Are NFTs the hottest investment assets in the neighborhood?
Denise Marshall Miller
Last year, we heard about the term NFT in various sectors, mainly in the art and music industries. Let us dive.
NFTs, short for Non-Fungible Tokens, are digital representations of virtual or physical items that exist on the blockchain and have unique properties that cannot be exchanged for another; they are digital representations of virtual or physical items that exist on the blockchain. NFTs have a digital signature, which proves ownership and validity. An NFT is made possible by blockchain technology.
In order to fully understand NFTs, we must first understand blockchain technology. Blockchain is a system of recording information in a way that makes it difficult or impossible to modify, hack, or cheat the system. It is essentially a digital record of transactions that are duplicated and distributed over a network of computers. The difference between the blockchain and another record of ownership, like a bank ledger, is that no one owns the blockchain. It is decentralized and no one has the power to modify, change or destroy it.
NFTs emerged in 2017 when US studio Larva Labs developed CryptoPunks, a series of 10,000 unique collectible characters with proof of ownership stored on the Ethereum blockchain. The project was inspired by modern CryptoArt. CryptoPunks are one of the earliest examples of NFTs. The highest legitimate sale for a CryptoPunk was US$11.7 million.
Since 2017, several NFTs have been created, some by well-known personalities. The value of an NFT is usually created by the community that engages around it. The more engaging the project, the higher the chances of success. Community here refers to the people in your circle and the type of people who support your mission. This community is usually found on Twitter — your supporters. Let’s take an artist who has a large number of followers, you can gauge the outcome or success of an NFT based on the size of its creator’s followers. The higher the next value, the higher the probability that the NFT will succeed.
Some examples of items that can become NFTs are artwork, music, real estate, GIFs, and video clips (e.g. National Basketball Association best shots). Essentially, anything with a digital footprint is eligible for NFT.
Here are examples of actual NFTs:
• First tweet from Twitter CEO Jack Dorsey: “I just set up my twitter.” in May 2006; this digital fingerprint was turned into NFT and sold for US$2.9 million for charity.
• Digital artist Beeple created an NFT consisting of a digital art collage, which sold for $69 million.
• Reggae-dancehall artist Bay-C from TOK band sold the first reggae NFT for 0.1 Ethereum (ETH), equivalent to 220 USD. Other international artists such as Akon, Snoop Dogg, Gorillaz, Calvin Harris and Shontelle sold NFTs.
• Golden State Warriors star Steph Curry personally posted a collection of 2,974 NFTs, each selling for US$333. Curry’s collection includes digital replicas of his line of shoes, Genesis Curry Flows, showcasing the exact pairs he wore for his incredible on-court features.
Still not sure what a non-fungible token is? Try changing the word fungible to replaceable. It will now be read as an unreplaceable token, which means the item cannot be replaced; it is original or genuine.
To illustrate, the $100 bill in your pocket can be replaced with two $50 bills or a combination of other bills. Your $100 note is therefore fungible. Another example is the famous mona-lisa painting for which there is only one verifiable original painting. Imagine having the original digital painting, aided by blockchain technology to establish its authenticity. Although there are several images of the mona-lisa painting on the internet, these have no value as they are only copies. the mona-lisa NFT would have a unique digital identifier linked to the physical painting that cannot be copied, replaced or subdivided recorded on the blockchain, and which is used to certify its authenticity and ownership. This mona-lisa NFT is non-fungible. To check if someone has an NFT, all you need to do is cross-check the meta information with publicly available blockchain records.
NFTs derive their value from their inherent characteristics. Over time, the value increases based on utility, community strength of the underlying project, and ownership history. NFTs don’t just own a work of art, they are part of a community where a culture has been created and the culture is creating a following. This encourages exclusivity, which comes with benefits to owning the NFT. For example, Bored Ape Yacht Club NFTs give you VIP access to exclusive real-world parties.
NFTs can be traded in the same way as traditional assets, such as stocks and bonds. The price of NFT appreciates in the secondary market based on its usefulness, scarcity, and community strength. There are a variety of marketplaces that support NFT trading, including OpenSea, Rarible, SuperRare, and Foundation.
Enterprises are also entering the NFT space. Well-known brands such as Nike have gained a foothold in the booming NFT market by acquiring RTFKT, a creator-led digital fashion organization that will create digital sneakers for the metaverse. Other well-known brands that have jumped on the NFT bandwagon include Adidas, Lamborghini, Coca-Cola, Louis Vuitton, Samsung, Pepsi, and McDonald’s.
The line between the real world and virtual space will become even more blurred as virtual space continues to evolve and grow. Use cases for virtual products will become clearer and more useful for virtual consumers, producers and investors. To be ready to take advantage of existing and future opportunities to make money and build brands in the multiverse, you need to create virtual versions of your products, and investors need to understand how to invest in digital assets. Check if NFTs are the way to go for you. They can maintain and enforce rarity, exclusivity and increase your revenue.
Denise Marshall-Miller is Senior Director, Bond, Equity and Digital Asset Trading, VM Wealth Management. Denise has over 16 years of experience in the investment industry. A seasoned investment professional with a passion for wealth creation, she has a proven track record of income performance.