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Non-fungible Tokens. Say What?!

It is always nice to understand what something is before we are thrust into a conversation. At times, the identity of a subject can be obscured by short-hand terms, often left to the imagination of those less enlightened by the rapid advancement of technology. Enter a conversation with a group of friends and associates of different backgrounds and various levels of understanding of “tech speak,” and a multitude of facial expressions soon appear. Merely mentioning something like “blockchain” or “cryptocurrency” and expressions can range from “say what” to “oh yeah aren’t they great”. The truth is, much of the newest bells and whistles of technology remain somewhat of a mystery to most of us. To make things even more challenging, about the time we figure out (or think we figure out) one nomenclature another new related term is thrust our way to grasp and understand. It can all be so confusing and marvelous at the same time. So, what is or are NFTs?

The newest and most advancing technical products screaming into the virtual world of commerce are non-fungible tokens or NFTs. For many of us new to this conversation, the term may sound like an ailment that needs medical attention and a cure. The fact is they are a virtual, numeric item or items created on a blockchain to verify ownership of a digital asset. Okay, I can still hear a lot of “say what’s” out there. “Think of an NFT as a certificate of authenticity. But instead of a sheet of paper, it’s a unique string of characters. For example, the NFT for a piece of digital artwork created by actress Lindsay Lohan is 0x60f80121c31a0d46b5279700f9df786054aa5ee5”, says Ryan Browne.

NFTs can be anything digital that is unchanging, like artwork, drawings, music, entertainment, or sports performances or even common, everyday tweets. Jack Dorsey, the Co-Founder and Chief Executive of Twitter, is currently selling his first tweet as an NFT. The bid for the first digital comment in 43 characters or less just surpassed $2.5 million. “When you think about the ability to own anything at all, whether it’s real art or a sports car, there’s a certain emotional value people get out of that ownership that isn’t associated with the cost of producing that item,” said DJ and Producer 3LAU, whose real name is Justin Blau. “What NFTs do in the digital world is create emotional value surrounding ownership of a digital asset.” But NFTs can authenticate and certify ownership of unique digital material and establish a monetary value for works that were previously anonymous and free on the internet. Non-fungible tokens may soon become an unemotional, viable marketplace where original digital, non-tangible content can be traded. It is another case where the once free-to-all internet is encountering monetization.

A recent NFT Report 2020, published by L’Atelier BNP Paribas and Nonfungible.com, valued the emerging NFT market at $250 million. So far in 2021, the sales of NFTs are growing at a rate of 299%. Anyone can create an NFT, and ownership does not confer much inherent value but that is not dampening the exuberance in the marketplace. An NFT by the artist Beeple recently sold at Christie’s for over $60 million, making it the most expensive NFT ever sold at auction. Collectibles of all genres have speculators racing to create a string of numbers and letters denoting digital ownership. Andrew Gertler, AG Artists, says of the new marketplace, “This opens up a whole new world not just for the musicians that have suffered from revenue loss in the pandemic but also their collaborators. I know concert tour visual artists [and others] who were out of work and turned to NFTs to make a living. It’s really incredible to see a new income stream for so many creators.”

Websites like TabuART are on a mission to bring professional NFT artwork to an online platform. “A Global Platform for authentic, rare digital art,” the site provides artists a platform to market and share unique art with the world. Unlike other pieces of digital artwork, royalties can be built into the cost of an NFT, so the original artist or creator gets royalty.

The frenzy of interest in the emerging marketplace and the amount of dollars being generated has some analysts warning caution and encouraging investors to perform due diligence. Susannah Streeter, an analyst at Hargreaves Lansdown, said, “People wanting to invest in NFT art should consider whether there would be long-term benefits. If you want to buy an asset as an investment, ideally you should do it because you have done your homework and you believe that over the longer term that investment will rise. At the moment some people are buying these types of assets for short-term speculative gain, with the expectation that they will be able to ride the wave of higher prices. There may well be a frenzy, but then the craze is likely to move onto the next big thing and the asset could end up being worth nothing.”

Collectibles tend to be a genre of products whose value, more often than not, is determined by a current owner being able to find a buyer willing to pay his or her price. The collectible market is historically fickle, with values rising or falling independently of other economic indicators. Will the NFT marketplace be a bright, profitable, and promising new venture space or another fleeting fade akin to antique furniture and Beanie Babies?