(Finally) Understanding NFTs
You may not have missed it, but in recent months a new word has been buzzing in tech news: NFT (non-fungible token). A somewhat trivial expression that today turns more than one head. But what is an NFT? What is so special about it? In what cases can it be used?
What is an NFT ?
This is the somewhat unmentionable question that some must have asked themselves when last December the media announced the sale of the first SMS at auction for the tidy sum of 132,680 euros (costs included) in NFT format... without always explaining what an NFT was.
An NFT (non-fungible token) is associated with an asset and certifies ownership. It is the proof that a physical asset (a work of art for example) or a digital one (like an existing object in a video game) belongs to you… An NFT can only have one owner at a time. Non-fungible tokens are carried by blockchain technology which allows them to be timestamped. This information is public and accessible via a decentralized registry.
In a few words, the blockchain is a technology that was developed in 2008. It makes it possible to store and transmit information transparently, securely, and without a central control body (we are in a decentralized system). You have to imagine it as a giant database that contains the history of all the exchanges made between users since its creation. The information contained in the blockchain cannot be erased. The blockchain is shared free of charge between all users, which makes it possible to verify the veracity of the information entered there. Blockchain can be used to transfer assets, track them, or execute contracts (smart contracts).
Many assets can be associated with an NFT: image, video, digital work, document, tweet, GIF, physical property such as clothing or a painting… the list is growing day after day.
The art, fashion, sports, and video game markets are among the markets most involved in the development and use of NFTs today. Despite their many uses, it is the staggering sales figures of certain NFTs, particularly in the art sector, that are retained. The digital work “Everydays: the First 5000 days” by the artist Beeple was sold for 69 million dollars by Christies – 15 million more than for the painting Water Lilies (Nymphéas) by Monet (2014).
Les spécificités du NFT
But then why so much noise around a 2.0 version of the title deeds or certificates of ownership that are issued when you buy a house or a masterpiece? The particularity of the NFT is that it is non-fungible, non-divisible, unique, and cannot be falsified.
We say that an object is fungible when it can be exchanged for another of the same value: for example, if you swap a 20 euro note for another you will no longer have the same note but that will not change anything for you. In contrast, something is said to be non-fungible because it cannot be exchanged for an asset of equivalent value. An NFT cannot, therefore, be exchanged for an NFT of the same value. In addition, a fungible asset can be exchanged for small portions representing the same value: a 20 euro note can be swapped for 4 5 note notes, this is not the case for a non-fungible asset. An NFT is thus non-divisible. In the same idea, a non-fungible token is unique because only one copy can be issued to be attached to an asset.
A decentralized registry system makes the list of former and current owners of an NFT visible to everyone. The owners do not appear as "Mr. Nicolas Dupont" but under a pseudonym. This registration in the decentralized register makes the NFTs tamper-proof.
Be careful, being the owner of an NFT does not mean that you are the only one who can view or share a document, a work, etc. it just means that no one else can claim ownership. Buying an NFT is tantamount to having exclusive and sole ownership of the asset to which it is attached. A physical or digital asset can always be reproduced – what is unique is the NFT certificate of ownership of the original. The Verge, a news site specializing in technology, explains it very well by making an analogy with art: we can all buy a print of a painting by Monet, only one person remains the owner of the original. The replicas do not have the same value as the original.
So why buy an NFT if you can see a video or image freely? The real utility of an NFT is what makes it unique: its ability to prove the authenticity and exclusive ownership of an asset. NFTs can also become tools for brand communication and marketing. They also allow to engage the customer and strengthen his loyalty. For example, a brand can launch a phygital offer (an encounter between the physical world and the digital). The NFT which is digital can highlight a physical product. The customer buys a product in NFT and will then receive it in its physical format. The cosmetics brand Ciaté London has successfully made such a commercial offer. Gucci, for its part, has teamed up with Superplastic to create exclusive digital characters (NFT) which will also be sent to their owners in the form of ceramic characters. It is to bet that soon fashion or cosmetics brands will offer their collections first in digital format and then in physical form. This would be the launch of physical on-demand production motivated by purchases of digital products.
For gaming or video game enthusiasts, NFTs are a way to obtain new exclusive digital objects that they can include in their games. For example, Argentinian designer Andrès Reisinger has sold NFT furniture that can be used in the Minecraft video game, among other things. Sports enthusiast? The Top Shot marketplace allows you to buy and sell NBA videos. You can find highlights like dunks, counters, or three-point baskets. In 2021, a LeBron James dunk was sold for $208,000. Music fan? Coachella auctioned 10 NFTs associated with Lifetime Tickets on February 4, 2022.
Recently, NFTs have also been used in the case of philanthropic actions. L'Oréal Paris has partnered with female artists so that they are highlighted and can sell their art during an NFT auction. For its part, the Taco Bell brand has launched a series of GIFs representing dishes from the chain. The NFTs sold out within minutes and all proceeds went to the company's foundation. Jack Dorsey (co-founder of Twitter) sold his first tweet for 2.9 million euros in 2021. If the idea of "owning" a tweet may surprise many, let's still remember that the funds of this sale were intended for an association working in Africa against Covid-19.
Thoughts on the future uses of NFT are prolific. Non-fungible tokens could make it possible in the future to secure student diplomas by allowing employers to check whether a job candidate has obtained them or even allowing events to prevent their tickets from being resold on the black market. without their knowledge. Some are even betting on using NFTs to bolster the security of birth and death certificates. NFT projects related to your connected car are also in progress and would make it possible to follow all the events (repairs, accidents, etc.) related to it. The current applications of NFTs are already numerous and the field of possibilities will surely continue to expand beyond what can be imagined today.
The art sector
The art sector and the integration of NFTs have been talked about a lot. Why have artists taken to NFTs so quickly? Selling their art in this way allows them to avoid going through galleries and auction houses. Their profit in direct sales is therefore higher. They can also use the NFT to set up a royalties feature: each time the work is resold, the artist will receive a percentage. This positive aspect needs to be qualified: current buyers are - for many - actually driven not by a desire to encourage the development of digital art but by the lure of profit and the hope of being able to speculate on these assets. and get rich when reselling them.
A little anecdote: if you are passing through Seattle, the “first museum dedicated to art NFTs” has opened its doors there.
The Trust-Place solution makes it possible, thanks to NFTs, to certify the ownership and authenticity of luxury products. Attached to a physical product, the Trust-Place solution gives Brands control. They alone can create the certificates which are then transferred from owner to owner, according to the rhythm of the different lives of the product.
While some are still wondering if NFTs are just another buzz in tech news, the NFT market is developing and is already beginning to take shape. Today, buyers must beware of the risks that arise from this market: the infringement of intellectual property and the counterfeiting of assets linked to an NFT. But this subject deserves a dedicated article.
Stay tuned for an upcoming analysis from Trust-Place on NFT counterfeiting.