The NFTs: the digital assets that are worth millions.
On April 27, the cryptocurrencies’ exhange platform Binance, announced the launch, next June, of a marketplace entirely dedicated to non-fungible tokens, which will be called “Binance NFT”. NFTs are breaking new popularity records, but do you know what they are and how they are used? Here are the main things you need to know.
What is an NFT?
An NFT is a unique non-fungible asset and not interchangeable with another similar asset, unlike most currencies for example. Ethereum is a fungible cryptocurrency that is traded indiscriminately in commerce.
Source : Jing Daily, 2021
An NFT is therefore a digital non-fungible asset issued and secured on a blockchain like Ethereum. It is assigned a unique, traceable and non-reproducible code (metadata), which guarantees the authenticity of each NFT. Thus, artists, collectors or blockchain experts can use NFTs to certify collectibles and trade them on the NFT market which today weighs 1.3 billion euros. After the launch of the first NFT projects on the Ethereum network in ERC20, the market has started to experience exponential growth and its fields of application are increasingly broad.
Why are we interested in NFTs?
NFTs are extremely powerful in that they can represent any type of real or digital non-fungible asset on a blockchain. Thus, the public interest in this type of product is increasingly important. This can be seen in particular in the increase in Google searches for the term “NFT” which is now more popular than the term “ICO” (Initial Coin Offering).
This is why old as well as new industries have embarked on NFTs and seek to develop them as well.
NFTs can therefore be use in many fields, and allow all old and new industries to establish themselves there. They are found in art, sports, collectibles, video games, metaverse and more.
The development of the NFT market
Colored Coins (2012-2013)
The colored coins can be considered to be the first NFTs. They work by assigning a very small value of bitcoin, often thousands of satoshis (1 satoshi equals 0.00000001 BTC), to any type of asset (a metadata). In this way, the bitcoin, which has become a colored coin, then holds the value of the asset in addition to its very small monetary value for the wallets that recognize it as such. For example, it can be associated with a share, real estate property or a car.
But the great weakness of colored coins is the Bitcoin network, which was not designed to facilitate its development. There are therefore rigidities such as the minimum amount of a bitcoin transaction that was too large for colored coins. Finally, the colored coins system can only survive if the wallets recognize it because the Bitcoin network does not recognize it.
Unlike colored coins, Counterparty is an over-the-counter financial platform registered in the bitcoin blockchain. This platform destroyed a number of bitcoins (“proof of burn”) to create its own XCP currency. From the counterparty protocol, users can create and exchange assets in the same way as colored coins, making smart contracts using XCPs.
Les projets NFT
Cryptopunks are the first “Non-Fungible Tokens” on the Ethereum network. A cryptopunk is a 24 × 24 pixel digital artwork that is automatically generated by an algorithm. A digital work of art that is now called “crypto art”. The CryptoPunk collection represents human beings who have the punk look. Each punk is unique and has its own peculiarities. On each punk’s profile, you can see their entire sales history and see who they belong to.
Finally, Cryptokitties came into being as a video game on the Ethereum blockchain where each animal has unique traits and characteristics.
Market news (2020-2021)
NFTs have seen growth in 2020 in all respects. The number of active wallets has doubled from 112,000 to 222,000 between 2019 and 2020 and the volume of dollars traded in 2020 is 4 times higher than the level of 2019, helped by the rise in the value of cryptocurrencies.
But it is the market capitalization that reveals more about the net worth of NFT assets and their importance in value. According to the NFT 2020 Annual Report, the market capitalization has increased eightfold from the 2018 level to reach $ 338 million. In detail, we observe that the most popular assets such as art currently represent only a small portion of the market capitalization while the metaverse occupies an important place in the total capitalization.
But the share of the most highly rated assets should continue to grow in total capitalization given their growing share in total sales by value. For example, art represents, in 2020, 24% of sales in value compared to 25% for metavers and only 11% for collectibles, while the latter represent 27% of total sales in volume. Thus, the craze for the highest rated products should continue to see their share in the total capitalization grow.
Despite the good growth prospects and the increase in active portfolios, the first signs of a slowdown in sales have appeared. In fact, the sales volume per month fell from 200,000 at the start of the year to only 75,000 sales at the end of the year. This is due to increased transaction fees and an innovation in the video game segment. This innovation makes it possible to reduce the number of transactions in order to reduce transaction costs. Thus, this decline in sales volume does not appear to be related to a loss of interest in NFTs. This idea can be confirmed by a sales rebound in Q1 2021. According to a report by NonFungible.com, Q1 sales reach $ 2 billion and volume traded is 20 times higher than Q4 2020 level.
Just as ICOs and DeFi have been, NFTs are in the upward phase of the cycle. New players enter the market and invest in new projects which inflate prices. There is also a lot of speculation among these investments, especially in the collectibles segment. We note that in all NFT segments except collectibles, sales of assets in volume on the primary market is positively correlated with sales in value. This means that the price of assets traded in the secondary market is close to its original price. So there is little speculation.
On the other hand for collectibles, we observe that 82% of exchanges in values are carried out by 30% of sales in volume.
Non-Fungible Tokens A Brief Introduction and History
The History of Non-Fungible Tokens
NFT YEARLY REPORT 2020, NonFungible.com
Cryptoactu, le marché des ICO en chute libre, 2019