You may have heard the term NFT thrown about recently and wondered what it meant. It seems to be a sort of trendy word to say. But what exactly is an NFT and why should you care? NFT stands for Non-fungible Token. NFTs are simply digital assets (pictures, documents, artwork, etc.) or physical assets stored in a digital manner. Non-fungible means the asset is unique and not replaceable by something similar. An example of a fungible token would be a dollar bill. You can replace a dollar bill with four quarters, and you still have the same value.
Back in the day of 35mm cameras, this concept would have been harder to understand. Today, we all take digital photos, so we inherently understand what this means a little more easily. NFTs have been around for a little while. CryptoPunks really started the NFT craze in 2017, then the game CrytoKitties added some gameplay and tech to lay the groundwork for the NFT space.
After these fads, we started seeing the market get a little more mature and saw digital art get created. Most of the time NFTs are drawings, music, photos, or an autographed photo. Celebrities like Tom Brady, Tony Hawk, Tiger Woods, and Simone Biles have started a company called Autograph.io. They are an agency that takes collectibles, like trading cards, get them autographed, digitized and then create a Digital Certificate of Authenticity (COA) with the Ethereum Blockchain.
Since the blockchain is very secure and exists across hundreds of computers, you know that what you’re buying is unique. When you own EDITION: 38/100, you know that you are the only person with item 38 of 100, and that there will only be one hundred of that item, unless someone at the Agency gets greedy and makes 102 of them. However, they would face the wrath of the Internet because everyone would know it. Items 101 and 102 would be visible to people looking at the ledger of the blockchain. Back in 2017, there was a ton of fraud where people would steal art in the real world and release into the digital world as an NFT without the artist’s permission. Sites like OPENSEA.io have developed large anti-fraud departments. Nobody can swipe your item off the blockchain without your keys, but anyone can create an NFT.
A framework was created to standardize how NFTs work. A content creator uses a framework that converts things such as digital art into crypto art (check out this how-to article) Typically, only one person can own an NFT, but now there are shares of NFTs being sold in some cases. For example, a songwriter may sell shares of a song and then share the profits of that song with you. There are now people who are collecting Crypto Art. Auction companies are now selling NFTs and are helping people acquire rare art that is popular that will be turned into digital art / NFTs. Because of groups like Autograph.io getting major celebrities like Tom Brady, this market is growing fast.
Financial bubbles are nothing new. Have you heard of the Tulip Mania bubble of 1637? People were paying ridiculous amounts for rare and unique tulip bulbs for a short amount of time. That bubble blew up and popped quickly. Are NFTs a tech bubble? Who’s to say? We aren’t sure where all of this is going, but it does look like there are legitimate uses for NFTs. For investment purposes, the best advice is to only play with NFTs if you can afford to lose 100% of your investment. That could easily happen.
Another note of caution...we do see that a small group of people are driving a lot of the NFT trading. That sometimes (but not always) means some type of market manipulation may be happening. Does that mean we think you should just ignore this trend? Absolutely not. If you have the ability and creativity to create art and content someone is willing to purchase, consider being an NFT creator.