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The beginning of 2021 brought the world a craze for NFT tokens, causing a boom in discussions and comments. A $500,000 virtual home, a $69 million digital painting, or a $2.9 million celebrity tweet are not figments of the imagination, but real facts. If you are not yet in the subject, let’s figure out what NFT tokens are, why they are needed and why they are criticized by everyone who is not lazy.
Cats are to blame
In February 2021 alone, the volume of trading in NFT tokens on the largest platforms came close to $500 million. This is a clear sign that the industry is of interest not only to crypto enthusiasts, but also to business. Elon Musk, Lindsay Lohan, US Senator Bernie Sanders and other celebrities spoke about the NFT. But how to explain such attention of the powerful of this world?
NFT (Non-Fungible token, non-fungible tokens) is a digital expression of ownership of various objects. Moreover, the latter can be not only virtual (for example, text, domain name, game item, picture, etc.). NFT tokens often confirm the right to own very real things: real estate, cars, art objects. An interesting future looms, doesn’t it?
Unlike a cryptocurrency coin, one NFT token is not equivalent to another, even if issued within the same blockchain. Each of them is unique, and it is impossible to make a copy of it. Information about the owner of the token is recorded in the blockchain, it is also not replaceable or deleted.
Interestingly, the first NFT tokens appeared back in 2013–2014. (Colored Coins, Counterparty). However, fame came to them only 3 years later thanks to the CryptoKitties game launched in November 2017. The project “bred” rare NFT cats by combining two other NFT animals. Virtual pets could be sold, exchanged, donated. Crypto cats have caused such a hype that users have even overloaded the Ethereum blockchain with their transactions. The popularity of CryptoKitties has led to the emergence of new projects:
- WrappedKitties (representation of NFT tokens in the form of ERC-20 tokens), which allows users to purchase not a whole NFT token, but some part of it;
- MyCryptoHeroes (an RPG-style crypto game where heroes and elements of their outfits are NFT tokens);
- Decentraland (virtual world);
- ENS (domain names in the form of NFTs), etc.
NFT tokens are created on the blockchain – not only Ethereum, but also TRON, Cosmos, EOS and other cryptocurrencies that support the functioning of smart contracts. NFTs can be sold, exchanged or donated on special trading platforms: OpenSea, SuperRare, MakersPlay, Zora, Mirror and others.
The rich have their quirks
Records, audio cassettes, and then audio libraries on the Internet have replaced live music in concert halls for many. Something like this, NFT tokens move various items from the physical world to the network. Almost everything can be represented in this format: gifs, music albums, books, photos, and even cars.
NFT collecting has become a trendy thing. In one day – February 22, 2021 – $65 million was spent on NFT auctions. And these are only inexpensive lots! Some collectors pay hundreds and thousands of Ethereum. For example, one of the rare CryptoPunks NFT projects was bought for 4,200 ETH (about $7.5 million).
All records were broken by a virtual painting by digital artist Mike Winkelman (known under the pseudonym Beeple), which sold at Christie’s auction for $69.3 million. His colleague in computer painting Christa Kim managed to realize a virtual house for 288 ETH (more than $500,000). And Elon Musk’s tweet, in which he sang a song dedicated to NFT, almost brought the performer $ 1.1 million. However, the entrepreneur changed his mind about putting it up for sale, explaining that it was “not quite right.”
The pleasure of wealthy users from owning some rare NFT token is quite understandable. However, there is still no clear solution to some of the issues related to these assets.
Firstly, the owner of any digital object can create an NFT token associated with it on several different blockchains. In this case, both will absolutely equally confirm the ownership of the same item. A legal conflict will arise if the owner decides to sell one NFT on the Ethereum blockchain to a buyer in the United States, and the second NFT on the TRON blockchain to an Asian client. And if a dispute over the ownership of, say, a $69 million painting goes to court, neither side will have any obvious advantage.
The adoption of a law regulating the circulation of NFTs could resolve such situations. However, in most countries, even cryptocurrencies are still not legally regulated. What can we say about tokens.
Secondlythe question of taxation arises. The U.S. Internal Revenue Service (IRS) has determined that every exchange of cryptocurrencies for NFTs is a taxable transaction, as the IRS treats digital currencies as a financial asset. And if it makes a profit, then there is an obligation to pay tax on capital gains. Most NFT buyers and sellers don’t think about it yet, and the traditional April income declaration could bring US residents into trouble in the form of fines for tax evasion.
I see a purpose, but I do not see obstacles
However, none of the reasons can stop the rapid growth of the NFT market. Following Christie’s plans to enter promising areas and said the second largest auction house in the world – Sotheby’s. However, some experts are very concerned. They compare the NFT mania that has swept the world in recent months to tulip fever, the dot-com bubble, and ICO hype. But their voices are not heard in the roar of enthusiastic exclamations.
However, there are still many fierce critics even of bitcoin, which does not add credibility to the arguments of those who are skeptical about the prospects for NFT.
The fact remains that in the coming months, the completion of the hype is definitely not necessary. The number of search queries for the “NFT” tag, which significantly exceeded the popularity of “cryptocurrency” and “blockchain”, only confirms this conclusion. And therefore, it becomes incorrect to call something that has real prospects for use as a hype.
Perhaps in 10–15 years, all legal inconsistencies will be eliminated in the NFT collectibles market, and in terms of turnover, it will leave the traditional markets of numismatics and philately far behind, successfully replacing another area of real life with its virtual copy.
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