NFTs entered our lives with record sales figures in 2021. Artists, celebrities, and collectors literally fly into NFTs. The digital collage named “Everydays: The First 5000 Days” made by Beeple, one of the first names that come to mind when it comes to NFT artworks, was sold for 69.3 million dollars, and still maintains the top spot on the famous NFT marketplace Opensea. Some trendy NFT projects have also emerged from Turkey. Refik Anadol's work “Machine Hallucinations” was sold for 5.1 million dollars at the auction house Sothebys. The artist nicknamed Pak is a titleholder of being the most expensive NFT project to date: The dynamic NFT project named “The Merge” is a collection worth $ 91.8 million.
NFTs were launched with the claim that they would completely change the buying and selling processes, especially works of art and collectibles, that is, rarer things. However, there has been a decline in interest in NFTs worldwide in the past two years. There are even those who describe NFTs as a bubble.
Let's remember NFTs:
NFTs are tokens created through smart contracts. NFTs are based on a digital file, which can refer to digital content or a real-world asset. Anything that can be digitized can be minted as an NFT. Unlike fungible tokens such as Bitcoin and Ether, NFTs are generally created with ERC-721 or ERC-1155 smart contract standards. The token created by the NFT minting process is unique, unchangeable, and non-substitutable. NFT is generally described as a digital certificate of authenticity for an asset or value.
First of all, verification transactions on Ethereum which is the blockchain platform often preferred in NFT creation, require serious energy consumption. In this context, the minting and changing of hands of an NFT must be questioned in terms of its effects on the environment.
Another reason is that many people who are influenced by very large NFT projects may try to convert every creation into NFT in order to make easy money. This made it difficult to distinguish really good projects from others. People who produce digital content could not find the right people to deal with this content. Scams related to NFTs that made headlines also damaged the reputation of NFTs.
Another reason why NFTs are approached with hesitation is undoubtedly the uncertainty regarding regulation. Many legal issues come to mind in the creation and sale of NFTs: What is the legal nature of NFTs? How is it taxed? Are NFT marketplaces considered crypto asset service providers? Do NFT platforms (e.g., marketplaces) have know-your-customer (KYC) obligations?
Similarly, international organizations such as FATF (Financial Action Task Force) also put NFTs under the spotlight after irregularities with NFTs became widespread. The report titled “Targeted Update on Implementation of The FATF Standards on Virtual Assets and Virtual Asset Service Providers” published in June 2023, stated that NFTs continue to pose a risk for money laundering and terrorism financing.
NFTs are still used in many sectors, although not as much as in the first quarter of 2021. For example, in the gaming industry, NFTs are still used for players to buy, sell, or exchange various assets. Again, in the music industry, artists offer some special content or tickets to their fans through NFTs. NFTs can also be used to record and document some gains in a permanent and unchangeable way. As a matter of fact, it is possible to record documents such as certificates and diplomas as NFTs.
One of the most important sectors where NFTs have great potential is real estate. It is possible to tokenize real estate and present it for sale via smart contracts on the blockchain and even to execute rental agreements. Specifically, thanks to f-NFTs, people can acquire rights over certain shares of very high-value real estate.
Digitalization is a very current issue in international trade law. It is on the agenda to issue and transfer valuable documents such as checks, bills, policies, and bills of lading on the blockchain. In this context, these securities can be created as an NFT. Technical and legal studies on the NFT Bill of Lading have already started. The fact that electronic commerce documents have gained a legal basis in the UK, especially in the past months, will accelerate the minting of these documents as NFTs and changing hands on the blockchain.
Although NFTs were initially identified only with works of art, in time, it was seen that NFTs had many different usage scenarios. Therefore, it should not be ignored that NFTs, as tokens that uniquely represent ownership of assets on the blockchain, still have the power to transform many sectors. Perhaps, in the last two years, those who approached NFTs only to make easy money or generate income through illegal means have been eliminated from this market. Thus, NFTs are left to those who understand what they are, assign them the real value they deserve, and analyze different use cases: NFTs are not dead; they along with smart contracts that are playing a role in their creation and programming, continue to become more widespread and accepted day by day.