In October 2020, Pablo Rodriguez-Fraile decided to invest in a 10-second video artwork created by digital artist Beeple (Mike Winkelmann) and spent $67,000 in acquiring it. Last week, he resold the artwork for $6.6 million, marking almost 100 times in profit. According to Reuters, the video shows what appears to be a giant Donald Trump collapsed on the ground, his body covered in slogans, in an otherwise idyllic setting.
A 10-second video clip sold for $6.6 million: A new type of digital asset known as a non-fungible token (NFT) has exploded in popularity as enthusiasts and investors scramble to spend money on items that only exist online https://t.co/2wrD4iFdkS pic.twitter.com/3St8ERSllo— Reuters (@Reuters) March 1, 2021
The sale was authenticated by blockchain that served as a digital signature to certify the ownership of the artwork. Covered under a new type of asset in the digital world called non-fungible token or NFT, the sale has attracted a mixed reaction from the experts.
What is NFT?
NFT or non-fungible token can be defined as a type of cryptographic token that represents a unique asset. They function as verifiable proofs of authenticity and ownership that can be confirmed via a blockchain network. As NFTs cannot be interchanged with each other, they bring scarcity to the digital world.
Here, fungibility refers to an asset whose individual units are interchangeable and indistinguishable from each other. As NFTs are non-interchangeable, they remain unique, making it easier to distinguish an online asset. These NFTs can be used to create and define ownership of unique digital items and collectables. There are marketplaces where such assets are traded between two parties.
NFTs are not a new concept. The first NFT-like token was introduced in 2012 in the form of Coloured Coins or Bitcoin 2.x that was built on top of the bitcoin network. However, the most common example of NFTs is ERC721 that operates on the Ethereum network. The popularity of NFTs jumped during the Covid lockdown by several folds that resulted in blockchain enthusiasts and investors spending millions on digital items.
Last year, the NBA and NFL had expressed interest in introducing NFTs based collectable cards. One year down the line, the NBA introduced a panel for NFT-based collectable trading where traders dealt in digital assets worth over $230 million. People spent money on trading digital collectables of NBA highlights, and for every transaction, the NBA made a commission. For the project, NBA collaborated with Canadian company Dapper Labs.
Notably, on January 24, 2021, two Moment NFTs of NBA were sold for $100,000 each. On February 25, NBA sold its most expensive moment so far priced at $208,000. NBA is not the only entity grabbing big dollars in the digital world. Land plots in Axie Infinity, a blockchain-based decentralized game, are selling for over $1.5 million.
Owning digital assets make sense only for a few
Digital assets are just zeros and ones. For a large portion of the world population, owning a digital asset means nothing. However, it will make some sense for those who spend more than ten hours on the internet every day. For example, if you an online gamer, you will understand how important a rare piece of virtual weapon can be, but for someone who has never played an online game, that piece of weaponry is just an image in a game.
Those who understand art know the meaning of owning a Rembrandt or Van Gough. But for those who have no interest in it, the value is zero. The same goes for NFTs. While investors are seeing them as a major opportunity, for some, it is just another way for the elite to spend their money.
Are NFTs worth it, or it is just a bubble?
NFTs are grabbing the attention of investors and traders. The price tag of digital assets is going up at an exponential pace that has put them under the scanner. While experts see it as an interesting opportunity for the digital world to build and promote its own marketplace, some believe that the NFT bubble may burst soon. From the dot-com bubble of 2000 to the crypto-bubble of 2017-2018, if the digital world has made money for people, it has taken away the savings of thousands of investors in a jiffy.
There is no surety for how long the price of digital assets will rise, and when they fall, the drop is sudden, and the majority of investors do not find time to get out of the game. The crypto world-based assets are so fragile that a tweet by Elon Musk can cause a severe drop or spike in the price. Also, there is a risk of getting duped by fraudsters who trade under pseudo names. So before investing anything in NFTs, it is better to understand the risks and only then take the next step.