4 questions to understand and decipher the NFT phenomenon

The first text message to be sent was to sell for between $ 100,000 and $ 200,000 on December 20 at an auction at the Aguttes House in Neully-sur-Seine. Special: it will be sold in the form of NFT, a digital certificate of authenticity. But that amount seems almost negligible next to the $ 2.9 million paid for the first tweet, posted by Jack Dorsey, founder of Twitter.

No more doubts, NFTs – non-fungible tokens –, still under the radar two years ago, is on the rise, especially in the arts and luxury sector. The big luxury houses and auction houses – like Christie’s – are determined not to miss the boat. As a result, NFTs already represent a third of the value of online art sales, according to the Artprice report published in October. And not without reason. Its tokens actually make it possible to certify the authenticity of the works and thus fight counterfeits and forgeries.

But so far, these are still a tool in the hands of the experts. Explanations of how these digital assets work for neophytes, in 4 questions.

What is an NFT?

The name NFT is an acronym of English does noton-fungible token, or in French a “non-fungible token”, that is, which cannot be exchanged for an equivalent, for example a 5 euro banknote exchanged for another 5-euro banknote. An NFT is a “digital object” whose property is traceable. Specifically, it is a contract whose rules are defined by computer code, based on a virtual or real object. These rules may limit the number of copies available for sale, allow a “reissue” or organize a system of royalties that allow the original author of a work to be remunerated during each transaction.

It is a new type of digital asset, like cryptocurrencies like Bitcoin, that uses blockchain technology, namely an authentication folder shared between a host of individuals without central authority.

Who buys them?

Especially collectors, or speculators who hope to be able to sell them later with a price gain. NFTs have therefore been the subject of several high-profile auctions. They are also used in video games, cinema, music, but are also the subject of more original initiatives, such as the purchase of virtual land or the breeding of virtual racehorses. A week ago, it was the Nike brand that got its hands on RTFKT’s virtual sneakers to develop its brand in both the real and the virtual.

How does it work?

As with cryptocurrencies, it is possible to buy and sell NFTs on specialized platforms. During a transaction, the object designated by the NFT is not necessarily delivered. Only a certificate of authenticity stored in blockchain changes ownership.

In order to retain the rights to this certificate, a digital wallet is essential, whether it is software in the form of an Internet browser extension or a securely connected object in the form of a USB key. Before the purchase, it must be provided with a cryptocurrency, but it is also possible to “create” an NFT yourself, with some computer knowledge.

What are the risks?

Buying, selling and using an NFT is today still a technical and sometimes misunderstood operation that can put investors at risk. For each interaction with the blockchain, a fee is required to remunerate the persons responsible for verifying the transactions. As a recent report from the specialist platform Chainalysis explains, ” Buying newly created NFTs from a highly anticipated collection is an extremely competitive process where thousands of users are hoping to buy at the same time“.

In this case, many transactions do not succeed, but the fees remain due and are sometimes high, depending on the price of the cryptocurrencies that are often used to pay them.

Some buyers are determined to succeed and can use robots (powerful software to place orders, ed. Note), making the operation even more uncertain for a novice investor. ” Data suggest that NFTs are far from an investment infallible » , emphasizes Chainalysis, which explains that the collections of NFT are often sold at a better price to the enthusiasts who participated in the promotion of the project. I 2021, ” a very small group of very experienced investors pocketed most of the profits from NFT fundraisers ”The study finds.

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