Globally, NFT Marketplaces saw spectacular growth in 2021 on growing interest in crypto assets
In Japan, the nascent market for NFTs is ripe for growth
Z Holdings' LINE NFT marketplace, set to launch in Spring 2022, is well positioned to become the dominant market due to its massive user base
Acceleration in NFT adoption in 2021
In March 2021, Mike Winkelmann, known as Beeple, sparked a global frenzy for non-fungible tokens (NFTs) after Christie’s art gallery sold his digital collage for $69 million. The sale effectively lifted the value of all digital assets.
NFTs have been around for a few years and include most famously, CryptoKitties and CrytoPunks. However, the volume of NFT transactions exploded last year, recording $22 billion in transaction volume, up from a mere $100 million a year earlier, according to DappRadar. One could be forgiven for thinking that this was just a one-off, but the numbers for 2022 already indicate over $500 million of NFT driven transactions in the first week of the year. The dominant player in the NFT marketplace is OpenSea.
Enter LINE in Japan's NFT Marketplace
In Japan, interest in NFTs is also growing, with many looking to develop a domestic NFT marketplace. In June 2021, LCV, a LINE (Z Holdings) subsidiary, launched a beta version on their LINE Blockchain and will open the LINE NFT Marketplace in Spring 2022. We expect LINE to be a major beneficiary of NFT marketplaces in Japan.
What are NFTs?
An NFT is used to link blockchain media digitally. It assigns digital certificates to certify the uniqueness and ownership of a digital asset, allowing it to be transferred or sold. The certification process is protected by blockchain technology. With this technology, it is now possible to reliably authenticate, track and verify digital assets. Many NFTs are on the Ethereum blockchain to facilitate the writing of so-called Smart Contracts. Smart contracts are written in digital agreements governed by specific protocols. This allows, for example, setups where creators can get royalties even beyond the initial first transaction.
But what about the underlying technology? Blockchain technology is a way to create append-only records into auditable databases and verified by a decentralized consensus mechanism. The overall integrity of the process is secured by cryptography. Altogether, this makes transactions almost immutable and extremely trustworthy as being accurate.
Key NFT Marketplaces
As previously highlighted, the global market for NFTs reached $22bn in 2021. The dominant Marketplace, OpenSea, transacted over $14 billion ($22 million in 2020), while the next popular destination was Rarible, with $260 million. OpenSea’s revenue was over $300 million due to them clipping a 2.5% transaction fee from each side (buyer and seller).
Though artwork has been dominant for NFT transactions, it applies to any form of digital content with intellectual property attached to it. This ranges from simple memes to in-game items, art, or manga. Also, long as there is digital with IP, it's possible to attach and NFT.
And what about Japan?
Though hard numbers are not available on domestic NFT transactions, the indications are that the numbers have been growing. There is strong support from the authorities, namely the Japanese Financial Services Authority (FSA). The FSA has articulated a growth strategy (Cabinet Secretariat in June 2021) which includes the use of blockchain technologies, with the commitment to establishing and maintaining a supportive environment for NFT and blockchain-related security tokens. In Japan, cryptocurrency exchanges that exchange legal tender crypto must register with the FSA. They must follow Know Your Client procedures to prevent money laundering and tax evasion. Exchange providers fulfill the role of protecting investors, monitoring inappropriate transactions, and screening appropriate coin/currency. This sets up a natural advantage for early movers in NFT marketplaces, especially those with an active crypto exchange.
Besides LINE/Z-holdings, other listed Japanese players that are in the process of setting up NFT marketplaces include Coincheck (Monex), SBI NFT (SBI), GMO Adam (GMO Internet), and Rakuten (details to come). Many services are still in beta testing or yet to be launched, but they will look very much like OpenSea, with NFTs related to Games, Art, Collectables, Metaverse, Utility, Sports, and Anime.
Enter LINE
We believe that LINE is well-positioned to be one of the winners. LINE has its own crypto exchange, BITMAX. This is already incorporated in the LINE App and provides access to potentially 89 million monthly active users on the LINE platform.
Holders of digital intellectual property will sell their NFTs on the LINE platform, while trading on the secondary market will allow users to transact with each other via the LINE app. LVC will do the due diligence on the NFT content. This will provide a level of comfort on its authenticity. Individuals only need to add the LINE BitMAX wallet (blockchain wallet that stores coins and tokens), and they will be able to transact using the LINE blockchain.
For the time being, LINE NFT will only operate in Japan. However, given the borderless nature of blockchain, we would expect that successful execution in Japan would set up for an overseas launch in the future.