In the world of cryptocurrency, blockchain and other disruptive technologies, it may seem that a new way of doing things emerges every 5 minutes. Conversations around the long-term validity of Bitcoin and the like certainly won’t be going away any time soon, so it stands to reason that Non-Fungible Tokens (NFTs) should be subject to similar scepticism. Off the back of a few high-profile NFT transactions, and the rising popularity of products like NBA Top Shot Trading Cards, it’s timely to have a closer look at them and discuss what the landscape may look like further down the line.
What are non-fungible tokens (nfts)?
Fungible assets aren’t themselves a new concept. In economic terms, a unit-based asset that can readily be interchanged (e.g. currency) is said to be “fungible”. As such, a non-fungible asset is one that holds unique properties, rendering it non-interchangeable. Unique collectibles in the real world are special and valuable because they are the only one of their kind – verified and original. Copies may exist, but there is official documentation that verifies its originality. A Non-Fungible Token (NFT) is where that concept enters the digital world.
A digital asset (e.g. a piece of digital art, or more recently the first ever Tweet) can be easily duplicated, reproduced and accessed worldwide in no time at all – this is where NFTs come in. “Tokenising” a digital asset with an NFT essentially creates a digital certificate of authenticity that accompanies it when it is bought and sold. A record of ownership is kept on a shared ledger (blockchain), much like cryptocurrency, which is maintained by thousands of computers worldwide. As a result, ownership of NFTs cannot be forged, and blockchain technology allows for things like contract clauses – for example clauses that stipulate original artists of NFT-associated artwork receive a percentage of the proceeds of any future sales of their art.Wwhat are nfts really worth?
Like lots of things in the world of collectibles, the price of certain assets is determined by what consumers are willing to pay. This is much the same concept as buying an original painting – you may be willing to pay $150,000, but someone else may be comfortable putting $500,000 towards the same piece. Therefore, NFTs don’t have a singular unit price as such, the price is determined asset-by-asset.
It’s still early days for Non-Fungible Tokens as an investment option. Just as crypto has proved incredibly volatile in the past, other blockchain-based assets are by no means a safe bet for the average investor. At the end of the day, sound investment comes from having a well-structured plan, researching different options, taking long-term data and performance into account, and having an ongoing relationship with an investment professional. That isn’t to say that Non-Fungible Tokens are a complete dud, but rather it is wise to tread carefully, particularly at this early stage.