GET EVERYTHING – Because investing in NFTs is very risky

Still mysterious to many French people, NFTs are a new bet for many Internet users. But the risk of losing everything is significant.

There are three letters that question, make you dream or irritate. NFTs (“non-fungible tokens” or “non-fungible tokens” in French) have been talking about it for several months. Despite a concept that remains very vague for the most part, they have already attracted 3.5% of French people. But turning to NFTs is often a high-risk bet. Explanations.

• What is an NFT?

On paper, the definition of NFT is elementary: it is neither more nor less than a digital ownership certificate. That is, a document certifying that an individual is the owner of a physical or virtual object.

The term “non-fungible token” refers to the fact that unlike a cryptocurrency, such as bitcoin, an NFT is unique. If a bitcoin is worth any other bitcoin, an NFT can always be identified and certify ownership of a unique item.

“NFTs can represent different digital objects, or for example show tickets, which have the characteristic of being unique,” ​​sums up Willem van den Brandeler, executive of the specialized company Chainalysis, with BFMTV.

• What is not an NFT?

“There is a lot of confusion about what an NFT is,” admits Willem van den Brandeler, however. For confusion, the NFT is sometimes identified with the object it is attached to, such as a work of art. By analogy, this error would be tantamount to confusing a sales receipt with the product it tracks the purchase.

Nor is the NFT a certificate of intellectual property on a work of art. As with the sale of a classic painting, the buyer does not benefit from the reproduction rights on the work itself. In the same way that the buyer of a disc does not obtain the copyright on the music contained therein.

Furthermore, an NFT in no way constitutes an exclusive right to a digital work of art. If it is available online, for example in JPG format on an auction site or on social networks, the image associated with an NFT can be saved and used by anyone, free of charge.

• What is an NFT for?

Without exclusivity on the work of art connected to it, owning an NFT is simply equivalent to being recognized as the sole owner of this work, without however benefiting from any advantage over other Internet users, who are also free from it. as wallpaper on your smartphone or even print it to view at home.

Unlike a painting, there is no “original” version in the real world, which the owner could take advantage of.

In this context, an NFT has no intrinsic function and is a purely speculative asset. For the buyer, the goal is to later resell it at a higher price to make a profit.

• Is an NFT necessarily speculative?

“Most people understand perfectly well that this is speculation. But in the medium and long term, NFTs will tend towards uses and not just artistic speculation ”anticipates Owen Simonin, whose YouTube channel on the subject of cryptocurrencies now exceeds 500,000 subscribers.

Although NFTs are often associated with works of art, these certificates of ownership can be attached to any object. For example, the Coachella music festival recently put on sale tickets that offer “lifetime” access in the form of NFT. As with any show ticket, the buyer can choose to use it or possibly resell it if its price increases.

• Why do so many people want to invest in NFTs?

“The starting point of this craze is in March 2021, with the sale of an NFT from Beeple for $ 69 million. There were then less than 10,000 people who had NFT, then there was a transition phenomenon of people who went into cryptocurrencies for two years and were unaware of this phenomenon “recalls Jean-Michel Pailhon, executive of the Ledger, specializing in cryptocurrency storage and itself an NFT collector.

“It is an interesting market which is growing very rapidly. In 2020 we had 106 million dollars in transfers, in 2021 we went to over 44 billion ”recalls Willem van den Brandeler.

In addition to the purely speculative aspect, the NFT craze has been carried on by some stars such as footballer Neymar or singer Justin Bieber. By offering NFTs attached to monkey designs, instantly raising their prices, they have inspired many of their fans.

“NFTs are both an object of belonging to a community that is worth something to some. There is a side to status, like someone who would play on her status by having a Rolex. On social networks, hundreds of people will know that you have an NFT ”summarizes Jean-Michel Pailhon.

• What are the main risks of NFTs?

When it comes to buying a work of art, the main risk is the loss of value of this work itself. Yet it is precisely this use that seems to make some Internet users dream of making a fortune. But the lack of knowledge of this sector, which now seems accessible to all, can lead to great risks.

“As in the traditional world, very few works will really have any value. When it’s no longer in fashion, it can quickly go the other way, ”tempts Owen Simonin to BFMTV.

But the specialist hints at another big risk: the drop in price or interest in Ethereum, the cryptocurrency used for the NFT exchange and in which buyers are therefore forced to invest to access this market. “In that case, interest in NFTs could collapse,” he says.

Alongside these market developments, one of the main risks for investors is linked to the massive presence of scams, developed by scammers who want to take advantage of the NFT craze.

• How to recognize an NFT scam?

Among the main NFT-related scams, experts cite “wash trading”. A scam that involves the creation of an NFT and then the creation of multiple accounts to buy the digital asset from yourself at increasingly higher prices. The goal is therefore to simulate market interest by creating a false increase in the price of the NFT.

To detect these manipulations, a good knowledge of technical tools is essential, starting with that of the blockchain, the technology behind cryptocurrencies and NFTs. It is a digital ledger open to all, showing the history of all transactions made around a digital asset.

“We can, for example, compare transactions related to an NFT with other transactions of the same type. Knowing that the fees apply to each trade, it can be interesting to see if the price evolution is based on a low number of trades. A sign that could suggest that it is a scam ”explains Owen Simonin.

“There is also the risk that the communities that promote these NFTs on social networks or Discord are actually bots, giving the impression of a mania,” adds Willem van den Brandeler. For the potential buyer, therefore, it is essential to take the time to study the enthusiasts of an NFT collection.

The other main risk relates to the profusion of NFTs based on works of which the seller is not the true author. On paper, nothing prevents a dishonest Internet user from saving a photo or video found on the Internet for resale as an NFT.

On the Opensea exchange platform, the most widespread on the NFT market, 80% of ownership certificates are therefore linked to fraudulent works. It is therefore essential for the buyer to inquire about the legitimacy of the seller’s account, and the history of the work he intends to acquire.

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