the average growth
rate is going to be 40-50% per year. These forecasts should set one thinking
about entering a new promising market.
Notwithstanding the statistics, many
people see digital tokens as something alien and overly complicated. Some other
people and companies (including large ones) have an opposite attitude: they
invest in NFTs. The situation was similar when the first cryptocurrency
appeared: people did not believe in it at first and now cryptocurrencies are
popular investment objects especially in some countries.
The future of NFTs can hardly be
predicted with certainty but experts believe that the tokens are going to turn
into a widely used means of payment soon. Moreover, they have good reasons to
believe that because NFTs have important objective advantages.
The main advantages of NFTs include the
following ones:
Many users think of NFTs as objects of
digital art that can be sold at a high price. How long is the tendency going to
last? There can hardly be a definite answer to this question. There is some
evidence, however, that the tendency won’t go away in the near future: large
foundations, brands, and influential individuals are becoming more active in
the NFT market.
The popularity of digital products is
growing in many parts of the world. An increasing number of software developers
are figuring out how cryptocurrencies, blockchains, and digital tokens work.
The NFT market is developing thanks to collectors at the moment. In the future,
however, NFTs may start to be used in everyday life as a means of payment.
Chances are that debit and credit cards may appear in the NFT sector too.
The world is digitizing and many
well-known processes are transferred to the digital universe. Not only private
individuals but also government authorities are using blockchains these days.
With the help of NFTs, goods and services can be tokenized, that is, all
operations can be made via blockchains.
Previously, people could not imagine
being able to pay with a plastic card or with a cell phone. Today, these things
are common. The same is probably going to happen with NFTs: the technology is
starting to be widely used. In the future, digital wallets will be able to
contain not only money but also documents of various kinds.
The NFT technology can be used in the
following areas:
●
Decentralized finance;
●
Art;
●
Games;
●
Smart contracts;
●
Fundraising.
Each of these areas is promising and the
popularity of NFTs has been growing. Is the tendency going to continue? We’ll
have to wait and see.