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What is NFT?
NFT (abbreviation from the English “Non-Fungible token”) is non-interchangeable tokens, which are property titles for various digital objects: texts, images, audio recordings, digital works, gaming objects or characters, domain names, financial instruments, club cards and t. D.
If cryptocurrencies are conditionally interchangeable-for example, one bitcoin in the wallet of one user is equal and identical to one bitcoin in the wallet of the other user (if you do not take the tracking of the origin through blockchain analytics), then one NFT-token, representing the picture, is not equal to one NFT-TOKEN ONE user, since it can be different paintings of different artists with different costs.
Each of the NFT-TOCENS is unique and exists in the singular. Undeductive tokens are unique – they cannot be copied. Each of them contains identifying information recorded in smart contracts. This information makes each NFT different from another.
With the help of NFT, the developers solved the problem of ensuring property rights to digital objects. Information about the owner and its tokens is fixed in the blockchain. It is impossible to replace or delete information.
How NFT appeared?
Experiments with NFT began with the advent of such solutions as Colored Coins (in 2013) and Counterparty (in 2014), which made it possible tokenization of assets on the Bitcoin blockchain.
In 2017, the NFT project Rare Pepe Directory was known-memes with a frog Pepe. The first NFT on the Ethereum blockchain in June 2017 was the project of the Larva Labs team – pixel portraits of Cryptopunks. Initially, crypto companies, of which are only 10,000, were distributed for free, but at the time of writing they are already perceived as a valuable blockchain-antifurial.
The first hype in the history of NFT was Cryptokitties. The project launched in November 2017 makes it possible to “breed” cats. The user takes two NFT cotes and produces from them NFT-pressure of varying degrees of rarity that leaves for himself or sells.
Many projects began to experiment with NFT breeding mechanics, adding other game elements. For example, L2 games arose, built by third-party developers on top of Cryptokitties. The idea of such games is that not NFT is created under the game, but games are created for existing tokens. This idea is developed by the Enjin project, which collected 75,000 ETH during the ICO at the end of 2017, and Eminence from Andre Kronya.
L2-application WrappeD Kitties allows you to wrap the NFT cotes into the ERC-20 tokens. If the user does not afford an expensive token, he can buy it part. As of March 11, 2021, the capitalization of the market of wrapped NFT was $ 5.098 million.
Another project with a gaming element is AAVEGOTCHI, connecting the mechanisms of the AAVE Landing Defi Service and the popular Tamagochi toy toys.
The so-called bubble games in the style of “hot potatoes” also appeared. Their rules are simple: each next buyer NFT pays more than the previous. After someone bought NFT from the developers, with each subsequent resale, the price of the asset automatically increases according to a given algorithm.
The tokenization of non -replaceable digital objects quickly spread to card games (GODS Unchained), RPG (Mycryptoherites, Neon Distrib), sports games (F1 Delta Time, Sorare), virtual worlds (traditional financials), domain on ETHERAU), domain on ETHEREU) Tools (yinsure).
The tokenization of digital art received a new impetus: creating NFT, selling them and receiving royalties from them, it has become even easier.
All classes of digital objects are actively traded on marketplaces. NFT production and turnover ecosystem includes dozens of projects.
What standards of tokens are used to release NFT?
Most non -replaced tokens are available on the basis of Ethereum in several main standards. Standardization of NFT output guarantees a higher degree of interactiveness (the capabilities of blockchains to interact with each other), which allows you to transmit such non -replaceable tokens between different decentralized applications.
ERC-721 is the first and most popular implementation of NFT on Ethereum, expanding the capabilities of the base standard ERC-20. In it, each type of tokens requires a separate smart contract.
Later, other versions of standards appeared:
– a developing standard that allows you to create composite tokens – digital asset “owns” other digital asset. For example, the right to own a game character in a computer game is presents one non -replaceable token, and the rights to equipment – the other. ERC-998 allows you to combine them into one token.
