Non-Fungible Tokens or NFTs have taken both, the internet and capital markets by storm this year. Unlike bitcoin, which is a fungible token, meaning you can trade one bitcoin for another and have the same value, NFTs as the name suggests, are non-exchangeable and unique, each having a different value.
In a more technical sense, most NFTs are part of the Ethereum blockchain. Ethereum is a cryptocurrency which along with ETH coin, also supports NFTs. Other blockchains (Bitcoin, Dogecoin, etc.) can implement their own versions of NFTs as well.
The question still prevails, what exactly is NFT and how do we quantify it? How is it valued?
NFTs can really be anything digital (such as drawings, music, a picture of Elon Musk’s baby even), but a lot of the current excitement is around using the technology to sell digital art. The whole buzz around NFTs started when the founder of Twitter put an autographed tweet up for sale as an NFT, which by the way, sold for the price of a Ferrari ($ 2.9 million)!
Here’s the scam though, a digital file can be copied as many times as you want, including NFTs. So, it’s not really unique, is it? Of course, the ownership rights cannot be copied and will remain exclusive to the artist and the owner of the NFT. One could argue that collecting art is expensive and niche but let’s look at this in terms of collecting physical art. Anyone could buy a print of the Mona Lisa, but only one person can own the original. Whoever owns the original Mona Lisa will actually value and appreciate it as a physical asset, but with digital art, a copy is literally as good as the original.
From an artist's point of view, NFTs might just be the Midas' touch you need to capitalize on your talent. NFTs could pave way for an excellent marketplace for digital artists. Also, NFTs have a feature that enables you to receive a percentage of the value every time the NFT is sold or changes hands, making sure that if your work gets super popular and balloons in value, you’ll see some of that benefit.
Circling back to the question, why are people buying totally copyable pictures of rocks and monkeys at the price of a Beverly Hills house? I guess if we were to draw parallels with how we invest centralized currency, for example, we invest INR in real estate or other appreciating assets, similarly, we invest Bitcoin or Ethereum in NFTs. By doing so we are essentially allowing our cryptocurrency to grow over time in the form of NFTs instead of just cashing it into INR and letting it stagnate.
So, is NFT a boom or a bust? The boring answer is that it really depends on how you look at it.
Let us know your thoughts in the comments!
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