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The NFT phenomenon was the biggest breakthrough of 2021, not only in the blockchain industry, but also in the art world. Artists now release their tokens and put them up for auctions, and investors can buy and sell them.
Many are worried about the natural question – what awaits this technology in the next year: will it continue to grow and develop or will it quickly be forgotten, as it happened with the ICO?
NFT: Industry Challenges
Non-fungible tokens are one of the types of digital assets that exist within blockchains and can be sold for cryptocurrency. Typically, NFTs are used as proof of digital asset ownership. Some members of the community criticize the NFT for several reasons.
For example, the developer of blockchain solutions under the nickname Antsstyle makes the following arguments against: “In short, NFTs are bad for two reasons:
- They are harmful to the environment, since they are focused on cryptocurrencies, which indirectly provoke an increase in carbon emissions into the environment.
- They are only valuable as tools for money laundering, tax evasion and even more investment fraud“.
As evidence, Antsstyle provides an analysis of existing platforms for creating NFTs, working on both PoS and PoW algorithms.
In addition, many do not understand what the value of the NFT is based on, what evaluation criteria are used to determine the price of such a token.
“For example, take a look at the image below. And don’t jump to conclusions – with monitor your computer is fine: what you see really looks like a gray square. This is an NFT known as The Pixel, created by artist pseudonym Pak and sold for about $ 1.3 million at Sotheby’s in April 2021.“, – gives an example of a subjective assessment of tokens Eij Volozhinski, manager of Eisner Advisory Group LLC…
NFT “The Pixel” by digital artist Pak. A source – Artreview
Pak is one of the richest digital artists around, according to CryptoArt. In a short time, he was able to earn over $ 65 million from the sale of his NFTs.
However, The Pixel is far from the most expensive NFT. Don’t be surprised, but this 25×25 pixel picture was purchased for 200 ETH ($ 7.6 million at the time of sale):
NFT Bored Ape # 9449 from collection Bored Ape Yacht Club. A source – Opensea
But this is not the most expensive token either. First place is firmly held by NFT Everyday’s: The First 5000 Days by digital artist Beeple:
NFT Everydays: The First 5000 Days digital artist Beeple. A source – Wikipedia
This digital asset sold for over $ 69 million.
True, Volozhinsky’s position does not stand up to criticism, if we remember that we are talking about contemporary art, albeit digital. And in this area, the price of any painting, installation and other product of self-expression has always been determined only by the amount that the potential owner is willing to pay. This initially implies subjective value formation.
Another reason for the negative attitude towards NFT is the lack of legislative regulation of the industry. And this is fertile ground for the emergence of various fraudulent schemes. For example, this year the CEO of OpenSea, the largest NFT trading platform, got into a scandal. He bought several tokens of the author in advance, which was soon to be listed on the exchange he runs. Typically, after the NFT was posted on Opensea, the demand for the author’s work increased, as did the price. This was used by a dishonest leader when he sold his tokens.
Today, fears of using NFTs for money laundering can hardly be called groundless. Chainalysis estimates that about 0.34% of all transactions on the crypto market are associated with illegal activities. In monetary terms, this is about $ 8.5 billion. Lack of legislative regulation does not allow effectively fighting cybercriminals in the NFT industry.
The IRS in its report says that in 2021, 93% of solved financial crimes, worth about $ 3.5 billion, were related to cryptocurrencies. In order to combat the illegal use of digital assets, tax legislation is constantly being improved. In particular, this year in the United States, the “Infrastructure and Jobs Investment Act” HR 3684 was updated. Now “any person who is responsible for the regular provision of any services for the transfer of digital assets on behalf of another person” service for buying cryptocurrencies in the amount of $ 10,000.
Although in November 2021 the FATF (Financial Action Task Force on Money Laundering) confirmed – NFTs do not fall under the definition of digital assets. However, the Group recalled that their creators and owners must adhere to the standards of this body.
NFT will stand
Despite criticism from the authorities and part of the community, in general, the attitude towards the NFT industry is positive. Representatives of art, especially digital, do not see an alternative to this technology in terms of monetizing their talent. Investors got another way of highly profitable investment of their funds. Of course, more risky, but many are not afraid.
Nash Islam, one of the early NFT investors, says: “The investment in Artist Pak tokens has already provided huge multipliers. But apart from impressive profits, they helped us understand and establish some principles for investing in this industry.“.
NFTs have become in demand not only by young, little-known authors, but also by world-class artists. For example, Damien Hirst, the UK’s most popular artist, released an NFT series called Currency this year.
It may be misleading to think that non-fungible tokens only serve to make money out of thin air. But this is not at all the case.
A study conducted by ICOM (International Council of Museums) showed that during the pandemic, 30% of museums in the world were forced to reduce their staff, and over 6% of cultural institutions were in danger of complete closure.
By digitizing art objects, users can not only enjoy world masterpieces and works of young authors, but also financially help their favorite museums by purchasing a couple of NFTs. So on the Binance NFT platform, several tokens issued by the Hermitage were redeemed.
Therefore, it would be premature to say that oblivion awaits the NFT in 2022. Moreover, the world’s largest fintech companies (TikTok, Twitter, Microsoft, eBay, Tencent, Alibaba) and cryptocurrency exchanges (Coinbase, Binance) are joining the battle for the market. All this suggests that in 2021 we saw only the emergence of future technology, but not its dawn. NFT is still ahead with both new price records and problems with regulators.