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Last year, William Shatner put up items for sale on blockchain, including memorabilia from his acting career, made available in the form of virtual trading cards. The cards cost a dollar apiece, which are available in packs of either five or 30. Featured in the collection are photos from his Star Trek days and an old dental X-ray plate. One of the rarer ones included a headshot picture of him from the 2000s. As many as 7,000 five-card packs were sold out in nine minutes, and 3,000 30-card packs were all gone within three.
Later in an interview, Shatner revealed what he realized—non-fungible tokens (NFTs) are the future. This digital currency, which works on the exact decentralized mechanism as cryptocurrency, seems to be on the road to unprecedented growth. It’s at this time that many start thinking about jumping on the NFT bandwagon. However, it might be helpful to take a step back and first ask if investing in NFT is worth all the hype. If you’re the kind who knows better not to sail uncharted waters unprepared, this article is a must-read.
All about NFTs
As one blockchain industry leader puts it, NFTs are basically “decentralized certification.” The term non-fungible means unique or irreplaceable, so NFTs put something of value on an item to mark it as original and differentiate it from any existing copy or replica.(1)
Here’s an example: just this February, the creator of the viral Nyan Cat meme made a remastered version and sold it for 300 Ethereum (or close to USD$600,000). Anyone can create a copy or make their own version, but whoever bought it with NFTs possesses the original. The NFTs encode the artwork with data to verify its authenticity among the countless copies found on the internet.
Like Shatner’s trading cards and the remastered Nyan Cat, NFTs are popular in the art and entertainment scenes. They can put value on anything, from an item a celebrity used to own to a simple tweet or lyrics from a song. Because of this, people seem to be rushing to invest in NFTs. And if you’re one to do so, don’t forget to check out this guide on how to buy NFTs, among other things.
The latest numbers aren’t one to exaggerate the appeal of NFTs. But from USD$42 million in 2017 to USD$338 million in 2020, the value of NFTs shot up by a staggering 705% in just three years. Within the first two months of 2021, the market sold 150,000 NFTs for an estimated USD$310 million, five times as much as it sold for the entirety of 2020. (2)
Ownership not absolute
There’s a sense of achievement that comes with owning an original piece of pop culture media. Aside from that, the owner can resell it years later to make a substantial sum. The good news is NFTs with that paraphernalia will still be there, confirming its authenticity.
NFTs are also advantageous to digital content creators since it contributes to solving the issue of replicability. As mentioned in the Nyan Cat example, this viral meme can spawn many copies or versions, but NFTs give the original creator where credit is due.
However, one crucial detail that investors should note is that owning the original piece of media doesn’t mean owning the rights to it. As far as current copyright laws go, the NFT buyer doesn’t have the right to restrict distribution or recreation. In other words, they can’t sue if they stumble upon a different version of the original media.(3)
Therefore, investing in NFTs should only be limited to these two reasons: First, the joy of owning original media from an admired artist or content creator. And second, for speculative investment. The only condition that supports otherwise is when the creators themselves permit it.
As much risk as returns
Another detail worth noting is that NFTs are a relatively new economic mechanism, younger than cryptocurrency (which still has its share of risks). Investments in this market are mainly speculative, and doctrines for market valuation and other functions have yet to be set in stone. For the most part, speculation isn’t an ideal long-term metric for estimating a medium’s value.
If the market plans to expand in the future, beyond art and collectibles, it must deal with issues limiting its growth. One of these is its reliance on the Ethereum blockchain, which has faced scalability issues due to its booming popularity.
Conclusion
While recent growth has made NFTs an attractive investment, there are limitations as to what they can do. As with any new economic mechanism, it pays to invest in NFTs with great care. Getting into the collectible business is perhaps one good reason to do so.
References
- “What are NFTs (Non-Fungible Tokens)?”, Source: https://learn.rumie.org/jR/bytes/what-are-nf-ts-non-fungible-tokens
- “What Is An NFT—And Should You Buy One?”, Source: https://www.forbes.com/sites/abrambrown/2021/02/26/what-is-an-nft-and-should-you-buy-one/?sh=4df106a724b2
- “Investing in NFTs: Why It Matters”, Source: https://caia.org/blog/2021/05/25/investing-in-nfts-why-it-matters
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