- Using ERC-875, you can send several collection items in one transaction. -an improved standard that allows you to work with several types of tokens through one smart contract at once. Such a contract can simultaneously be both NFT and ordinary tokens. It allows you to store a wide range of objects: from armor and weapons to magical potions and scrolls, where each of these objects can be interchangeable if there are several copies of the same type. If the game contains tens of thousands of elements, then in the case of ERC-721 it is necessary to create the same number of separate smart contracts. ERC-1155 allows you to combine ERC-721 tokens in one contract, each of which is stored with its own data set. As a result, the game character consists of all the NFT that is based on it: weapons, armor, special characteristics and even other ERC-20 tokens.
Another NFT standard, which is actively working on is Blockchain Bean Asset or BBA. The authors of the standard for Ethereum are Blockchain Game Alliance, which includes prominent companies in the game market, like Ubisoft. Within the framework of this standard, developers intend to integrate the possibility of decentralized storage of content.
NFT is not limited to Ethereum – they also exist in NEO, EOS, Tron, Flow, COSMOS and on other platforms.
The MYTHICAL Games team in cooperation with the developers of games and ecosystems EOS (Greymass, Cypherglass, Meet.One, Scatter and Blocks.IO) plans to launch its own NFT standard for EOS: DGOODS.
Tron also attracts game applications developers. For example, Biscute and the creator of EOS games Knights intend to switch to TRON blockchain. It is assumed to unite game projects, where the possibility of acquiring and selling NFT for both cryptocurrencies will be implemented.
What is the NFT ecosystem?
|Protocols for financing NFT||NFTX||Upshot||NFTFI|
|NFT issuance protocols||Superare
|Sadchans and second -level solutions||Immutable X||Axie Infinity||Efinity|
NFT projects are developed mainly in Ethereum, Flow and Wax networks, as well as on the basis of second-level solutions and sides.
Platforms for release and marketplaces can be divided into the following categories:
- Aggregators providing the purchase and sale of NFT.
- Universal issues of release that ensure the creation of NFT.
- Nisch marketplaces: Marketplaces or issuers of art of art prevail, but NFT blogs, such as Mirror, and marketplaces in the field of music, for example, Eulerbeats, also gradually arise.
Where NFT is used?
|Images||Paintings, illustrations, design, photographs, stock images.|
|Audio||Music, podcasts, radio programs.|
|Written content||Blog Posts, tweets, instructions.|
|Metavselnaya||3D models, internal assets of games, maps, augmented reality assets.|
|Video||Films, TV shows, streams, show, video.|
|Space of addresses||IP addresses, domains.|
What NFT markets exist?
NFT marketplaces/output protocols
Universal marketplaces/output protocols
Nichest Protocols for the release of content
Marketplaces of works of art are a kind of combination of auction houses, galleries and issuance protocols.
Nifty Gateway and Superrare themselves invite to the platforms of creators with a high reputation.
Other marketplaces, Opensea and Rarible, are more universal and similar to Etsy or Ebay – on these sites the creators can set their own works of art.
Opensea is the largest NFT market in the volume of trading, it supports the trading of the ERC-721 and ERC-1155 tokens, which were used to create more than 4 million unique digital items.
Collectible NFT can be traded at the AUCTIONTYS site, which allows you to sell and buy gaming assets in the auction mode.
Knownorigin trading platform, launched in February 2018, may be interesting to designers and artists. Using the internal token Knownorigindigitalasset (Koda) of the ERC-721 standard, users can purchase art objects, as well as confirm the authenticity and authorship of their creation. Knownorigin offers more than 19,000 works of art for sale.
The PIXURA project offers templates for NFT markets that allow you to launch trading platforms with any ERC-721 tokens.
How they make money on NFT?
one. Buying individual NFT and subsequent resale.
NFT can be bought on marketplaces like Opensea and Rarible. Opensea allows you to buy and sell NFT for different assets, but the default currency is ETH.
In the future, you can try to sell NFT above the purchase price.
2. Buying native tokens of NFT projects.
Users buy RARI control tokens from Rarible. Rari tokens owners can vote for the project updates and participate in moderation.
Axs from the game Axie Infinity, as well as Meme from the Protocol of the same name, the NFT project project, is also of interest. Meme token stake allows you to unlock limited in the amount of work of different artists or collection cards.
Another control token is SAND, intra -game currency in the Sandbox platform universe.
