Non-Fungible Tokens or NFTs are taking the digital and cryptocurrency landscape by storm. Here’s what you need to know, according to TechCrunch.
A Clear Definition: NFTs are “scarce digital content represented as tokens.” Whereas every Bitcoin token is identical, NFTs are each unique (and by design unhackable) and possess their own individual values.
- It’s a format that allows people like artists, gaming companies and content creators to create “uniquely distinguishable assets.”
- One example — an artist could produce a one-of-a-kind digital painting as an NFT that couldn’t be counterfeited or replicated.
- CryptoKitties — A blockchain game where players collect, purchase, breed and sell virtual cats.
- NBA Top Shot — A platform to buy and sell officially licensed digital NBA collectibles, similar to trading cards.
- CryptoPunks — A collection of art made up of 10,000 unique characters.
Why It Matters: “NFTs have exposed a creative side of crypto that is not only fun to play, but digestible and accessible to new users. As bigger names host their first NFT drops, they bring a new wave of attention to their millions of followers noticing crypto for the first time.”
- People can dictate the market — as interest grows the collective curates the “growing wave of scarce digital content.”
The Downside: NFT wallets are not widely available, and it usually takes some finagling to get started.
- Platforms like Audius are starting to lift the barriers of entry.
Is This An NFT Bubble? It’s unclear and there are comparisons to the 2017 initial coin offering boom that resulted in a market crash. How NFTs survive depends on how widespread adoption there is and how many companies rise out of this early wave.
- “Until then, remember that digital content does have value, and crypto collectors are flocking to lay their namesake on the biggest collections of tomorrow.”
I have been following NFTs for the past couple weeks, but have not formulated concrete thoughts on this trend yet.
I believe that NFTs will become a big asset class in the future because I think it’s only natural for there to be ownership of art, music, and collectibles in the virtual world, just as there is in the physical world.
The objects that are easiest for me to understand are collectible gaming objects or characters, but the values of these collectibles rely on the continuing popularity of the gaming platform (“platform risk”). In order for a Fortnite skin to have artistic value into perpetuity, Fortnite needs to be culturally relevant going forward.
“Trading cards” like NBA TopShot Moments have some collectible value, but the values are artificially dictated by the NBA’s complete control over supply. Price appreciation is also heavily influenced by the performance of individual players, which is more akin to sports speculation than investing.
Digital art is a tricky one. The value of owning one of 500 editions of a digital image is only interesting to me if it includes the rights to distribute and monetize the image. But on the other hand, rare art has high value for the super rich because of its scarcity and perpetual cultural relevance.
Certain NFT assets could offer insane returns if this is truly the emergence of artistic ownership online. But there’s also a good chance that, in aggregate, this is a hype trend that is 5-10 years too early.