Nowadays, the popularity of NFTs (non-fungible tokens) for cryptographic assets has been triggered by the increasing interest from many international luxuries, entertainment and fashion brands. NTF Report 2020 by BNP Paribas showed a market value for this unique, non-fungible and not replicable tokens of more than 250M dollars, which is 3 times more than 2019, while in 2021, this value climbed to $40B.
They are property ownership and authenticity certificates for a unique digital or tangible asset. Unlike cryptocurrencies, these tokens are non-fungible and offer the owner access to many exclusive goods and services. The specific example of Crypto Art refers to digital masterpieces and objects sold in an auction at remarkable prices.
The Blockchain ledger is a reliable and difficult-to-hack record of transactions based on a distributed ledger technology that securely records, like a notary act, information across a peer-to-peer network. Blockchain ledgers store these NTFs with reference to land titles, loans, identities or logistics certificates and almost anything of value. For this reason, this digital technology is considered a safe and trustable system for any transaction completed within the finance, banking and public administration fields. The NTFs are available on several platforms such as OpensSea, Rarible, SuperRare, Valuables etc. They can complete transactions in cryptocurrencies: for example, OpenSea works on Ethereum blockchain where possible, with an Ethereum portfolio, create and trade NTFs.
The just created digital asset, like image, video, article and so on, is recorded and certified as original on the blockchain, as any signed work of authorship, with a unique code called hash that is generated through a smart contract. The smart contract is an IT protocol confirming the contract execution and represents the right on that specific digital asset. From this moment, the token can be traded in the marketplace and this is the minting phase, where owners can also access exclusive services. Finally, the NTF keeps track of all the transactions on the hash starting from its creation.
Apart from OpenSea, there are marketplaces specialized in NBA videos (NBA Top Shot), in tweets (Valuables), in cryptographic cats (CryptoKitties), art auctions (Christie’s) and even more. Recently, the Big Techs are massively investing in NTFs. Meta Technologies announced the development of a function allowing Instagram and Facebook users to create and trade with an NTFs wallet on a system prototype. Looking at the virtual real estate world, it’s possible to change these assets in specific platforms, such as Decentraland and The Sandbox, where investors buy, sell and take profits on lands, buildings and islands in virtual worlds – the metaverses – populated by their avatars.
These unique cryptographic tokens hide undeniable risks of speculation due to the lack of information on their creation, value growth and minting, together with potentially high fees on marketplace transactions based on the level of demand. Nevertheless, they could also represent, at the same time, an opportunity in terms of infinitive applications, exclusive content, access to private communities, conferences and unique experiences. In addition, the possibility to independently manage and sell their digital assets without any intermediary or marketplace allows the main brands to be autonomous and closer to their customers and investors. Despite the quick gains in trading, NTFs present several risks like the possibility of encountering cyber criminals, still protected by anonymous addresses, the lack of security and fiscal laws, and the low consumer protection regulations in this relatively new market. This results in the difficult traceability of transactions in the NTFs secondary market.
In conclusion, even if NTFs could show huge potential, proven by the last two years’ performances, it’s unclear what direction the market will take, and it’s future. It’s clear only that these investments, like the ones in virtual real estate in the metaverse, are made in an extremely volatile, risky and speculative market that could collapse at any moment. Since being attracted by this exciting trend is extremely easy, it’s important to remember the importance of constantly investing responsibly and consciously by avoiding the so-called FOMO together with any risk of phishing, by choosing the most secure and ruled platforms with strict authenticity checks, by investing in secure wallets and by constantly monitoring the online communities.
Edit by Prof. Paolo Bongarzoni
PhD Strategic Management & Economics – Vice Dean, Business Professor