What's an NFT and should it matter to you?

NFTs are weird and complex, with stories littering the internet of people making thousands, if not millions from these digital oddities. But what even are they? I have found that the best way to get people up to speed is to keep it as simple as possible. So therefore, here is a quick rundown of what NFT’s actually are.

• NFT stands for Non-fungible token. It is a piece of digital work which is unique and can’t be replicated. Buying an NFT is buying the rights to this piece. The piece can have a limited run of copies, like fine art, but you are only buying the rights to one of these pieces.

• NFTs have been around since 2014 but started gaining traction in 2017 and came to mainstream public attention in 2020.

• NFTs can be created from almost anything, a piece of music or poetry, a virtual race car, or even a digitised original sketch of a famous character.

• NFTs are part of a cryptocurrency blockchain.

• Cryptocurrencies such as Bitcoin or Ethereum are purely digital currencies

• The Blockchain is a database that is distributed on a global computer network. This means there are copies of the same database all over the world.

• The benefits of this blockchain technology is that the assets and transactions are easy to track, hard to steal, and transfer very quickly.

• NFTs run on a selected blockchain, the most popular at the moment being that of the Ethereum cryptocurrency, and like cryptocurrencies, they are held in digital wallets.

There are 2 ways to treat NFTs:

• Like Art – Just like a piece of art by Banksy, as the popularity of the artist grows, so does the value.

• Like a Service - NTFs are now offering services with their pieces, such as allowing you to access exclusive deals on websites, adding you into chat rooms with famous and well-connected people, or even buying you into a piece of a crypto mining rig (a computer system which creates cryptocurrency) so that you can earn money from the process.

Some obvious questions:

Why can't you just copy and paste the piece?

That would be like taking a photograph of the Mona Lisa – yes you now have an image of it, but you don't own the original piece or its value.

How do artists make money?

Artists can sell token as their unique or rare works, or they can profit by taking a cut every time the token changes hands

What are the dangers of investing in NFTs?

There is a lot of money in NFTs now, and people all over the world are buying into them, BUT BE WARNED…

• Scams are rife, with influencers promoting their pieces at inflated values, which then drop massively after the initial release. At this current time more people are losing than making money, but as with everything, the more time and effort you put into researching different projects, the more you may improve your chances of investing in the right pieces.

• Some NFTs have no contracts to stop them making more. With physical prints of fine art, the number of prints will be agreed by contract, with the artist contracting not to produce any more of the same set. A lot of NFTs don't have this, so their pieces can flood the market, devaluing them as a whole.

What might the future hold?

NFTs have also been linked to the Metaverse. As depicted in movies and books, the metaverse is a purely digital world which can be accessed on your computer. NFTs can then be put into this world for you and others to experience. Imagine having an NFT house, on a plot of land bought in the metaverse, filled with art you have bought as NFTs which your friends can come visit in their NFT cars. Crazy right!?

Is this a fad?… I have no idea. Yes, I feel that the subject of NFTs is over-hyped at the moment, but its utility is undeniable. Only time will tell if they prove to be worthwhile investments, so in the meantime, it might be best to focus on NFTs with utility that you can personally benefit from.

I’d love to know your thoughts and experiences, so please feel free to drop a comment.

Disclaimer

​I am not a financial advisor and opinions on any of the forums or blog posts are also not financial advice. Users should not rely upon this information to make financial decisions. All invested capital is at risk from fluctuating market trends. Refer to all terms and conditions of any credit, investment or banking account before submitting an application. If you have any doubts about anything stated on this site, you should seek advice from an independent financial advisor as I cannot give personalised financial advice.