What Is an NFT? Inside The Next Billion-Dollar Crypto Sensation.

What Is an NFT? Inside The Next Billion-Dollar Crypto Sensation.

March 8, 2021 6 min read

Opinions expressed by Entrepreneur contributors are their own.

If you haven’t heard of them now, it’s only a matter of time. Whether its digital sports cards or digital artworks, NFTs have been taking the internet by storm and have simply doubled their total volume in USD in the month of February alone. So what are these digital assets selling for fortunes, from niche marketplaces to world-famous auction house Christie’s?

What does NFT mean?

An NFT is a non-fungible token existing on a blockchain. A token is the sign of ownership of an asset. For example, a concert ticket is a sign of ownership of one space for a concert. A Bitcoin is the title of ownership to the underlying value of the Bitcoin. A token is a digital asset, stored on the blockchain. As the blockchain is transparent, it is easy for all to see who is the owner of what token.

Fungible refers to an asset that is easily exchangeable. A dollar is very fungible, you can give me a dollar in exchange for some good and I can then re-exchange it for another service. A neighbor could borrow a pound of sugar to bake a cake and buy me another one in a few days when he goes to the supermarket. It doesn’t matter that the sugar is different, it is easily replaceable and exchangeable.

A non-fungible token is a unique token that isn’t easily exchangeable with another. The foremost use case is artworks. Artworks have been selling on the blockchain for millions of dollars (or in this case a blockchain native currency, Ethereum). Examples abound but the most famous NFT artist so far is Beeple who first sold 21 pieces of artwork on digital marketplace Nifty Gateway for a total of $3.5 million. He then went on to sell his masterpiece “EVERYDAYS: THE FIRST 5000 DAYS” at Christie’s for $6.5 million. Beeple is Mike Winkelmann, previously a graphic designer from Charleston South Carolina.

Artworks are not the only things exchanged in these marketplaces. More and more volume in the NFT space is coming from digital sports trading cards. In fact, fans of basketball have already spent $230 million trading NBA Top Shot cards. These cards represent certain classic moments for the sport and there is only a limited amount of each. The ownership and the scarcity of these cards are insured by the Ethereum blockchain. Recently, a rare Lebron James highlight sold to the highest bidder for a crisp $200,000.

Related: How Esports and Gaming Are Bringing Crypto to the Masses

Why would anyone pay for this?

The crazy thing about these purchases is that anyone can download Beeple’s artwork or Lebron’s highlight. It is as simple as clicking ‘save image’ on your laptop. What buyers are after is not the artwork in itself but the proof of ownership for that artwork. The buyers are akin to art collectors putting their most prized possessions on display in museums. NFTs represent a way for art collectors to encourage financially their favorite artists online.

As humans evolve more and more, especially in lockdown, it seems only natural that we decide to buy art in the digital world as well. One step further, certain platforms such as Decentraland allow users to buy land or real estate in a digital world.

While this has been no more than a niche sector of the internet, in the last six months it has truly exploded onto mainstream media and seems to be here to stay. While the first experiments with NFTs date back to 2013-2014, the market seems to arrive to a certain maturity and mainstream appeal in 2021.

Several issues remain with the NFT market, however. As the main currency of exchange and the network on which marketplaces are built is Ethereum, transaction fees are very high and it is commonplace to have to pay $50 to transfer the property title of an NFT from its creator to the buyer. On platforms such as Rarible or OpenSea, the current market leaders, not only does each transaction (creation of the NFT, bids, transfer of ownership) costs users large sums, they also amount to the terrible carbon footprint of the Ethereum network.

There is hope, however, as Ethereum is planning to change its architecture by the beginning of 2022 to be much more eco-friendly. In the meantime, certain marketplaces have found technical solutions to these limitations. Drops.is, an upcoming NFT project that lets you do a lot more with NFTs than just buy and sell. It allows users to create NFTs, bid, stake, take loans by using your NFT as collateral. It’s also using a Layer 2 solution by building on Polygon network, reducing both the costs of these transactions to a few cents (which are paid for by the platform itself) and the important environmental costs.

Related: This Rainbow Kitten Image Was Auctioned for More Than $500,000

The new creator economy

The most exciting part of the NFT revolution is that artists specialized in digital arts will finally be compensated for their work. Until now, it was very hard for artists to monetize their creations because of the very nature of digital art and its infinite reproducibility. Now, true fans of the artists will be able to directly support them with any middle-men or platform.

