If you have paid any attention to investing news over the past year, you would almost certainly have come across the term NFT (non-fungible token). Often linked to digital art, it is responsible for some of last year’s biggest investment headlines, with jaw-dropping amounts being spent on them.
But what exactly is an NFT?
In A Nutshell
As the phrase “non-fungible” suggests, it is a one-of-a-kind, irreplaceable token that acknowledges a person’s ownership over a digital asset. Think of it as a digital certificate that recognises ownership, similar to a certificate of authenticity for valuable artwork or timepieces. Although NFTs are commonly linked to art, it can be used to prove ownership of any digital assets such as memes, songs or even tweets!
The assets being sold can be freely viewed, or even saved to their own devices, by anyone, which is often what detractors point at when denouncing NFTs. However, just like how there are knockoff versions of famous art pieces, there is only ever one original, which is where it gets its perceived value.
Like cryptocurrencies, owners of assets are documented on a publicly shared ledger, also known as the blockchain, that cannot be tampered with or altered by any single individual or party. Any changes to this ledger must be acknowledged and ratified by all members of the blockchain before being made permanent, making it close to impossible to tamper with.
The most popular platform to buy or list NFTs is OpenSea but there is a raft of competing marketplaces that are all aiming to carve their own slice of a very lucrative pie. Local NFT marketplaces have also sprung up, with Pentas.io being the most prominent.
Do They Have Any Use?
Although copies can be made of these digital artworks (memes, tweets, music etc.), the NFT is the sole acknowledgement of who is the “owner” of the piece. Art has long been used as a store of value, and this easily extends to digital art, with the value stored in the certificate of ownership.
But whether this has any tangible value depends solely on the market. Many are of the belief that NFTs are in a bubble, including artists themselves.
Digital artist Beeple, also known as Mike Winkelmann, holds the current record for the most expensive NFT, with his piece EVERYDAYS: THE FIRST 5000 DAYS, auctioned off by Christie’sforUS$69,346,250, but he thinks that NFTs are a bubble waiting to burst.
Speaking to the New York Times Sway podcast last year, he said “This stuff will absolutely go to zero.”
He believes the key aspect of NFTs is proving ownership which is why popular pieces trade for millions.
“The more something is widely shared, the more popular it becomes, the more valuable it will become.”
“When you go to The Louvre and take a picture of the Mona Lisa and share it on the internet no one is like ‘Wow, I just devalued the Mona Lisa.’”
However, he does believe NFTs serve a purpose and that an eventual bubble burst will simply remove the deadweight, much like how the dotcom bubble did not cripple the internet’s functionality and its now ubiquitous influence on the world.
Jack Dorsey, the former CEO of Twitter, sold his first ever tweet on the platform as an NFT for just over 1,630 ETH or US$2.9 million to Malaysian businessman Sina Estavi, the CEO of Bridge Oracle. Famous memes have also been put up for sale for life-changing amounts, with originators eager to strike while the iron is hot.
The trend is already being jumped on by local artists as well. Graffiti artist Abdul Hafiz Abdul Rahman, better known as Katun, sold two NFT collections in August 2021, titled Apes Stand Strong, with a limit of 50 pieces (1 ETH each) and Mystical Fruits, an open edition that sold 776 pieces at 0.1 ETH each. This raised a total of 127.6 ETH (over RM1.6 million at the time, now worth over RM2.1 million at the time of writing).
Another well-known local artist, Red Hong Yi, sold her Doge to the Moon NFT for 36.3 ETH (approx. RM325,000 at the time, now worth RM620,000 at the time of writing) in July 2021, while local rapper Namewee made 209 ETH (approx. RM3.5 million) from selling 100 NFTs of his song Go NFT in November.
Many buyers of NFTs also immediately list it at a higher price in a bid to make a quick profit. Whether these prove to be prudent investments or not, it is clear that there is a demand for NFTs, either for speculative purposes or as stores of wealth.
What is less certain though is whether NFTs are a bubble or if it will ever become a popular method of investment. Whatever happens, digital natives are making moves and it is up to the rest of the world to get up to speed or possibly be left behind.
NFTs In Numbers To Date
- Number of NFTs sold: 19,390,873
- Total sales of NFTs: US$13.95 billion
- Average value per sale: US$719.77
- Primary sales: 11,244,153
- Secondary sales: 8,146,720
- Active market wallets: 1,510,331
- Most popular project (volume): CryptoPunks – US$1.8 billion
- Most expensive NFT sold (ETH): CryptoPunks (Ͼ #3100) – 4,200 ETH
- Most expensive NFT sold (US$): EVERYDAYS: THE FIRST 5000 DAYS – Beeple (aka Mike Winkelmann) – US$69,346,250
Statistics are accurate as of December 2021.