The hype built around NFTs makes it difficult for some to have an understanding, and many others get the wrong idea about these digital assets. For instance, some think of it as a Ponzi scheme and struggle as to why NFTs have attracted the interest and money that they have to date. The below table shows the total turnover of those NFTs that have been in excess of $0.5billion, as well as showing the numbers of buyers and number of transactions todate.

NFT collection rankings by sales volume (all-time)

Source: Cryptoslam

A brief explanation of NFTs is that they are unique codes which prove ownership of assets using blockchain technology. Anything can be an NFT, be it pictures, songs, videos, contracts, tickets, even data such as details about your home or your vehicle. NFTs have diverse use cases and are being used globally by different industries in many jurisdictions as well as major brands such as Adidas, Nike, Hermes. Below are some of the different uses for NFTs:

• to sell tickets directly to people

• to help content creators connect with their audience

• for the identification and verification of health documents

• for the representation of academic credentials at a time when falsifying academic records is still an issue.

• for deployment across a supply chain

• in artwork tracking

• to transfer and record the ownership of properties - this covers intellectual and landed properties and patents.

With the different types of NFTs being established, it should be noted that there are many NFT marketplaces - i.e. some are niche-focused, whilst others are general marketplaces. The biggest NFT site is OpenSea, which has seen its value rise to be worth over $13.billion compared to only $1.5billion six months ago.

NFT landscape

Source: NFT TECH

Other significant NFT platforms include:

• Rarible - with a ‘Spotify-like’ layout, this NFT marketplace is primarily focused on digital collectibles. RARI is the governance token here

• Crypto.com - this allows users to trade digital collectibles from brands and celebrities

• Foundation - with over a year in operation, most viral meme NFT sales, such as Pak’s Finite, Nyan Cat, etc, happened on Foundation

• ZORA - a decentralised auction focused on helping artists take back the value which most brands, labels, or galleries take traditionally. Zora is built on ERC-721, which is the common standard for NFTs

• SuperRare - this is a P2P marketplace focused on the trading of single edition artworks

However, unsurprisingly, there are both advantages and disadvantages of dealing with NFTs.

Advantages:

• easy authenticating and record of ownership

• NFTs can generate on-going income for the owner of intellectual property (IP) - similar to music royalties - as each time the NFT is re-sold, the creator can earn a % of the sale price

• marketplace efficiency

• since NFT stands for non-fungible tokens, the non-fungibility aspect makes them irreplaceable

• profit potential

• fractionalisation of ownership of physical assets

• NFTs offer a new way to have greater diversification in an investment portfolio

Disadvantages:

• uncertainty in value as the purchase does not always translate to ownership of the copyright 

• NFT prices are volatile and can be illiquid

• the value that comes with owning actual physical art means it cannot be digitised

• from an environmental standpoint, some blockchains can be energy intensive - this has serious implications for the environment

• NFTs can be used fraudulently with people selling them without the owner of the IP being aware

• there can be legal challenges as to what rights an NFT confers

Some feel NFTs, will fizzle out as it is thought to be a Ponzi scheme. However if anything, we could see NFTs being used in the metaverse - which is something Citigroup believes could be worth up to $13trillion by 2030 alone. Art has only ever been worth the value its collectors and proponents place on it. When recently talking to Jai Patel, CEO of Kasei Holdings, (quoted on the AQUIS exchange and managing a portfolio of cryptos), he explained that: “NFTs can be seen as similar to car number plates. The most expensive number plate for sale is in California MM selling for $24.3million and you cannot even see it when you are driving your car. But is does have an NFT etched on the back of the number plate. Then again if you are able to afford $24.3million for a number plate you may are possibly not driving but being chauffeured”. 

NFTs have captured the imagination and indeed the headlines as with any asset class it has also attracted its fair share of nefarious characters. In essence we are only really beginning to understand how NFTs can be used in a variety of situations, yes there are legal challenges such as the potential court action between Rothschilds and Hermes. However, these concerns do not appear to have dissuaded luxury brands from being involved with NFTs as can be seen by the recent announcement in the F1 world as Mercedes looks to issue NFTs with FTX at the Miami Grand Prix. However, regardless of this, if you plan to invest in NFTs, do so responsibly to avoid being financially, mentally and emotionally bankrupt yourself and try to avoid the brouhaha and fancy marketing campaigns.