Mainstream artists seem to have caught on to this trend with artists such as Grammy-winning Kings of Leon releasing their latest album as an NFT. It’s also the case of Grimes, Lindsay Lohan or even Soulja Boy who all released NFTs representing music, digital artworks or even the ownership of a limited-edition vinyl.

But it is not only artists who can make money from NFTs, the market for digital sports card for example has already exploded. Soccer trading card platform Sorare has seen the unique 2020-2021 Kylian Mbappé card sell for $65,000. Cashing in on sports fans stuck at home has turned out to be extremely profitable for these platforms, so much so that it has brought the attention of gaming giant Ubisoft who has now partnered up with Sorare for future projects.

NFTs are the hottest item in the recent crypto craze and as mainstream artists start to discover them they will only become more popular and coming soon to a digital market near you.

Investors Put Less Money Into Crypto Funds Last Week as Bitcoin Market Stagnated

Disclosure

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies . CoinDesk is an independent operating subsidiary of Digital Currency Group , which invests in cryptocurrencies and blockchain startups

Major Crypto Exchange Coinbase Closes In On Going Public With Pre-IPO Valuation Of $100B

Benzinga

Crypto tax season is just around the corner and the IRS is back on the prowl. For many in the crypto-space 2020 has been a year of plenty, with crypto-veterans and newbies basking in profit-induced highs. However, if you want to ensure that your trip remains one worth remembering, navigating the bureaucratic swamp of crypto taxes is a must. Here is an overview of the state of U.S. crypto taxes in 2021 to help you on your way! The first helpful piece of advice to help you on your journey out of the woods are the key U.S. tax season dates: Friday, February 12th. IRS begins 2021 tax season. Individual tax returns start being accepted, and processing begins. Thursday, April 15th. Due date for filing 2020 tax returns or requesting extension of time to file. Thursday, April 15th. Due date for paying 2020 tax owed to avoid owing interest and penalties. Friday, October 15th. Due date to file for those requesting an extension on their 2020 tax returns. In addition to some of the key dates you should mark down in your calendar, its important to remember that: Individual income tax returns are due on April 15th which is on a Thursday this year and will not be impacted by the weekend or holidays. LLC and Partnership returns (IRS Form 1065) are due March 15th, 2021. The extended deadline is September 15th, 2021. C-corporation income tax returns (IRS Form 1120) are due April 15th, 2021, for C-corporations that operate on a calendar year. The extended deadline is October 15th, 2021. S-corporation returns (IRS Form 1120-S) are due March 15th, 2021, for corporations operating on a calendar year. The extended deadline is September 15th, 2021. Foreign partnership returns are due on the same date as other partnership returns on March 15th, 2021. For those of you wishing to find out what the tax filing deadlines are in your state, we have included the Complete State Tax Extensions List here. Remember, the state crypto tax returns are due on the same date as the federal tax returns. However, some states allow you to file your taxes at the federal level. Conversely, other states may allow you to file an extension at the federal level. In addition to providing an overview of the regulatory landscape that you will have to traverse when filing your crypto taxes, we have also included a list of things worth knowing about your 2021 crypto tax return. Whenever you trade one cryptocurrency for another, then the gain on the value of the first currency will be taxed. Everyone should answer yes to the new virtual currency Form 1040 question. Airdrops and interest from staking and lending are taxed as ordinary income at the fair Market value in US dollars on the day received. You’re taxed on your net gains. Net gains are your gains minus your losses for the year. Therefore, you should report all losses to reduce your taxes. It’s almost impossible to calculate your crypto gains without using a crypto gain calculation service like Accointing.com. If you get a 1099K from any US exchange, your tax return needs to account for all the trades you did during the year. Otherwise, you are asking for an IRS audit. We strongly believe with this information in hand, your crypto tax journey will be smooth sailing. If you have additional questions or wish to discuss a more detailed plan on how you can file your taxes efficiently and correctly, we highly recommend getting in touch with Accointing.com and our U.S. crypto tax partner Clinton Donnelly a.k.a The Crypto Tax Fixer! See more from BenzingaClick here for options trades from Benzinga12 Information Technology Stocks Moving In Tuesday’s Pre-Market Session12 Health Care Stocks Moving In Tuesday’s Pre-Market Session© 2021 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.