An introduction to NFT’s

The pandemic and post pandemic world are a proof that we live in a highly innovative digital world. Countless businesses and professionals have been able to pivot their businesses and operating models to accommodate the changing needs of their customers and employees. If ‘necessity is the mother of all inventions’, then we must credit the technological advancements and innovations that have enabled to world as we know it to keep spinning the way we know it pushing through the curveballs caused by the pandemic. Technology has allowed most of us access to many aspects of life that our predecessors in previous pandemics could not have thought possible.

Before we delve into Non-Fungible Tokens (NFT’s), it is important we briefly explain the term ‘cryptocurrency’. Cryptocurrency, is any type of decentralized, digital currency that’s based on cryptography. Decentralized means that cryptocurrency isn’t issued by a central authority like a government or bank, the way the dollar, euro, yen, and other fiat currencies are. Instead, cryptocurrencies are created, exchanged, and overseen by a distributed peer-to-peer network.

While the enigmatic world of cryptocurrencies has been taking shape over the last few years, the most recent buzzword in this space is Non-Fungible Tokens (NFT’s). Non-fungible means the token is one of a kind, unique. NFTs transform digital works of art and other collectibles into one-of-a-kind, verifiable assets that are easy to trade on the blockchain. They represent the digital rights to assets such as audio, video, photos, and more. In 2020, blockchain backed NFT market tripled from 2019 with market value reaching US$250 million.

1. NFT’s versus Bitcoin and other cryptocurrencies:

Cryptocurrencies as defined by AsiaOne as “virtual currency that uses cryptography to secure and verify transactions as well as to manage and control the creation of new currency units”. Examples of cryptocurrencies include Bitcoin, Bitcoin Cash, Cardano, Ethereum, Polkadot, and XRP among many others. They can be exchanged, replaced, traded much like currency in the physical world.

NFT’s on the other hand have a unique value and cannot be exchanged for another of equal value. An NFT is basically data that is stored or accounted for in a digital ledger, and that data represents something specific. An NFT can, for example, represent a piece of art, a music album or other types of digital files. The buyer of an NFT gets a crypto-backed digital receipt proving the NFT is authentic and that they own it. NFT’s can be traded on digital marketplaces for crypto collectibles and NFT’s such as Open Sea or Rarible, Mintable, Nifty Gateway among others.

It would be remiss if we did not explain the term ‘blockchain’ that is commonly associated with cryptocurrency and NFT’s. Blockchain is basically the ‘ledger’ on which the token is certified and recorded as proof of ownership. The only similarity between NFT’s and other cryptocurrencies is that they both have a stored digital record on a blockchain.

2. Some relatable examples of NFT’s in real life:

Although NFT’s have been around for the last decade, the most significant transactions to date took place in 2021. Some notable ones include:

  • One of the more significant NFT trades that occurred in 2021 is the sale of Twitter CEO, Jack Dorsey’s first tweet for US$2.9 million dollars traded with Ethereum
  • Digital artist Mike Winkleman, known as Beeple starting posting a unique piece of art since 2007- ‘Everyday’ for over 13 years. In 2021 Christie’s auctioned this series, their first NFT or digital art transaction. The entire series captured over the period was sold together as a single piece of art called- Everydays: The first 5000 days for over US$69 million
  • On a more relatable level, a 12-year old boy, sold an NFT collection titled ‘Weird Whales’ for US$160k, with each whale in the series having its own distinctive traits that can make it rarer and more valuable than the others in the collection

As described in the definitions above, the key word we used was ‘represent’, i.e. the NFT token represents something else. In the case of Beeple’s artwork, for instance, it is a token that represents an original graphic painting by Mike Winkelmann, an artist. The buyer essentially purchased a token that gave them the rights to own the original artwork.

3. Why the sudden interest in NFT’s?

With digital world becoming ubiquitous and penetrating all walks of life, it is no surprise that there is now a forum to legally own, protect and trade with copyrights in this space. These digital assets will very often be a means to control of things in the real world without relying on an intermediary.

For an artist, selling an NFT can offer significant benefits to the artist. For example, music artists who sell their work via an NFT can control distribution and collection of royalties from the product without losing profits to intermediaries.

For content creators and artists, NFT’s can work as a lucrative business model because NFT’s are limited or their numbers can be controlled. The limited number of NFT’s means the only way to purchase these once they have been exhausted is on the secondary market. In addition, they can be easily proven and verified on blockchain technology which makes secondary trading transparent.

For other content producers such as YouTube content creators, podcasters or writers, use of NFT’s will allow these content producers to sell their content via individual NFT’s or subscriptions. Think of a podcaster with a free podcast programme but who sells an NFT with some exclusive content or a writer selling NFT’s with right to their articles. The possibilities are endless, the access to a global community, unfathomable.

There is also an increase in sport organizations issuing NFT’s. For example, NBA Top Shot has started selling video highlights—or moments, as it calls them, that are put together by the NBA and sold in packs as a kind of digital sports card. The packs are priced according to the rarity of the clips they contain, from $9 to $230 for three to ten or so moments. Within the first six months, NBA Top Shot generated over US$200 million in revenues.

The purchaser of Jack Dorsay’s first tweet, a CEO of a Blockchain expressed, “This is not just a tweet! I think years later people will realize the true value of this tweet, like the Mona Lisa painting,” Most of the interest is from people who enjoy supporting the work of independent creators by purchasing their work without relying on intermediaries.

4. Is it just a fad? Will interest in NFT’s fade?

Analysts predict that the growth seen in the NFT market in 2020 and 2021 is only the start.  NFT’s are going to become even more integrated into our already highly digital lives. The main reason why NFTs are likely to stick around and grow in popularity centers around the idea of uniqueness. NFT’s represent the ability to having access to something that no one, in theory, could ever have access to without the owner’s active decision to replicate.

While NFT’s have already taken the creative art and music world by storm, traditional asset managers are also expected to launch their version of NFT’s either via pooled managed funds or individual NFT’s representing assets.

5. So how do I get started?

In order to purchase and trade in cryptocurrencies and NFT’s you will need to set up a digital wallet. There are numerous guides to setting up digital wallets that best meet your needs. For some comprehensive details refer to instructions by Coinbase here.

A digital wallet, which can be software-based or a hardware device, allows the user to transact on a blockchain and see any balances associated with that wallet. An NFT is not actually ‘stored’ in a digital wallet. Rather, the wallet holds certain ‘keys’ that allow the wallet owner to interact with a blockchain and with any NFTs it owns.

There are various third-party providers, that offer different ways to display a digital work. You can sell or transfer your NFT through your digital wallet provider or a third-party platform that supports the blockchain on which your NFT is stored.

We appreciate that this is an incredibly complex cryptic world. If you have any further questions, may we recommend that you book in a consultation with our client X, who will be happy to answer all your crypto and NFT related queries.


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