The average price of non-fungible tokens sales dropped to a stunning $293 according to Chainalysis. In May 2022 the average was $3,894. This means, a decrease of 92%! Even worse, 69,795 of the total of 73,257 collections that are available are now worth worthless (0 $) based on the report “Dead NFTs: The Evolving Landscape of the NFT market” by dappGambl.

But what exactly is an NFT? NFT stands for non-fungible token. It is a certificate of ownership or a digital contract that is stored on a blockchain that refers to a digital media object. One of the most famous NFTs is a drawing of a bored ape. If you don’t know anything about NFTs, you might think that a drawing of a monkey wouldn’t be a very popular investment. However, the most expensive NFT of a bored ape was sold for 3.4 million US dollars.

Besides the bored ape, the media object of an NFT can be anything. It can be music, a video, digital art, or even a tweet. This NFT consists of a unique sequence of letters and numbers, also known as a cryptographic ‘hash’. The data in an NFT includes information about the digital object’s creator, transaction history, and more. An NFT is not replaceable, it is a unique and one-of-a-kind media object. You can compare it to a digital version of an old-fashioned trading card. But instead of trading cards, NFTs are data packets on a blockchain that point to a media object.

However, the popularity surrounding investing in NFTs does not mean it is also a good investment. Around 23 million people own an NFT that is now worthless. This is a reality check for the crypto and NFT community. Especially because stories about investors who became rich overnight are so well-known, it might be difficult for some individuals to realize the market is full of potential losses.

In addition, multiple sources have already indicated that NFTs can be used for wash trading (where the buyer and seller of an NFT is the same person) and money laundering. Do you want to know more about NFTs and the Financial Economic Crime risks? Please find more information on our website with a Podcast on how to Launder Money with NFTs (in Dutch) or our training The basics of NFTs for FEC analysts. For more information about Financial Economic Crime with crypto please see our 11 hour eLearning.

The opinion of Compliance Champs and Gert-Jan van Scherpenzeel is that the NFT market for digital pictures will not reach the same peak as it has in 2021 and that more investor protection is needed to prevent vulnerable groups from buying NFTs. However, we still see a large future in the technology of NFTs which are sometimes not known to the larger audience. Some examples of other NFTs that we believe have a good use-case:

✅ Dynamic NFTs, where data is added to the original NFT whenever updates are available. A good example is the maintenance history of a car (Alfa Romeo Tonale SUV);

✅ Free NFTs linked to events such as Formula 1 (example of McLaren Racing);

✅ Phygitals, which allows you to link physical objects (like sports prizes, art and clothes) to a ‘digital twin’ with an NFC chip that provides you with proof of authenticity (example of clothes of Wov Labs);

✅ Proof of attendance, where users will essentially scan a QR code at events they attend to receive an NFT memento for that event in the online community;

✅ Customer loyalty programs on the blockchain by Starbucks;

✅ Access to limited edition music albums and a pilot from Spotify.