By Dennis Sahlström Head of Trading & Coaching Department of Investment Mastery
Non-Fungible Tokens (NFTs) are a very new asset class. They are any kind of unique, virtual art that can be created, sold or bought in a marketplace such as OpenSea. If you want to have your own NFT, you can easily buy or create it. Songs, images, collectibles and art are digitalized and stored on the blockchain, allowing proof of ownership and authenticity of that one unique NFT.
While NFTs came to market around 2012/2013, they have only recently risen in popularity during 2020 when the Covid-19 pandemic saw a boom in blockchain and cryptos. Suddenly, new meaning is given to asset distribution, ownership, and protection.
As with most new assets, there are some amazing, useful projects being created and there is also a lot of hype and scams, which is common with new digital assets.
The problem with normal, physical collectibles, such as Pokémon or football cards is that they can be faked. NFTs solve this problem, as once they are digitalized into an NFT on the blockchain, authenticity and ownership of the cards can be verified.
Pablo Picasso’s family is currently turning one of his creations into NFTs. Most people could not afford the entire work of art, but they may be able to afford a smaller piece. Imagine owning a unique piece of Picasso which you can prove is real!
One set of NFTs comprised 10,000 unique pictures of a monkey, called Bored Ape Yacht club. By buying an ape, the owner joined an exclusive membership, giving access to privileges, celebrities and contacts they would not have been able to access before. One of these NFTs sold for over $1 million.
Since then, every man and his dog has been launching pictures of monkeys as an NFT, but without any of the advantages. People who are buying them are just buying JPEG pictures of monkeys that aren’t even unique, one collection has 1 billion pieces!
This is why the majority of NFTs have no value unless they are:
- Unique
- Scarce
- Have some kind of use, case (?) or advantages of ownership
Imagine the Mona Lisa being put on the blockchain and divided into 100 unique pieces, each one of which is its own unique NFT. Would a picture of a Monkey with one billion copies be more valuable than a unique piece of the world’s most famous painting?
From the creator side, NFTs allow artists to bypass the middleman and reach their audience directly. An artist can demand 5% royalty every time that unique piece is resold. That’s potentially an income for life that can be transferred to their children. This investment can create long-term wealth for people and their families. Not only are NFTs good business opportunities, but they are also a new way for people to enjoy themselves while making money at the same time.
The growth in the NFT market is mostly driven by the influence of celebrities, business magnates, and other influential figures who see the advantages in investing in digital assets. For instance, world-renowned luxury auction house, Sotheby’s, launched an NFT-exclusive marketplace called Metaverse in October last year, as a way of creating a shared space for digital artists, NFT enthusiasts, and art collectors.
For business owners, NFTs offer an opportunity to tokenize their offerings to enable others to invest in their business. For example, a property mogul with a portfolio, could divide their assets into tokens and sell those tokens to interested parties, who perhaps couldn’t afford a whole property but wanted to get involved in property investment. NFTs sold in this way will make portfolios becomes very liquid and allow crowdfunding to raise capital.
We are seeing NFTs pop up in every industry, and fashion is no different. Gucci and Nike have recently started creating items for sale on the blockchain. People are joining the metaverse and buying pieces for their avatar; the beauty of this is, authenticity can be checked with just one click!
NFTs continue to grow in popularity, but they have attracted criticism from the art community, as well as environmentalists who are concerned by how much energy NFTs use during their creation and storage when on the blockchain. With all new concepts brought to market, the opposition is, of course, inevitable.
On the positive side, NFTs are providing an enabling platform for people who are not necessarily financially savvy, allowing them to ultimately build wealth within the standard financial system. This is evident in NFTs that come from play-to-earn games like Axie Infinity, which are becoming increasingly popular.
As for the future of NFTs? There is no doubt their applications will extend far beyond gaming and art. NFTs can be used to represent proof of ownership, manage licensing, provide social status, grant exclusive access, and certify authenticity.
Ultimately, there are many pros and cons to investing and trading in NFTs, with many different arguments for and against their use. One thing is for certain, they’re here to stay, so expect the NFT market to grow in size, while being beware of the hype.
Dennis Biography:
Dennis Sahlström is the Head of Trading and Training at Investment Mastery LTD. He has traded and invested since 2016 and has made an average of 4.53% per month. With cryptos, he turned £4,000 into £100,000 in less than two years, and this is just the start. Dennis began trading profitably when he became a client of Investment Mastery and has now joined the team full-time to support the mission in helping 1000s of people on their journey to financial freedom. He is also a writer for the biggest Swedish news outlet for cryptos. He currently lives with his girlfriend in Sweden and teaches trading and investing all over Scandinavia.
