Last week, the NFT market broke another record, reaching $339 million in trading volume for the first time in its history. Axie Infinity, an NFT-based game, and CryptoPunks, a project selling unique pixelated avatars, account for most of this sum: $127 and $207 million, respectively.
Disruptive and glorious like Cruellas of the digital space, non-fungible tokens go on rocking every sphere of the market that has anything to do with intellectual property, authenticity checks, goods visualization, or digital collectibles. Let’s look into the whys and wherefores of that.
Gaming Embraces NFTs
The recent upswing of NFTs owes a lot to the gaming industry, which readily accepted them as its own. Compared to what’s happening now, CryptoKitties start to look like a kid’s game (pun intended), as more and more companies in the sector are introducing non-fungible tokens into their products.
Artem Gribanov, Founder and CEO of BlockCzech RD Lab, explained the popularity of NFTs among gamers – and what they bring to the party.
“Gamers are used to buying digital in-game objects and other virtual resources. With NFTs, the blockchain market with its open economic model enters the gaming scene to benefit both the gamers and the industry, as it provides a brand new way of generating income.
It is a unique phenomenon: game development implies the use of all available media. The adoption of NFT technology in gaming will involve even more 3D artists and designers, musicians, fans, players, and developers from the NFT market.”
By the looks of it, non-fungible tokens do have a promising future in the gaming industry: the one yet to unfold. The world of digital art, though, remains the most controversial area of their application. On one hand, NFTs offer new growth points for the art industry, e.g., pushing the limits on how trademarks, copyright, and showcasing work. On the other hand, the new tech got lawmakers seriously concerned with the magnitude of exploits it enables.
Hunger for Art (And Money)
Ever since Beeple set a precedent, the numbers and volumes of NFT artwork sales have been growing by the day. More marketplaces emerge all over the space, more artists create their own non-fungible tokens, while more buyers grow eager to grab their bite of the NFT pie.
Binance NFT marketplace, for one, now has approximately 500 registered accounts. We’ve spoken to one of the artists, who (wishing to remain undisclosed) shared some interesting facts about the inner works of NFT art trading.
“By the marketplace rules, an auction lasts from 3 to 7 days. On average, the price for a single non-fungible token with a starting bid of $5 grows to $100 during this period, reaching $200-400 in some cases – which means the owner gets 20x to 80x profit.
The speculation here is widespread: the owners pump the prices of their own NFTs. And while a great number of accounts post random no-name digital paintings, there’s still a demand for those. Technically, artists can upload dozens of artworks a day: I’ll leave it to you to calculate the potential revenue”.
But there’s more. According to Tim Swanson, head of market intelligence at Clearmatics, none of the major NFT marketplaces currently use KYC or AML/CFT. Add to that the fact that the buyer determines the price, and we get another problem: money laundering.
While trade-based money laundering is not new to the art industry, with the illicit cultural goods market yearly volume estimated roughly at $10 billion, multiple sources including Decrypt recognize that NFTs can actually make matters way worse. Dubbed ‘the best money laundering method in the cryptocurrency world’ in one of the Hacker News posts, non-fungible tokens are due for regulations – which are already on their way.
The Adulthood of NFTs
This March, Financial Action Task Force (FATF) released draft guidance, which categorizes non-fungible tokens as Virtual Asset Service Providers (VASPs). Should it be adopted, NFT marketplaces will have to comply with the AML/KYC rules – which, in the long run, means a new crackdown following pretty much the same scenario as with Bitcoin and other cryptos.
If you ask me, that’s a good thing. Anonymity has never been one of the tech’s biggest assets: the convenience and flexibility have. It’s about the new opportunities in the field of digital goods and ownership rights distribution, and the benefits provided by the open economic model Gribanov mentioned in the quote above.
The technologies mature in the same way people do, going through certain stages in their development. Looking at the NFTs today, I feel a vibe similar to 2017’s ICO boom – and look where blockchain and cryptocurrencies are now, embraced by the world’s leading companies in almost every industry.
No, smart regulations will not be the death of non-fungible tokens. Quite the contrary: they will power the technology for wide adoption, helping it grow into a full-fledged member of the digital economy.