I’m sure within the last 2 weeks or so, you’ve come across “NFTs” on the internet. You’ve also probably heard of a ten second clip by Beeple that sold for $6.6 Million... Beeple has also just sold a collage of 5,000 images for $69.3 Million. It’s safe to say the NFT hype train is in full effect.
But what exactly are NFTs?
An NFT or non-fungible token is a digital asset that is tied to a blockchain. What makes something non-fungible is that it’s one of a kind. There is limited quantity and thus it cannot be multiplied like a regular picture for instance. A blockchain is a ledger that publicly documents transactions and establishes your proof of ownership. In short, NFTs are unique one-of-a-kind digital assets. What’s crazy about NFTs is that anything that’s digital can be made into an NFT. So, it could be a picture, video, gif, tweet, webpage, digital basketball card, song, literally anything digital.
Ok, but what’s the point? How is an NFT valuable when I can download the same digital asset online for free?
The value primarily comes from that proof of ownership. Think of it like a certificate of authenticity that says you own a very limited addition of something.
Wait, digital basketball cards?
Indeed. It’s called NBA Top Shot and it allows you to buy and sell NBA highlights in the form of short clips called moments. A clip of a Lebron James dunk sold for $208,000. Yeah, the first time I heard that my mind was absolutely blown away too. Dapper Labs, the company that created Top Shot, say they’ve made $230 Million in sales so far.
What do NFTs Promise?
A lot, because this new technology has the potential to change many things. NFTs allow artists more creative freedom by selling art directly to their fans. Some music artists right now are already planning on making NFTs part of an exclusive offer for fans when they buy concert tickets or merch bundles. It also breaks the barrier of entry for artists who are left out of the often-elitist art scene. For digital artists, it’s a way to finally make a steady income. Royalties can be built into NFTs so that anytime one is sold, the original artist will get a cut.
This new technology can also serve as a way to undercut the very unequal industries that many artists are forced to work under. Record labels, streaming platforms like Spotify and so many others make money off of artists but rarely let them share in the profits. NFTs will make it easier for music artists to be more independent and be less reliant on record labels.
On a much bigger level, NFTs could change the way consumers engage with art. There is already work being done on VR galleries, frames to display your digital NFT on a wall and substituting physical memorabilia with digital ones. It’s an exciting new frontier.
I would say several. First, If you haven’t guessed already, all the hype around NFTs is fueled almost completely by people wanting to make money. Collectibles have always been a thing and in recent years the market for collectibles like baseball cards has exploded. The difference however is that the collectibles market for any kind of product was initially driven by a desire to collect, not speculation. Later on, investors caught on to the potential value that these collectors would have, but collecting played a much bigger role early on.
Top Shot, for instance, allows you to buy and sell basketball highlights but how many people are buying these highlights with the idea that it would be cool to just own it? Maybe a few, but speculation is foundational to the way Top Shot functions.
Second, there’s been a debate over the environmental impact of NFTs. NFTs are tied to the blockchain Ethereum. In short, all the transactions that happen on Ethereum are done on machines that consume huge amounts of energy. There are questions about how to clean up this process and what role NFTs have in damaging the environment. Even though it makes up a small portion of transactions on Ethereum currently, the increasing popularity of NFTs and crypto in general could push those machines into overdrive as demand increases.
Third, most NFT’s will probably be worthless in a few years. This is true for collectibles in general. How many things have you kept and thought later on it would be valuable and then found out it was completely worthless? James Surowiecki, a columnist for The Slate and The New Yorker, adds that investing in collectibles is far more lucrative when you get on it early. All the outrageously priced NFTs make this point clear. There's the very real possibility that the whole thing will crash.
Should I Invest?
Don’t take financial advice from strangers. I’m just a random guy with a computer and apparently a lot of time on my hands to read about the very confusing world of NFTs.
By Alpha Bah