What is NFT?

A NFT or non-fungible token is a digital asset like a photograph, a video file or an audio file sold though internet marketplaces like OpenSea created by artist or companies. People spend millions of dollars to buy such pieces of digital property. Is it a stable investment? How does it work and so on? Let’s discuss.

So, what is non fungible? Non-fungible means unique or not replaceable. Take the example of a 1-dollar coin, is it replaceable? Yes, it is. It can be replaced by another 1-dollar coin or by two 50 cents coins. But take the example of the Mona Lisa painting, is it replaceable? No, it is unique. But is it NFT? No, as it is not digital, and I don’t think Louvre Museum in Paris would ever sell it. A GIF of a dancing cat which holds unique identifier and part of the blockchain is an NFT. Millions of people can use/download/use it, but you only own it. Its completely new space of digital art ownership.

How does it work?

Just like the bitcoins, it is part of blockchain which is called Ethereum which supports NFTs. It can also be part of different blockchains as well. Once you brought it, it will be shown in your wallet, you can sell it at a higher/lower price just like any piece of art.

Examples of a great NFT

The disaster girl meme, by Zoe Roth sold here meme for $500,000 USD and with a 10% commission on future sale of NFT recently. The NFT was purchased by a 3F Music, a Dubai based music studio. Yeah, if you are not aware of this sale, it happened.

Does it really have that dollar value as everything on the internet can be downloaded just by a right click?

Well, it depends. It may find silly for many, but in its own world where seller and buyer find value in it, and both parties expect to sell it in future for more profit. People who care about and feel satisfied for buying, buys it.

The uniqueness of the art or limited number of a particular artform, make it insanely pricy. Just like buying a limited-edition car, it sells like hot cakes. More you display your piece, higher the value it gets. No one is going buy a painting which was in a garage for years rather than one in the museum which was displayed to millions of people. Showing off is easy in the age of digital era, thanks to Instagram, TikTok and such social medias. 

Problem with NFTs.

• It is in its early stage. So, no one can predict what can happen it to near future. A single bad incident can cause entire market crash and it can spread as a wildfire cause other NFTs to collapse. So, expect a bubble break in next 2 years’ time according to GaryVee.
• Another thing to be noted is that what if the seller decides to create another 500 copies of same but slightly different copies of an original art which was sold for millions of dollars. It is no more unique as it was before. It can cause decrease in value of NFT which was sold at first place.
• They are hackable like any other things online and happened many times before.
• There is no controlling authority. Say if someone logged into your account and transferred the NFTs to their account, there is no people like bank call centres to call for support. It is irreversible.
• It also lacks transparency which we expect in any financial investments.
• Just like other blockchains and cryptocurrencies, trading and maintenance require high amount of electricity and it cause carbon footprints to the nature. It said that Bitcoin mining contributes to 37 million tonnes of CO₂ every year.

My thoughts

Just like money, it also carries value until two parties believe in the value of it. Money is just a paper with value, which can be traded for getting a bottle of milk from grocery store. You get milk when you give a piece of paper. Only reason why this happens is that both the parties believe in the value of the piece of paper called currency. More the people believe in this system, stronger the system becomes. I think it is going to happen. More people will invest in more NFTs, and it would help more people like creator, artists to greater extend. It’s not going to stop or end. Also, you don’t need an extra storage space to store these collectables just like in the case of other physical collectables. Zero maintenance and transportation costs involved. All these advantages and rising internet users is contributing towards more people involved in this business and making money out of it. But be careful in choosing those NFT which you may buy as some of them may lose its value over a period. One thing is for sure; a lot of creator is going to get benefit out of it.

Happy investing

Sreedeep Ramesh