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Follow the endless ecstasy…
The face of “Cyberpunk” split for 11.2 million dollars. Tweet worth $2.9 million. Pictures of bored monkeys for hundreds of thousands of dollars. NFT prices have at times skyrocketed in recent months. Countless digital “unique items” are sold on specialized platforms such as OpenSea or Rarible as the so-called NFTs. In other words, virtual objects or goods that are traded decently via the blockchain. Each NFT promises excellence. The buyer is registered as the owner on the blockchain and can thus show the certificate of authenticity of his virtual object. Unlike other tokens or cryptocurrencies, non-fungible tokens are not divisible and must be bought or sold as a whole. In order to be able to trade and store NFTs, buyers need a compatible wallet such as MetaMask.
Some of the current application examples of NFT are:
- art market: Digital artwork is displayed and sold on special platforms such as Rarible. Art is by far the largest field of application of NFTs and is largely responsible for the current hype.
- Metaverse/Games: Avatars, skins, or possessions are common items that are traded as NFTs in games like Decentraland or Sandbox.
- collectibles: What used to be Panini Cards are now CryptoKitties, NBA Top Shot Cards, or Fantasy Football Game Sorare, where users can buy token versions of their favorite players, for example.
- a musician: Broadcasting and MP3s have eroded artists’ revenue streams over the past few decades. Musical NFTs open up new opportunities to market a one-off business or to earn royalties without intermediaries such as record companies.
- trade mark: Major brands like Nike, Samsung or Adidas are already using the NFT to introduce new products, test innovative forms of customer interaction, or market special editions of their articles as digital items.
- documents: The ID card, driver’s license or immunization card can be secured against tampering and theft via NFT and thus can be recalled anywhere, anytime.
- industry: The use of NFTs can provide evidence of the authenticity of each product. Whether it’s high quality branded goods, parts or medicines: all kinds of merchandise can be checked for authenticity by tracing them back to the original manufacturer.
It is not yet clear which NFT application options will prevail in the future or whether the current hype surrounding NFT art and collectibles will largely disappear. Statistics show that the trend is still up: the total NFT trading volume was an estimated $15.3 million in the first quarter of 2020. In the first quarter of 2021, it was already more than $2 billion and in the fourth quarter of 2021 11.6 billion were sold. dollars with NFT. However, skeptics like Fred Ehrsam, co-founder of crypto exchange Coinbase, predict that sooner or later the “NFT bubble” will burst. In an interview, he stated that he estimated that 90 percent of all NFTs produced would be of little value in three to five years and drew parallels with the dotcom bubble of the 1990s.
With the currently prevalent euphoria around NFT, the criminal activities based on it have also increased. This includes the laundering trade to artificially increase the value of collection and money laundering.
Risky NFT Markets
Wash trading is the execution of a transaction in which the seller and buyer are identical. NFT is “sold” to a new wallet at a high price, but it is owned by the original owner. This can make the NFT seem more valuable than it actually is. Since the majority of NFT trading platforms allow users to trade without complicated registration procedures, it is easy to do so.
A recent report from Chainalysis outlines the extent of laundering trading: Chainalysis tracked more than $44 billion in crypto assets in 2021 and was able to identify 110 traders with a total profit of nearly $8.9 million.
According to the study data, money laundering using NFT is still relatively small. However, money laundering poses a significant risk to the credibility of NFTs, and therefore must be closely monitored by markets, regulators and law enforcement agencies.
In addition to fraud and money laundering, foreign non-financial funds are also subject to other investment risks. These include, for example, theft through hacker attacks or scams, as well as a lack of regulation on the part of supervisory authorities.
Regulated investment codes
But tokens are not equal to tokens. For a better classification, a distinction is generally made between three basic forms: tokens with a payment function (payment or currency token), tokens used for investment (security or investment tokens) and access keys for goods and services (utility tokens). For example, while investment tokens are already regulated by Bafin as securities-like assets, NFTs remain in a legal gray area with very different international ratings and little investor protection.
Because of the prevailing risks of NFT, investors should consider alternatives that represent actual physical assets. Real artwork, classic cars, real estate or diamonds can also be displayed and traded digitally on the blockchain in the form of investment tokens. These innovative and alternative investment opportunities have several crucial advantages for investors: real assets, legal framework, reputable trading platforms and access to classes worth €500 equivalent.
More information at Finexity.com