Another category of assets with a slope in NFT is tokens, which are the rights to partial possession. For example, the cartoon coins of the NiftEx project, which allows you to break NFT into small parts, expressed in more liquid ERC-20 tokens. The share of one non -replaceable token may have several owners at once.
The B20 of the Metapurse project is working on a similar principle, allowing to divide the ownership of the work of The Beeple 20 Collection.
3. Lending to NFT collectors.
Many collectors are interested in bail nFT. This allows you to do NFTFI marketplace. In case of failure to fulfill obligations by the borrower, the ownership of NFT goes to creditors.
four. Buying tokenized index funds.
The main idea of the NFTX project is to bring liquidity to NFT like Cryptopunks by creating tokenized index funds $ PUNK. Management token is used by the community to manage the protocol.
5. Buying tokenized insurance policies.
Yearn is popular in Defi and NFT sectors.Finance and his Yinsure profitability insurance project. Tokenized insurance policies from YEARN.Finance can be sold on Opensea and Rarible marketplaces.
The only correct way to collect NFT and earnings on them does not exist. It should be borne in mind that such tokens are low -liquid, and the value of each subject is subjective. To analyze the situation and prices in the segment, you can use analytical resources like nonfungible.
What is PFP?
PFP (Picture for Proof, literally “image for confirmation”) is a type of non -interchangeable tokens used as specialized images or “avatars”. Many market participants, displaced from it as a result of rapid rising prices on Cryptopunks, were looking for more affordable NFT variations.
This led to the launch of numerous projects in the new subsection and the occurrence of PFP Mania. Users Twitter, Discord, Telegram and even LinkedIn began to change their profile pictures on NFT.
Bored Apes Yacht Club (Bayc). Data: Finematics.
One of the first NFT/PFP projects was the Bored Apes Yacht Club (Bayc).
The Yuga Labs Ropard has launched the NFT BORED APE YACHT CLUB series in April 2021. This is a collection of 10,000 high -quality images of “bored monkeys” with an arbitrary combination of accessories – smoking tubes, necklaces, glasses, hats. Among the characters there are both ordinary primates and exotic ones – with golden skin, in crowns, etc. D.
“Yacht Club” in the name of the collection implies that each NFT is a club card giving its privilege member: access to exclusive goods and online Dosk for graffiti, as well as bonuses from the creator of the Yuga Labs series in the form.
Initially, Yuga Labs sold Bored Apes for 0.08 ETH. In September 2021, the cheapest monkey was already about 40 ETH. In the same month, Sotheby’s auction house sold a set of 107 Bored Yacht Club for $ 24.4 million. A set of 101 token from another collection from Yuga Labs – Bored Ape Kennel Club – sold for $ 1.8 million.
Avatar mania led to many other PFP/NFT. Most of them are primitive clones of popular projects, but there are exceptions.
The Pudgy Penguins collection includes 8888 penguins with different features and accessories – scarves, t -shirts, glasses, ironic and t. D.
The World of Women, containing images of women, was created to bring more diversity to the NFT world and present the maximum number of human types.
Along with completely new NFT, teams of projects that have already achieved success are launched by collections inspired by their original creations. The most famous examples of this kind are the Meebits collection, released by the creators of Cryptopunks, and Mutant Apes from the authors of Bored Apes. A similar approach allows you to expand existing user communities and include people for which original collections were inaccessible
Although PFP remains in the focus of NFT users, new interesting niches arise in this sector. One of them is generative or programmable art (Generative Art). It is at the junction of art and programming: the programmer artist writes an algorithm with which AI creates an image.
The art object is created at the time of the release of the new NFT and uses a hash of transactions, always associated with this token. Such a model allows market participants to feel involvement in the creation of a work of art: two users release an art object from one collection, but get different results.
An example of generative art is Autoglyphs – a collection of 512 items created by the onchain based on the ASCII table. They are displayed thanks to the performance of Autoglyphs smart contracts. For each object, the probability of creating certain patterns is individual, therefore, individual fragments are more rare. The average price of Autoglyphs NFT, sold in the last week, amounted to $ 1.15 million.
Many popular works of generative art are created on the Art Blocks platform, launched in November 2020. According to Cryptoslam, the volume of trading on the platform for August 2021 exceeded $ 469 million.
