A quick guide to NFTs

Nyan Cat, a pixelated flying feline

You may or may not have heard of them, but increasingly NFTs aka non-fungible tokens or ‘Nifties’ are taking the digital and art words by storm, and that is just the beginning. Read on to find out why people are dropping millions on these digital assets.  

What exactly are NFTs anyway?

Gary Vee and his NFT doodles

Basically anything can be an NFT. If it can exist digitally, it can be tokenized.

In schools of economics, the word ‘fungible’ describes an asset, commodity or good that is easily replaceable by another unit of the same value. The most obvious example is currency. If you lend someone $100, then you do not care that when the $100 is returned that it is not the same $100.   If you decide to sell your shares in Telsa, but in 6 months you decide to buy the same number of shares back,  as they are ‘fungible’ then it really does not matter at all as they are interchangeable. Bitcoin and all cryptocurrencies are also examples of fungibility.

NFTs are unique

Lebron James Rookie Card

So,  ‘non-fungible’ denotes an asset or class that is not interchangeable.  A one of a kind piece of art or a sports card is non-fungible. If you have a Lebron James rookie card, it is literally irreplaceable and can not be exchanged for another. Even if you had another almost identical card, it would have variations in age, colour and quality that would occur over time, changing its value. 

A non-fungible token, is a unique digital asset

A non-fungible token, denotes a unique digital asset such as digital art (e.g. memes and gifs) as well as digital real estate (such as Second Life). Anything that can be digitised such as audio and video clips, films and tweets can be turned into an NFT. Jack Dorsey recently sold his first-ever tweet as an NFT for a cool $2.9 million US. 

We are in the early days of NFTs

Like in the early days of the internet boom when people threw money at each and every start-up, there is a massive quantity of NFTs that have already been bought and sold for huge amounts. How huge? Well, naturally values vary depending on the art, the artist, and how many copies they are allowing to be sold (a little bit like prints). But for illustration, the digital artist known as Beeple had a piece of his digital art sold for $69 million dollars at a Christie’s auction. To put this into context, this is more than $15 million above what Monet’s paintings sold for in 2014.  A word of caution: it is almost certain that like the heydays of the internet, there are a lot people overpaying for fear of missing out. As such, supply is currently exceeding demand, so be careful if you are considering investing in NFTs for monetary gain. 

Can't people just copy NFTs?

Sure, you can ‘right click and save as’ anytime you want. But it is important to understand that NFTs aka non-fungible tokens, is effectively a digital certificate representing a unique asset, just as the rookie card we described above. You might have a copy of the rookie card, but it is not the rookie card.

How do you create an NFT?

Let says a little know band has decided to release an NFT of the front cover of their debut album. The band would need to get it ‘minted’ (aka turned into an NFT). The process takes place on the blockchain, thereby storing the information on a ledger which proves ownership and transaction history. Simply put, it doesn’t matter how many times the art is ripped off, you will always be the ‘original’ owner, even after you sell. This is important to many people as it shows commitment and loyalty, and speaks to their style and personal brand. For example, if the band becomes huge, you can point to your digital wallet and demonstrate that you were one of the first buyers of their merchandise ‘long before they went commercial.’ If the band turns out to be the next Nirvana, then you may have made the best investment of your life. 

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