Broker Check
Enter the NFT (and Exit Reality?)

Enter the NFT (and Exit Reality?)

| March 30, 2021

How much would you pay for a video clip of Lebron James dunking a basketball? Just the clip, to be clear, not a physical copy of it, but something on par with a YouTube video. If the answer is $0 then you might just be behind the times. You may also be more rational than the ongoing flood of NFT enthusiasts (I am not sure investor is quite appropriate) taking the internet by storm.

An NFT, non-fungible token, is an entry on a digital blockchain that proves ownership or certain rights to (such as the right to display) a piece of digital content. This may beg the question: what is a blockchain? A blockchain is often defined as digital ledger that uses cryptography, to be, in theory immune to tampering because, among other reasons, each link in the chain includes details of the previous link (or block) meaning altering one block to falsify a transaction history of chain of custody would require the altering of all the subsequent blocks. The secure and distributed nature of the blockchain purports to make that sort of mass tampering impossible.

An NFT then is sort of title and certificate of authenticity all rolled into one, that obviates the need to keep track of something perishable and vulnerable to counterfeiting like a printed certificate. They can also contain the digital file itself, which a creator can assign a unique ID to. Even though there are multiple copies of the file, there will be only one on the blockchain with that ID, in the same way that an artist may issue numbered, signed prints of their work—copies, but unique copies.

Given the increasing number of artists that work only in the digital medium, it was somewhat inevitable that a way to commodify and sell their art, rather than relying on commissions and patronage, would arise. This doesn’t explain, however, the massive prices paid for certain NFTs in the first quarter of this year. Everydays: the First 5000 Days a massive JPEG image depicting 5,000 pieces of digital art and represented by an NFT brought in $69.3 million. The buyer, Vignesh Sundaresan, is himself a blockchain booster and entrepreneur, and made the purchase with cryptocurrency. It’s not just purely online works that are being traded, as in my leading example, the NBA has partnered with blockchain firms to sell NFTs representing basketball highlights, and these have fetched respectable sums.

The high prices certain NFTs command may represent genuine excitement about this new way to own and trade digital works, they may also represent a new avenue for crypto related speculation, as crypto investors attempt to find the next Bitcoinesque meteoric play. The investors have more money than they ever dreamed of, and a real zeal for this technology that may belie the underlying value of the NFTs.

Ultimately, NFTs can be thought of as collectibles, and while collectibles can be great fun, they’re not where most individual investors are placing their nest eggs. As works of art or snippets of pop culture, NFTs in their current form are subject to the whims of taste and trends, without any fundamentals to research and rely on to make informed investing decisions.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.