Art objects are created on Art Blocks using a script written in the 5p programming language.JS. Each collection has its own script stored on the Ethereum blockchain. Written on 5p.JS Program can create various geometric forms with different structures, textures and colors, depending on the goals of the Creator.
The most prestigious collection of Art Blocks Curated includes NFT Ringers artist Dmitry Chernyak. In August 2021, the cryptocurrency venture fund Three Arrows Capital purchased Ringers #879 for 1800 ETH (about $ 5.8 million at the rate at the time of the transaction). 1800 ETH – the maximum amount spent on the work of Art Blocks. Previous record – 1000 ETH ($ 3.3 million) for FIDENZA #313 artist Tyler Hobbs.
The most expensive works of generative art sold on the Art Blocks platform. Data: Finematics.
What other directions of development of NFT exist?
NFT incorrectness and indivisibility makes them low. The rapid increase in interest in a short time led to a jump in the average price of collections and made them inaccessible to retail investors. This problem is designed to solve the protocols of the fractionalization of non -replaceable tokens.
The process of factionalization includes two stages: separation of token into parts and ransom. At the first stage, the owner of the tokens creates a repository. Then NFT is sent to a smart contract, and the owner receives interchangeable tokens (fractions or hearts), representing 100% of the rights of possession. Typically, most of the hearts are put up for sale at the appointed price on popular decentralized exchanges – Uniswap or Sushiswap.
After the initial placement of the nFT carts, which they are provided, can be obtained in whole in two ways. The first is to collect 100% of the hearts. This can be problematic for various reasons. For example, when a liquidity pool is created on the Uniswap or its clones, part of the LP-TOKEN is burned so that the unnecessary volume of liquidity is always present on the decentralized exchange. Therefore, after the listing on a decentralized exchange, no one can get a token completely. This means there is a risk that NFT will remain frozen forever.
In order to avoid this situation, NIFTEX, a protocol for the creation of ERC-20 index tokens secured by NFT, and the FRACTIONAL FRACTIONALIAL PLA.ART use the redemption model.
If the user has NFT Charda and he wants to get a whole token, you can make the other holders of the hearts a proposal for redemption. The user sets the price of redemption of the hearts of the hearts in ETH and deposits this amount and his hearts in the smart contract. On NiftEx, the rest of the holders of the hearts of this NFT have two weeks to reject or accept his proposal.
To reject the proposal, they need to completely redeem the hearts at the proposed price. If this does not happen within two weeks, the sentence is considered accepted: the user receives the desired NFT, the hearts set by him are burned, and its ETH is used to repay the rest of the hearts.
On FRACTIONAL.ART Each NFT has a minimum specified price determined by the weighted average votes of the heart holder. Such a model avoids redemption spam. If less than 50% of the cartoon holders voted, the minimum price is not set.
Any external side can deposit products equal or exceeding the minimum price, which allows you to launch an auction. At the end of the auction, the buyer, who offered the highest price, can withdraw NFT, and the holders of the hearts can redeem receipts from the sale.
Niftex uses a more complex redemption model. Only the holder of a certain number of hearts can start the redemption mechanism. If he owns a X% share, then it can start a ransom at $ n value, depositing $ n * (1-x%) to the smart contract.
Although a trading participant may offer a price, other charm holders have the right to collectively reject a ransom in a set period of time at the same cost. They can do this by combining funds in a pool and buying a share of the user who makes an offer. Since the offerer cannot avoid ransom, he is not interested in making offers with a low cost.
If the ransom does not occur, the proposal is accepted. The offering side can withdraw NFT, and profit is distributed among the remaining holders of the hearts.
Rejection of ransom requires social coordination. NFT of the upper price segment is not available on NIFTEX, since it is difficult to coordinate the actions of thousands of holders. Currently, the market capitalization of the majority of the heart -replaced tokens on NiftEx does not exceed $ 1 million.
Homogenization and ransom
Fequrationalization is not suitable for non -interchangeable tokens of the lower price segment, since their low capitalization makes it difficult to promote the liquid market. To attract more affordable NFT, a repository is necessary, taking deposits of various non -replaceable tokens with the same market value. It can be tokens from one collection without unique characteristics.
