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Where Finance Finds Its Future
The good reasons and the bad for taking NFTs seriously
A market in which the assets coveted by investors for use as profile pictures or digital avatars are branded as Crypto-Punks, members of the Bored Ape Yacht or Kennel Club, or as Pudgy Penguins, is redolent of the Pokemon card craze of the 1990s. As it happens, the popularity of these Non-Fungible Token (NFT) collections with gameified nomenclatures has sparked a rediscovery of Pokemon cards, which are enjoying a nostalgia boom. That incidental side-impact is not a surprising one, because the scale of the NFT market is increasingly hard to ignore. In 2021 investors sank at least US$44.2 billion into NFTs, according to Chainalysis. Transaction volumes, total value invested and average transaction size all rose sharply by comparison with 2020. The blockchain data platform bases its estimate on the amount of crypto-currency sent to the ERC-721 and ERC-1155 contracts, the two types of Ethereum smart contract associated with NFT marketplaces and collections.
NFT marketplaces offer art, collectibles, videos, music and sports
The fact that most NFTs are built on Ethereum is a major factor behind the surging transaction costs (“gas fees”) on Ethereum, and the associated interest in the low-to-zero transaction cost alternative of the Solana blockchain protocol. Most of the purchases made are intermediated by a newish breed of commission-based NFT marketplaces of which the biggest, OpenSea, is also built on Ethereum. The NFT marketplaces are akin to crypto-currency exchanges such as Coinbase but minus the custody function (unlike the crypto-currency exchanges, most NFT marketplaces expect investors to own and operate their own digital wallet) and plus (in the case of the most successful NFT marketplaces) a genuinely decentralised model. OpenSea, which currently lists more than 6,000 NFT collections, is the generalist option. Other NFT marketplaces (such as art marketplace Nifty Gateway, which is owned by cryptocurrency exchange Gemini, a parentage that enables provision of a custody service) focus on niches.
The NFTs available are not confined to unique digital collectibles such as Bored Apes (there are only 10,000 available) or Pudgy Penguins (8,888). Fine art, videos, music and physical objects are also available as NFTs. Artist Damien Hirst has sold 9,000 of 10,000 unique, hand-painted, dot-covered works on paper at a price of US$2,000 each. He has given buyers 12 months to decide if they wish to take ownership of the physical work or own the NFT instead. If they choose the NFT, the physical work will be destroyed. Secondary market trades have raised the total market value of the Hirst collection to more than US$500 million. The traditional art auctioneers, whose nose for anything that smells of money is as finely tuned as the most shameless investment bank, have moved into the market. Christie’s made US$150 million from NFT sales in 2021 (US$69.3 million of it from Everydays: The First 5,000 Days, a digital art collage by artist Mike Winklelmann, better known as Beeple). Sotheby’s made US$100 million from NFT sales in 2021, including from sales of Bored Apes.
Among the topics to be discussed at this webinar are:
Who invented NFTs?
What explains the recent growth of the NFT markets?
How can NFTs best be categorised?
What are the sources of value of an NFT?
What are the links between blockchain, crypto-currencies, tokenisation and DeFI?
Find out more at:
https://futureoffinance.biz/2022/02/02/the-good-reasons-and-the-bad-for-taking-nfts-seriously/
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