By John Drachman
If you know the difference between a dollar bill and a movie ticket, you’re halfway to understanding the investment attractions of NFTs – Non-Fungible Tokens.
A dollar is fungible; it can be exchanged for any other dollar bill. A movie ticket in contrast is non-fungible; it is only good for one particular movie on a specific date.
Around this concept of particularity, a whole new tokenization market has sprung up. “Today’s non-fungible token ecosystem is wide, varied, and constantly growing,” says Forbes’ Cathy Hackl. “Dozens of companies find novel uses for NFTs such as domain names, virtual worlds, decentralized finance (DeFi), art marketplaces, crypto art museums, and NFTs for physical collectibles.”
One NFT just made art world history. The digital artist known as Beeple sold an NFT representing his piece Everydays: The First 5,000 Days for $69.4 million. Caroline Delbert writes “It’s a way to trade a feeling of access for a price that fans can feel is helping to support the artists they love.” Some artists – like Beeple — may open the market to the public, “but lesser-known artists may become the virtual bread and butter of non-fungible tokens,” she added.
Four facts to know about NFTs
- Each is a unique cryptographic token, which cannot be replicated, and exists only on a blockchain digital ledger.
- They can be used to represent artwork, real estate – and just about everything else.
- Once tokenized in the digital universe, they represent tangible assets in the real world and can be bought, sold, and traded.
- Ironically, the uniqueness of NFTs represents a digital solution to a digital problem: They efficiently reduce the possibility of fraudulent digital copies.
As electronic identifiers, NFTs confirm a digital collectible is real by recording all of the details on a blockchain digital ledger. An offshoot of the cryptocurrency explosion, they represent a kind of digital signature that authenticates an item that is unique. The NFT allows an individual to claim ownership of something that could otherwise be copied repeatedly.
If you’re wondering how far NFTs can go, the answer is probably “pretty far.” The National Basketball Association is planning to sell digital sports cards backed by the tokens. Even the Associated Press is getting in the act – by offering a depiction of the U.S. presidential election’s Electoral College map as viewed from space as an NFT.
Are you ready to invest in NFTs?
Information can be gleaned from cryptocurrency investment news sites. MakersPlace, SuperRare, and Rarible all specialize in digital NFT artwork. NFTs like other tokenization schemes should be considered as investments on the speculative side of the risk and reward spectrum. Before attending too many digital auctions though consider sharing your aesthetic passion with a professional advisor. By enlisting the right expertise, the unique joys of digital ownership can be yours – and still fit within the clear aims of a well-diversified portfolio.
John Drachman is a contributing writer to www.myperfectfinancialadvisor.com, the premier matchmaker between investors and advisors. John is an IABC award-winning writer, who applies his 30 years of financial marketing experience toward advancing the dialog between investors and investment professionals.