Users depositing suitable NFT receive a certain amount of interchangeable storage tokens. Burning part of these tokens, the user can withdraw random tokens out of the storage.
NFT homogenization from the lower price segment allows you to accelerate pricing for ordinary collections, since it provides customers and sellers with liquidity. Although the homogenization model contradicts the fundamental idea of the inconsistency of tokens, it is convenient for speculators who want to have access to ordinary NFT, not owning them.
Zavian tokens play the role of financial derivatives in relation to the market dynamics of basic NFT. An example is the Punk vault on NFTX. Having deposited Cryptopunk, the user can release 1 storage token (Vault token) Punk. A deposit of 5% deposit is proportionally distributed among Punk/ETH market liquidity suppliers on Sushiswap.
Such a model encourages passive market makeup and provides liquidity. In exchange for a deposit, the user receives only 0.95 punk token. He may not pay a commission if immediately after the issue uses Punk tokens to ensure the liquidity of Punk/ETH for at least 48 hours.
For 1 punk you can buy from the storage random Cryptopunk. Recently added a targeted ransom option. It allows you to choose from the repository of any NFT for redemption with a bonus of 5% (1.05 PUNK in this case). As of September 17, 2021, the total amount of funds from commission fees on NFTX exceeded 742 ETH ($ 2.48 million). The NFTX was controlled by 8146 NFT.
On the NFT20 site, storage facilities operate according to a similar scheme, but the deposit commission goes into the treasury of the protocol and is distributed among Muse token holders.
What calls the NFT sector faces?
NFT storage is carried out in different ways. Undeductive tokens are distinguished by such characteristics as the proved right of ownership, verification and accessibility of the history of origin and possession. These parameters are achievable due to the fact that NFT is created on Ethereum and other blockchains.
However, images cannot be stored on the blockchain itself, so the majority of NFT simply include a link to an art object and its metadata, which are stored offchain.
Storage NFT. Data: Finematics.
To store offchain data, some projects use centralized servers, others load metadata and art objects on IPFS. Another solution is the ARWeave (AR) data storage protocol. Exceptions are works of generative art and individual NFT with low resolution, which can be stored exclusively by onchain.
Some NFT allow the owners to freely dispose of them, other projects limit the potential use of their tokens, but also give the creators intellectual property rights.
Gas commissions in Ethereum
Most NFT are available according to the scheme “who did not have time, he is late”. This leads to the invasion of bots and gas prices for gas prices. As a result, ordinary users are either not allowed for sales or overpayed for the release of tokens. The problem of gas prices can be solved due to the integration of NFT with solutions of the second level.
Infrastructure for the purchase, sale and display of NFT
Currently, the lion’s share of the NFT trading volume falls on the largest Opensea marketplace, where centralized project supervision is carried out. The solution to the problem may be the decentralization of Opensea and the emergence of other decentralized solutions.
NFT as a potential tool for laundering money and tax evasion
In the assessment of the sector, traditional artists were divided into two camps: some, for example, Damien Hurst, see in NFT a new promising direction, others, such as David Hokni, call the segment “abode of crooks and scammers”.
Huge turns and the traditional way of the industry of trade works make it attractive to criminals who want to legalize illegal income. Regulation in this area is becoming tougher, so launders are looking for new tools to implement their schemes. One of these tools can be NFT. There are no problems with the transportation of tokens, they do not need to be stored in a physical place, and most platforms oriented on this segment of the platform industry work with minimal KYC requirements or without them at all without them.
Potential money laundering subjects can indeed pay attention to NFT marketplaces. The largest of them-Opensea-identifies customers on the Ethereum-pose and allows for “private sales” of digital assets. The latter are auctions available only to the addressed addresses in advance.
The founder of the consulting company Post Oak Labs and the former director of market research of the blockchain conservatory R3 Tim Swunzon believes that non-replaceable tokens are already used not only to launder criminal proceeds, but also to avoid taxes.
According to him, the mechanism of money laundering using NFT is as follows: a well -known account with large tax liabilities buys it [token] from an unknown account, and then resells the third account at a significantly lower price, receiving a loss that compensates the above tax obligations. This is repeated again and again.
