WHAT ARE NFTs?
A simple answer to this question is that NFTs (or non-fungible tokens) are unique and collectible digital assets that are managed and tracked on blockchain technology. NFTs can include artwork, original tweets, iconic sports moments, virtual items within video games (DLC, skins, virtual currency and accessories), music, collectibles, and even virtual land (you can run over to Decentraland right now and buy your own acre of zeroes and ones). For those of you familiar with blockchain and cryptos, feel free to move onto the next section of this article. If you’re not, and you’re sitting there scratching your head, bear with me as I get a bit more granular.
What does non-fungible mean? When a commodity or good is non-fungible, that means simply not mutually interchangeable—in other words, they can be sold for currency (more specially cryptocurrencies) but they’re are not directly interchangeable with other NFTs. Seeing as NFTs are unique pieces of data, this unique trading characteristic is a big part of their appeal and makes them prime candidates for blockchain technology.
So, what is blockchain? Blockchain is a shared and immutable ledger that records and tracks the ownership and transfer of unique goods. These digital ledgers are duplicated and distributed across computer network systems. Every time a new transaction takes place, it is recorded to the blockchain and added to every participants ledger, in turn growing and nurturing a decentralized peer-to-peer database. In short, blockchain is fast, accurate, and transparent means of tracking the transfer of NFTs.
HOW ARE NFTs DIFFERENT THAN CRYPTOCURRENCIES?
The main difference between cryptocurrencies and NFTs is that NFTs are unique and cannot be replicated. While cryptos are identical to one another, NFTs accrue value independently based on their novelty and scarcity. If you’ve made it this far into this guide, it’s probably safe to assume that you’ve stumbled across at least one headline recently brandishing a seemingly innocuous NFT drawing an astonishingly impressive price tag (Beeple’s Everydays—The First 5000 Days, $69 million; Jack Dorsey’s first Tweet, $2.9 million; Chris Torres’s Nyan Cat, $561,000; Lebron James highlight reel, $200,000; just to name a few). But it’s important to emphasize that not any jpeg, pdf, and or video clip is going make you an overnight NFT mogul. NFTs are only as good as their underlying asset, and much like tangible art, their value is driven by common market factors (novelty, artist, uniqueness, etc.)
IF I BUY AN NFT, DO I OWN THE RIGHTS TO IT?
The answer is yes and no, which might be the most interesting facet of this newly emerging cultural phenomenon. As a buyer of an NFT, you don’t obtain a copyright or gain sole access to your digital collectible. Think about it, Twitter’s CEO Jack Dorsey just sold his first tweet (less than 140 characters for a staggering $2.9 million), but any one of us with access to the internet and the flutter of keyboard can quickly view that same tweet. But some people are willing to pay a considerable sum of money to support and or reward their favorite content creators, others are interested in tucking away another investment for a future rainy day, and some are simply eager for the opportunity to claim verifiable ownership of a digital good. So again, the answer to the question is yes and no. Just about anybody can quickly google any one of the headlining NFTs that recently sold, but that doesn’t mean they have a claim to its ownership.
HOW DO I GO ABOUT INVESTING IN NFTs?
If you’re looking to purchase your first NFTs, you’ll be facing two basic considerations and two leaps of faith. In terms of the two considerations: (1) You’ll have to decide where you want to buy your NFTs. NFTs, like cryptos, are only available on certain platforms, each uniquely positioned within the NFT landscape. Among the most popular platforms are: OpenSea; Rarible; SuperRare; Nifty Gateway; Foundation; and NBA Top Shot. And (2) You’re going to need a “wallet” to connect to these platforms and store your NFTs. Wallets serve as easy and secure ways to store and access your NFTs and are hyper simplified extension of your claim of your asset on its accompanying blockchain. Most of the sales platforms have their own propriety wallets, but if you’re looking for something else, you might want to consider Mosaic, MetaMask, or Trust Wallet.
Insofar as the leaps of faith go, they’re both pretty straight forward: (1) Investing in NFTs assumes that they’ll be around long enough to appreciate and that the underlying assets will maintain significant relevance. The same way you probably wouldn’t buy a painting that you believe doesn’t have any value, you wouldn’t want to buy an NFT that you don’t believe will appreciate. That being said, keep an eye out for value buys. Consider real world athletic rookie cards, they rarely have much value until much later in a player’s career. And (2) you have to believe in the legitimacy of cryptos and blockchain. Though I wouldn’t dare offer any reader investing advise, I think it’s safe to say blockchain is well on its way to being “tried and true.” In the real world, insurance companies, and other interested parties are continuously vetting ownership and keeping track of high value collectibles. In the world of NFTs, that simply isn’t the case. It’s the buyer’s job to make sure that the property isn’t owned off-chain and that they aren’t being bamboozled—make sure to do your homework!
WHAT’S ON THE HORIZON FOR NFTs?
With every investment comes a measurable amount of risk, but it can’t be denied that there is something really exciting about NFTs: perhaps they’re a shot at redemption for those of us that missed the Bitcoin boat, or maybe they’re just a novel new way of diversifying our portfolios, or maybe they just typify another measurable leap forward in our tech driven lifestyles, who knows. A discussion on feasibility and longevity of blockchain technology into the foreseeable future is a bit outside the scope of this writing, but it’s safe to say that NFTs should be somewhere on your radar. And though it wasn’t discussed much here, your involvement of NFTs can go beyond purchasing a digital collectible….It’s our job as future-minded business leaders to approach novel ideas from different angles. Feel free to go out and buy your first NFT, but also consider the implications of creating, selling, or even curating your own digital collection or marketplace. Keep in mind that a lot of investors made heaps of money banking on the early days of cryptos, and a lot of people are doing well trying their hand at them today, but it’s the trading platforms that have been making money all along. Good luck and happy hunting!