Source: Coingape

The Merge is a welcome development in the crypto industry as it ends the energy consumption of a number of crypto critics and sceptics. Some have even hoped the Merge would have a ‘Midas touch’ effect in the broader crypto market. Bitcoin has been bearish for a while, struggling around the $20K - $25K mark. Meltem Demirors, the chief strategy officer at Coinshare, feels the Merge has no significant addition to Ethereum. In an interview on the 22nd of August with CNBC, she stated: “While internally there’s a lot of enthusiasm within the crypto community and Ethereum community around the merge as an event that will dramatically reduce supply while potentially driving demand. One of the realities on the macro side is people are worried about rates”. Her concerns about the Merge do not end there as she sees some stagnancy in the future of the network, adding: “I don’t think there’s a lot of new capital coming in to buy Ethereum on these changed fundamentals and technical. There’s also some risk that needs to play out with the market”. Meltem sums up the Merge as a “buy the rumour, sell the news” event. Regardless of this though, news about the Merge sent the crypto market on a short-term upward spiral in July 2022. However, data provider, Kaiko, reports that “ether’s price fall on the 19th of August brought a swift decline in open interest on derivatives - contracts that traders used to leverage bets on the future price of ETH”. Although many derivatives trades were liquidated owing to margin calls, this didn’t last as money flooded back into the ETH futures market - a significant spike in open interest. Furthermore, Coindesk notes “that ether’s perpetual contracts funding rates have significantly fluctuated; this resembles future “contracts on commodities but without expiration dates.”

The timetable for the Merge

Source: Ethereum

Many proponents of the Merge feel Ether futures will experience contango after the coalescence. This is because the Merge will reduce the supply of ETH, whereby increasing the demand for it and dragging the price upwards in the process. The director of research at Arca, Katie Talati, also agrees with this: “Ether’s real price appreciation will happen after the Merge, driven by increasing ETH locked up staking/securing the chain.” Specialised crypto asset trading company, Cumberland, projects $40million worth of miners being removed from the market, causing a 90% drop in yearly issuance. For miners, the Merge has not been taken lightly as there have been pushbacks from some of them. Several have proposed splitting the ETH chain, allowing the current PoW to continue post-merge. If this is permitted, ETH holders on the Merge will receive free forked PoW tokens. Interestingly, Coinbase launched its cbETH-wrapped Ethereum staking token ahead of the token and Binance has moved to allow ETH holders to withdraw assets from the exchange from the two forks. For stakers, the annual yield is expected to double its current 4% and this could jettison staking. For ETH holders wondering what they have to do in anticipation of the Merge, there is nothing expected of them. There is the possibility of mob actions taking place, whereby defeating the idea behind decentralisation. So, on balance, what does the Merge mean for the Ethereum blockchain? Binance has highlighted five myths regarding the Merge:

• the Merge will create a new token - the answer is, no

• gas fees will decrease - however, sharding, is due in 2023 which aims to address gas fees by reducing network traffic and splitting the blockchain into smaller, more manageable parts

• transactions will become faster - transaction speeds will be a little faster: Ethereum Mainnet’s takes 13 seconds, Beacon Chain’s takes 12.2 seconds 

• stakers can withdraw their rewards after the Merge - those who have staked ETH will not be able to take funds for 6-12 months after the Merge

• Ethereum will suspend its network - it is expected there will be zero downtime. 

Some believe it is positive as it means less energy will be required to process and register entries on the Ethereum blockchain. As ever, there are various opposing views as to the impact the Merge will have on the price of ETH - some bullish, some bearish. As the date for the Merge to take place draws near Consensys has issued its summary of the impact that the Merge will have on institutions which was only released on 5th September, which you may find useful.