According to the GMT Legal managing partner Andrei Tugarin, there is no legal regulation in the NFT market in the field of counteracting revenue laundering – the segment remains a gray zone in which it is very easy to “clean” the funds. Therefore, it is worth expecting a surge of “washing” transactions with incorrect tokens, especially against the background of tightening the regulation of the material art market.
However, cryptocurrencies are also associated with the legalization of illegal means, which did not prevent them from turning into a multi -billion dollar industry
The fact that NFT, like other digital assets, is available on the blockchain, which means that the history of their transactions can be traced with proper desire, also does not speak in favor of laundering. The seller and buyer of token can be identified in the “narrow place” of the alleged scheme – during the conversion of cryptocurrency into fiat.
NFT market regulation
Lawyers of the New York company Kobre & KIM consider the lack of regulation of one of the main problems of the new market. They noted that US supervisory authorities have already paid attention to this segment of the industry and probably intend to bring it to the legal field. In particular, operators of marketplaces can be equated with art dealers.
If NFT is recognized by cryptocurrencies, the operators of the corresponding platforms will also be required to comply with the AML/KYC requirements, since they are introduced by local bitcoin-foreigners.
There is a third option – non -replaceable tokens, at least some of their varieties can recognize as securities. Earlier this was announced by the Commissioner SEC Hester Pierce. In this case, the commission will directly engage in the regulation of the market.
According to the former USA Today journalist Isaia McCall, NFT “doomed to regulation”. If you look at how the state departments systematically put things in order in the cryptocurrency industry, you can see that this could not be avoided by any of its segments – from ICO to Defi and Steabelcoins.
A similar fate is waiting for non -replaced tokens, which will make money laundering with their help difficult. Some financial regulators and intergovernmental organizations like FATF have already paid attention to NFT.
How the NFT industry develops?
From February 4 to March 4, 2021, the volume of trades of unexplored tokens (NFT) on the 12 largest platforms amounted to a record $ 480 million.
Interest in the sector, in addition to representatives of the cryptocurrency industry, was shown by entrepreneurs, politicians and a creative elite.
Among the NFT, actress Lindsay Lohan, Senator Vermont Bernie Sanders, the author of the Nyan Cat meme and a Russian artist found themselves at NFT.
Tecenized tweets, gifs, presidential portraits and music albums collect millions of dollars on tenders as soon as possible. Only during February 22, 2021, users spent more than $ 64 million on NFT, excluding expensive lots. Some copies, for example, Cryptopunks were sold for 90-400 ETH, and the most rare-for a record 4200 ETH.
March 11, 2021, the British auction house Christie’s sold NFT artist Mike Winkelman, known under the pseudonym Beeple, for $ 69.3 million – this is a record price in NFT history.
In the second half of February 2021, the NBA Topshot NBA Topshot cards with cards for basketball topics-over 45,000 users, increased significantly.
Opensea in February overcame the mark of 1000 daytime users. On the most loaded days, the third largest marketplace Cryptopunks recorded 350 users.
The number of transactions is closely correlating with the number of users. On February 22, the NBA Topshot platform recorded over half a million translations, Opensea – over 4000, and Cryptopunks – 1400.
Along with Ethereum, new, high -performance blockchains like SOLANA, Tezos and Polygon are increasingly using NFT.
Another direction of the development of the NFT segment is the creation of Tao, intended mainly for the purchase of non -replaced tokens. Limited tools can unite with others in the framework of the Tao. Jointly purchased NFT can be tocenize and distributed among participants. According to this scheme, Pleasrdao acquired Dogecoin NFT for $ 4 million.
One of the innovations in the market was the LOOT project. Loot NFT contain only metadata that describe the set of objects in a hypothetical computer role -playing game. Loot community members have the right to decide how to use and even how to visualize these items.
For the first half of 2021, the indicator of the entire NFT market was $ 2.5 billion.
From May to August 2021, the share of Defi protocols in the traffic of Dappradar trafficed decentralized applications (Dapps) decreased from 45% to 18%, losing to projects in the NFT and Gamefi segments (41% and 55%, respectively). Analysts explained the increase in the share of the NFT segment with a new wave of interest in non -replaced tokens.
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