NFTs - What are they & why are they so popular?
NFT’s have been highly sought after, due to celebrity spotlighting, viral sales, and the continued push for finding value in a digital space. We have seen Twitter and Square CEO, Jack Dorsey, selling his first tweet for $2.9 Million, a previously unknown artist named Beeple partnering with Christies to sell his digital art piece priced at $69 million and even Elon Musk has entered into the game announcing he may sell one of his tweets as an NFT, already receiving bids up over $1million.
What is an NFT and why is it so popular?
NFT is an acronym for Non Fungible Token. An example of something that is “Fungible'' is the dollar, gold, casino chips or even bitcoin. Essentially, it is an asset that can be exchanged or substituted and will hold the same value after a transaction has occurred. If I lend you $10 cash and you give me back two $5 dollar banknotes, I'm fine with that because even though they are different, they hold the same total value. NFTs are the opposite of this, these are assets that can't be substituted. It has unique attributes and identifiers that make it different from something else in the same asset class. For instance a painting, a house, or a trademark. Similarly, NFTs are non-fungible tokens where a 'Token' refers to a digital certificate stored on a secure distributed database utilizing the blockchain. For more background on the blockchain, take a look at my previous article on bitcoin, where I discuss this in more depth. NFTs are digital assets that are publicly verifiable intellectual property authenticated on a blockchain. This is what makes NTFs so powerful. Unlike physical tokens, records cannot be duplicated as the ledger is maintained digitally by thousands of computers around the world. Even if a digital image is copied or downloaded from another website, the original will always have its unique token and users will know.
Is this something we should be buying? Presently, NFTs have seen most of their demand stem from artists and celebrities selling digital pieces like GIFs, music, and tweets. The company behind NBA Topshot, recently raised over $300 million dollars at a $2.6B valuation after generating 50 million in sales in its first 6 months after opening its Beta. This can be a potentially lucrative business for the NBA and other sports teams as NFTs can contain smart contracts that may give the creator a cut of any future sale of the token. NFTs can be exceptional tools for their practical use of supporting digital artists or gaining usage rights (i.e. licensing) to post or resell images. However, viewing NFTs as an investment is inherently more speculative. The NFT market has yet to be established and is just beginning. Virtual art NFT sales were up 2,800% by the end of 2020 and the entire NFT market, as a whole, is currently valued at over $400 million. Friction still exists and value is still not readily determined , but similar to crypto in 2018 there may be a hard landing before the market truly settles and gives NFTs the staying power it needs to scale beyond its niche. As the digital world expands, so too will the assets it needs to fill it.
Sources: The Verge, BBC, Decrypt, Forbes
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