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How the NFTs became a $ 40bn market in 2021


In early 2021, the only group of crypto enthusiasts who knew what non-fungible (NFT) tokens were.

By the end of the year, however, about $ 41bn had been spent on NFTs, according to the latest data, creating a market for digital art and virtual collections as a modern global market.

“This year, the NFT market is exploding from a multi-billion dollar market to decabillion-dollar companies,” said Mason Nystrom, a research analyst at crypto data company Messari, adding that consumers were rushing to discover technologies related to “digital information”. . ” ”.

NFT mania reached its climax in March, when a collage of artist Beeple sold for $ 69.3m at Christie’s, for the first time of its kind on sale. The artist, whose name is Mike Winkelmann, responded with a tweet: “Holy fuck.”

Industry players from the arts, sports and music – even Melania Trump – have started making NFTs, especially blockchain-licensed digital patents, to earn more money and find new ways to deal with fans.

A CryptoPunk NFT deployed at a Manhattan bus depot © Dia Dipasupil / Getty

Other hits also included NFTs that became infected with viruses, including CryptoPunks and Bored Ape Yacht Club, is what defines clubby ownership and is used as avatars on most TV shows.

“Most importantly I’m still on my own,” says Nystrom, noting that expensive collections also help consumers find opportunities to visit Discord platforms, as well as meet parties.

“They are a Country Club-esque: there is a huge barrier to entry – a high price – and you are close to a lot of money and other people,” he added.

In total, $ 40.9bn was poured into the ethereum blockchain agreement used to create NFTs in the year until December 15, said Chainalysis, a group of crypto analytics. That number could be much higher if it included NFTs created on other blockchains, such as Solana.

By comparison, last year the global technical market was worth $ 50.1bn, according to statistics from UBS and Art Basel.

Commercial price chart sent to major NTF platforms, $ m showing the explosion of NFT popularity in 2021

Chainalysis found that NFTs introduced the largest number of retailers in the crypto world, with a small exit under $ 10,000 accounting for more than 75 percent of the market.

But like the cryptocurrencies market, it remains dominated by a few major players, or “whales”.

Between the end of February and November, there were NFT 360,000 owners with 2.7m NFTs among them. Of these, another 9 percent – or 32,400 wallets – held 80 percent of the market value, Chainalysis found.

Stephen Diehl, a crypto-sceptic software developer, said many whales and “people living on billions of dollars of crypto” from rising crypto prices, “are looking to transform their crypto into more crypto”.

Some say they are approaching the market as sales-cum-collectors. One well-known NFT currency, known as Funny on Twitter, who started with an initial $ 600 investment in 2017 now has an NFT record worth more than $ 20m, he said.

They told the Financial Times that they are investing in a combination of projects, “some with more daily sales and some with more interest”. Aside from lucrative jobs, Pranksy said he has “some pieces I plan to save for a long time”.

Currently, new NFT collectors in the secondary market have no refund for what they buy, according to FT analysis and blockchain analysis platform Nansen, where early collectors have benefited from rising NFTs as well. as in cryptocurrency traded with them.

US $, '000 line chart indicating Sales for popular projects has risen throughout the year

The unmanaged space it is also plagued by fraud, corruption and market disruption, largely because the realities of consumers and sellers are difficult, if not impossible, to find.

Nansen’s investigation found $ 2m of suspicious activity across CryptoPunk and Bored Ape ape in 30 days until mid-December. For example, some NFTs were sold at a discount of 95 percent of the average retail price, either due to consumer and seller errors, tax evasion or other fraudulent exploitation of unskilled users.

Researchers have also warned that the market is growing as a result of the bath business – as the seller takes over all aspects of the business to give the wrong impression.

“You can buy and sell NFT in public and make it look like you are interested in the piece as soon as you raise the price,” said Rüdiger K Weng, chief of Weng Fine Art from Germany.

Bar chart of achievements achieved (total minimum expenditure) and wallet years, US $, '000 showing Many new NFT collectors have not yet reimbursed the value of their purchases.

“This also happens in the traditional arts,” he said, but added that if a fraudster sent art to Sotheby’s and tried to sell it, he would have to pay 25 percent of the sale, making it an expensive business. . “With NFTs the revenue is very low,” he said, citing the sales costs, known as gas, which are needed to make or buy NFT, which can fluctuate depending on the requirements.

However, there are many investors who believe that the market is growing, and in the end it will offer many things, such as allowing experts to collect royal money forever.

“What can you do because it’s software?” asked Benedict Evans, a freelance professional and former venture capitalist. “These could be things if the artist gets a share and a second sale,” he said, referring to new things starting in the area around music rights.

In the past, the so-called ‘financialization’ of NFTs is taking place in some areas – for example, using NFTs as collateral for loans, or breaking the ownership of a single piece into smaller units, called fractionalisation.

Over time, enthusiasts expect that tokens will one day use commercials on any platform or metaverse, future worlds filled with digital avatar. Here, NFTs can refer to the ownership of real property, be it digital avatar clothing or artwork on the walls of their digital homes. Nike recently announced that it had purchased a shoe company to make sneakers.

NFT on board at Time Square, New York
NFT sign on Times Square, New York © Seth Wenig / AP

In any case, the future of the NFTs market will also depend on how the regulators adopt as the freewheeling market moves.

There are concerns, even among industry providers, that NFTs share form with other digital vehicles and as a result can be considered secure by regulators. Devika Kornbacher, a partner of Vinson and Elkins, said companies looking to donate NFTs frequently asked: “Is this NFT seen as a financial instrument? Can it be seen as a protection for our company?”

At the moment, tax agencies such as the Internal Revenue Service do not have to deal with NFTs directly, but some experts argue that. they can be considered “Collection”, meaning to pay high taxes.

“This is a problem that is coming to all companies,” said Pratin Vallabhaneni, a colleague at White & Case, pointing out what was to come.

Additional reports by Eva Szalay and Siddharth Venkataramakrishnan


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