Have you ever walked into an art gallery and seen a masterpiece? Starry Night. Mona Lisa. Works of Picasso.
These artworks are rare, valuable, and are 1 of 1 originals. The original work is backed by provenance, citing the history and creation of the work.
You can take a picture or make a painting copy, but copies will never match the original. While the copy can look exactly the same, the financial value will be a fraction of the original.
NFTs or Non-Fungible Tokens, work in the same way. They are digital tokens that are unique. They exist on a blockchain and can be easily verified by checking their data.
When you own an NFT, you can quickly identify that you are the owner of the work. People can take a screenshot of your NFT, but it will not contain the unique identifiers to prove that it’s original.
Key Terms to Understand NFTs
NFTs can be challenging to understand. Here are key terms to help:
- Non-Fungible – defined as “the inability of an item to be exchanged for other things of exactly the same kind.” A person is non-fungible and cannot be physically divided and put back together.
- Provenance – means “a record of ownership of a work.” This may include certificates from the creator and receipts from a store.
- Blockchain – “a decentralized public record of transactions.” Bitcoin and Ethereum are the most popular blockchains.
- Minting – “the process of creating an NFT on the blockchain.”
What are examples of NFTs?
Non-Fungible Tokens represent a variety of use cases, from digital collectibles to investment opportunities.
Graphic artworks
In 2021, Christie’s auction house sold the NFT called Everydays: the first 5000 Days for $69.3M. American digital artist Mike Winkelmann created the work.
NFT artwork can be one of one or a collection of thousands.
Online game characters and items
During the 2020-2021 Coronavirus pandemic, a blockchain game called Axie Infinity took the world by storm.
Players battled monsters against other players and earned in-game cryptocurrency tokens. These monsters were NFTs minted on the Ethereum-sidechain Ronin. Players traded the game monsters on online marketplaces.
Traditional online games allow players to trade in-game items in the internal marketplace. They’ve restricted trading outside the game. This led to the proliferation of third-party sites, which are risky to use.
With NFTs, players can take control of their in-game assets and trade them freely.
Sports video and highlights
In 2020, the National Basketball Association (the NBA) and DapperLabs partnered to create the NBA TopShot. Basketball fans can buy, sell, and trade NBA video highlights as NFTs.
TopShot mirrored real life sports card and Pokemon card trading and brought it to the digital world.
Virtual apparel
In January 2023, Nike will launch the NFT platform .Swoosh
Customers can purchase digital apparel such as sneakers. Users can then bring these virtual products to digital worlds.
Imagine a gamer, bringing one’s signature virtual hoodie from one game to another. When in game, the gamer flexes the newest fashion to one’s friends.
Exclusive memberships or concerts
Early in 2022, Coachella launched a collection of NFTs. The set of NFTs provide a lifetime access to Coachella for the holders. In addition, these customers get access to front-house views, transportation, and food vouchers.
From digital to real world experiences, NFTs enable a wide range of experience to users.
Investments
Curated, an NFT-focused investment fund launched in March 2022. Big players such as a16z and Alexis Ohanian (co-founder of Reddit) back the new fund.
The $30M fund aims to invest in “blue-chip” NFT collections, as well as high potential works from lesser known artists.
Why are NFTs becoming so Popular?
Because the technology is so new, people do not know how to accurately value Non-Fungible Tokens. This has, at times, created get-rich-quick opportunities. Many individuals have become millionaires overnight, and businesses place capital in the market to ride on the growth.
While the whole market potential is still unknown, certain studies point to the worldwide gaming population. The gaming population has grown to 3 billion gamers worldwide, with a market opportunity of $200 million in-game spending per year.
Businesses would be wise to ride on this trend.
Beyond financial returns, the NFT’s arrival represents an opportunity for brands to engage customers on multiple levels. When a customer is more engaged, they show loyalty and excitement towards a brand.
Businesses caught on to this quickly and are seeking to create more touch points with their client base.
Are NFTs for You?
With business and millions of individuals jumping into NFTs, you may be wondering if you should get into this new trend. Before you buy, some disclaimers:
- High-risk, high-reward: NFTs and blockchain are new technologies and come with high levels of risk. The prices of NFTs have experienced boom and bust and there’s now telling what it will be in the future.
- No regulation: unlike traditional finance products, NFTs are not backed by any institution or government. Should anything untoward happen to your NFT investment, you will have no one to turn to.
- Know your Why: will you be purchasing an NFT for financial gain or for the benefits that the NFT provides? These are two distinct reasons which can determine your future outlook.
Before investing your hard earned money into NFTs, make sure you’re aware of the risks involved.
