By now you would have heard about non-fungible tokens. With so much talk around the concept as a whole and the true value it holds, investors may be asking themselves: is this going to be a wise investment move, or is this a fad? Let’s take a deep dive to investigate this phenomenon further.
When it comes to stock markets, investors are warned against speculative bubbles. In fact, some have been calling cryptocurrency a speculative market. While the concerns are there, cryptocurrencies continue to grow, albeit with highs and lows along the way. Closely liked to this is the trade of NFTs and NFT crypto payments. The question relates to its ability to grow in the long term.
NFT means non-fungible token. A digital creation can become an NFT by registering it as one-of-a-kind or extremely rare digital file. It is essentially a certification of authenticity and ownership of the original digital creative, which can be anything from a meme to an animation. They are usually part of the Ethereum blockchain cryptocurrency (the world’s second-largest), though there are other systems have their own versions of NFTs.
Like the traditional art world, these digital artworks can then be stored and resold. In some instances, the artist can make royalties each time the digital asset is sold. This also offers them the ability to trace their artwork over time, seeing how many times it is sold and who has ownership, since all NFT sales are recorded in a public ledger.
Are NFTs a Fad?
As we mentioned, there is a legitimate concern that the popularity of NFTs will decrease when the speculative bubble pops - if it does. That would mean NFTs are a fad - a too-good-to-be-true attempt at claiming fools' gold. There are many reasons for this which are rooted in the intrinsic value of NFTs. Or, is this the future of art and collectibles?
So, what is the value of an NFT?
The main lure of an NFT is the certification that comes along with it that shows its authenticity. It has been compared to the traditional art world, where prints are made and distributed of an original painting. That said, there are key differences. Paintings need to be viewed in real life - as in, you’d have to travel to the country it’s in. NFTs can be bought and sold at a moment's notice online.
The prints are also far less valuable and not exact replicas. Digital copies are, on the other hand, are, and you don’t need to travel to see them. This means this is comparing apples and oranges and tends to decrease the validity of original NFTs holding as much value. The digital copies are also shared at a much higher rate online - think memes and tweets, which anyone can see and engage with directly.
NFTs mark the evolution of the art trade to online spaces. Keanu Reeves famously scoffed off the idea, saying that these items can be easily reproduced, which detracts from the idea of digital scarcity in this sense. After all, that idea of exclusivity and ownership rights is what is driving these investments.
NFTs have a number of positives and negatives. In one sense, it is helping creatives to find a marketplace online for their content creation. They can then take their work straight to the marketplace, instead of having to display their work in a gallery, museum, or store. On the other, it can be used for laundering since the value of art is essentially infinite. Some are not buying into the trade, while others are spending fortunes on it. As more people begin creating and buying NFTs, time will tell if this is a fad or not.
The reputation of an artist and the quality of their work are factors that influence the value of an NFT. For instance, artist Beeple has become well known for his animations which have been traded using this blockchain technology. He is now a multi-millionaire. That of course isn’t the complete case of NFTs - there are artworks that don’t cost a fortune which the layperson can invest in, too.
The associations made are also critical for NFTs, which takes us back to the public ledger recording all the sales. Unknown artists and buyers will not yield as much value associated with a digital file as others that are well known.
Whether ownership matters to you will determine whether you find NFTs valuable or not. The ability to easily replicate and share content decreases the sense of rarity. Plus, much of these NFTs live online (though they could be transferred into physical artworks), which also distances itself from the traditional art trade, whereby owners proudly hang their artworks up for display - not only artistically, but for status, too.
The general consensus at the moment is that you should invest in NFTs if you are interested in the art world and find a digital creative that you love; If so, then it is worth the investment. However, you need to be fine with the potential of that NFT not being worth anything in the future. This uncertainty means it is difficult to equate long-term stability and growth in this market. Investors are therefore spreading their risks into a variety of investment opportunities and seeing how this plays out.
Tips for Investing in NFTs
When it comes to investment purposes, it once again comes down to value. Do your best to confirm its value - is it the modern-day equivalent of a Picasso? It is essential that you value the creative, and that you believe others will in the future.
Also remember, you’re purchasing something inherently digital. It is not a physical stock - it includes the more intangible aspects like conceptualization and intellectual property. If you do invest in NFTs, be sure that you are taking the proper security measures to protect it. This will keep it safe from hackers and scammers. Ensure it is backed up and stored safely that you are accessing on un-compromised devices, using secure passwords.
Finally, have a look at the current NFT market and be sure to keep an eye on it. To date, NFTs have become some of the most expensive artworks to ever sell at auctions. It is also a market that is opening up and becoming more mainstream. Here’s a look at the total spent on NFT sales in 2021 (CNBC).
What it all comes down to is this: the value is determined by the demand, as with a lot of trade. It is worth what someone is willing to pay for it. It appears to be a budding market with opportunities for creators and investors alike.
Will you be investing in NFTs? We’d love to hear your thoughts.