Whether you’re a crypto enthusiast or not, you’ve probably heard of NFTs. In fact, NFTs were one of the trends of 2021, right up there with metaverse. While everyone’s talking about NFTs, only some can explain what they are. Find out how an NFT works below. You’ll also learn about the potential of NFTs and why they attract criticism. In this way, you’ll be able to make up your own mind about NFTs. Are you ready?
NFT stands for Non-Fungible Token. If this designation doesn’t mean much to you at first glance, it highlights the two main characteristics of an NFT.
What is the meaning of non-fungible?
What does non-fungible mean? This notion refers to something unique that cannot be exchanged. Let’s take an example. If you’ve lent a friend 10 euros, you wouldn’t expect that friend to give you back exactly the same 10 euro bill, would you? The same applies if you give your neighbor a bottle of milk. In this example, cash and milk are “fungible”. In other words, these materials are “designated” only in terms of species (i.e., milk, euros) and quantity (i.e., €10, 1 L).
As far as NFTs are concerned, they are non-fungible. An NFT designates a unique work or object with no equivalent. In practice, this work can be an image, a video, a GIF, a sound, and so on.
Please note, however, that this does not mean that an NFT can only exist in a single copy. The creator of the NFT decides how many copies he wishes to make of his NFT. For example, a musician can offer an excerpt of music for sale as an NFT in several copies. The notation of fungibility is not unique to NFTs and can also be found in the legal field.
What is a non-fungible token?
The second characteristic specific to NFTs is that of the “token”. In crypto, a token is a digital asset that operates on a blockchain. A blockchain can be compared to an online public register. In other words, when you buy an NFT, the transaction takes place in crypto. But more importantly, you then obtain a token that identifies you as the sole owner of this object. This token is stored indelibly on the blockchain. This “tokenization” system protects you against counterfeiting, which is very common in the art world.
The NFT market in 2023
The NFT market came out of the shadows in 2021. Here’s a look at the state of the market in 2023.
NFTs: a bubble bursting?
The NFT market really exploded in 2021, reaching a capitalization of $41 billion! The main marketing lever in the NFT field is on social networks. Since 2021, many artists, sportsmen, women, and other celebrities have taken to NFTs, such as Mike Tyson, Justin Bieber, Shaquille O’Neal, Jimmy Fallon, Steve Aoki, Paris Hilton, Travis Barker, Neymar, and many more. Let’s face it: NFT quickly found its audience.
Alongside these celebrities, NFTs have also made their mark on the industry. Seeing NFTs as a new advertising lever and a means of generating new revenue, brands have jumped on the NFT bandwagon. Examples include Budweiser, Adidas, McDonald’s, and others.
The result was a mass effect that some quickly described as a bubble. Surfing on the parallel explosion of the crypto market, the price of NFTs exploded in 2021.
In 2022, the NFT market slowed further due to the collapse of the crypto market. In mid-June 2022, NFT sales were down 75%. In early 2023, NFT transactions reached US$4.7 billion, but they are still far from the $12.6 billion achieved in early 2022. As of October 2023, the NFT market continues to grow.
The NFT ecosystem in 2023
From a technological standpoint, most NFTs are traded on marketplaces. These are platforms on which users can buy, sell, and trade NFTs. To sum up, if you want to buy an NFT on a marketplace, you generally need to:
- Open an account on the marketplace;
- Deposit funds (usually in the crypto used by the marketplace);
- Buy your NFT (mainly at a fixed price or by auction).
- Ethereum is the blockchain currently hosting the most NFT marketplaces. Behind Ethereum are the Solana and Binance Smart Chain blockchains. At present, the leading NFT platform is OpenSea (hosted on Ethereum).
Ethereum is currently the blockchain hosting the most NFT marketplaces. Behind Ethereum are the Solana and Binance Smart Chain blockchains. At present, the main NFT platform is OpenSea (hosted on Ethereum).
NFT, an emerging field that still needs to be convinced
What are non fungible tokens? NFT is a field that both intrigues and generates a certain amount of skepticism. Like all emerging fields, NFTs are not yet well-known to everyone. But above all, the field has exploded so fast that it has involved sometimes exorbitant sums of money.
Take Justin Bieber, for example, a major NFT collector. The Canadian singer is estimated to own around 2,000 NFTs! In particular, he holds several NFTs from the famous Bored Ape collection, each worth several million euros! If you need to learn the Bored Ape collection, it’s all about portraits of monkeys. For example, in February 2022, Justin Bieber bought the NFT Bored Ape Yacht Club #3001 (BAYC) for 1.29 million dollars.
This is just one of many examples of the insane prices achieved by some NFTs. With prices soaring, many are saying that NFTs are a speculative bubble. In fact, by 2022, NFT prices had plummeted.
In April 2021, at the height of the market boom, the first tweet in history was sold in NFT for… $2.9 million! It was a tweet from Jack Dorsey, Twitter’s CEO, published on March 21, 2006. The tweet read: “I’m creating my Twitter account”. The proud owner of this NFT is Sina Estavi, head of Bridge Oracle, a Malaysian company. This NFT was put up for auction again in April 2022… Although he thought he could get several million euros for it, this was not the case, as the best bids were for just a few thousand euros!
This anecdote highlights the extreme volatility of prices in the NFT market. While speculation is typical of many emerging fields, it doesn’t help that NFTs are intrinsically linked to a crypto market that is still being structured. Therefore, The future of NFTs depends on establishing a robust and stable crypto ecosystem.
NFTs: what will change?
The volatility of NFTs should not, however, overshadow their potential. In an increasingly digital world, with users eager for decentralization, NFTs certainly have a place to take!
NFTs: a boon for artists
The characteristics of NFTs make them a natural fit for the art and music industries. For example, with NFTs, an artist can sell his work or record directly to his fans. In this way, the artist retains total control over their work, which is not currently the case when they work through studios. In this way, they can earn more income.
NFTs also represent a new way for fans to engage with their artist. By purchasing NFTs, these fans can benefit from exclusive advantages. This is also the case for companies. In exchange for NFTs, you can benefit from vouchers and other promotions.
New markets with NFT
In the long term, NFTs could become the new market for digital art. As is often the case with new technologies, legislation still needs to catch up. For example, it has yet to really be possible to sell NFTs at physical auctions. But with the evolution of the legislative framework, there’s a good chance that this will be possible in the not-too-distant future. This would split up the art market by creating a digital, immaterial domain adapted to the new needs of consumers.
What’s more, NFTs have the potential to revolutionize the gaming industry. By purchasing NFTs, users can participate in games and expect to earn passive income. Sorare, for example, is a successful French company offering NFT soccer player cards. With these cards, users can assemble their own teams and earn rewards.
NFT is an application that takes advantage of the benefits of blockchain
Finally, after explaining in detail the non fungible definition and what does not fungible mean, we can say that NFTs come into their own with blockchain. Although it still needs to be better understood, this technology is being used increasingly in industry. Indeed, blockchain offers real advantages in terms of data protection and peer-to-peer exchange (i.e., without intermediaries). For example, the NFT sector is protected against counterfeiting thanks to blockchain.