[Coinlive] A Crypto Noob's Take on NFTs — Worth the Hype or Run for the Hills?

When it comes to all things crypto, we cannot forget about non-fungible tokens (NFTs) — it has been around for quite some time but gained significant traction in 2021.

A NFT is a kind of unique digital certificate entirely based on blockchain technology, primarily Ethereum (ETH) because of the smart contract capability. It is a type of cryptographic token used to represent digital assets and collectibles like original artwork, collectible cards, game items, music, videos, digital collectibles, and more, and identifies as the original, one-of-a-kind artwork. In short, an NFT is a digital token that uses blockchain technology to prove the ownership and authenticity of a unique digital asset.

Since NFTs hold data like the authenticity of the product, the history of ownership, price, etc, this makes NFTs unique and exclusive since no one token is like the other. It is imperative to understand what ‘fungible’ or ‘non-fungible’ mean when we talk about NFT. ‘Fungible’ means you can exchange it for another of the same kind and it still has the same value; it is interchangeable and not unique. For instance, if you trade one Bitcoin for any one Bitcoin, the value will not be affected. Fungible assets can be broken down into smaller units, like a dollar can be divided into cents: meaning I can trade a 10-dollar bill for two 5-dollar bills, or five 2-dollar bills (any smaller denominations that add up to $10); again, it must hold the same value.

“Non-fungible’ means the opposite — it is indivisible, unique, and irreplaceable. Imagine you and I both have tickets to the same musical, but we might not want to exchange them because where I sit and the price of my ticket is definitely different from yours, so the value is inevitably different too. Another example would be a painting; no two paintings are alike. They can almost be identical but there will always be an original one. Unlike cryptocurrencies which are divisible, NFTs are not, and are non-interchangeable on a 1:1 basis — you cannot split a painting, a musical ticket, a collectible card, etc, into smaller units!

Fun fact: Did you know that the former CEO of Twitter, Jack Dorsey, auctioned his first-ever tweet as an NFT for charity. It was sold for over $2.9M back in March 2021.

Jack Dorsey’s tweet that was auctioned, had just 24 characters and was composed 15 years prior

Left: CEO of Bridge Oracle, Sina Estavi, posted the above after purchasing the tweet

Right: He then announced on Twitter just a year odd later, that he was selling the NFT on OpenSea, a popular NFT trading platform, for a hefty $48M. It was spectacularly unsuccessful. You can check it out here: https://opensea.io/assets/matic/0x28009881f0ffe85c90725b8b02be55773647c64a/20

Do you think it will be akin to the Mona Lisa of our time or will it fade into oblivion? It is terrifying to think of the vast difference in valuation when purchased and the measly bid it got when it was attempted to be sold. Is this more of a ‘run for the hills’ situation?

In reality, if you want to trade your comic book, trading card, and the likes, you just need to pass it to the person. When it comes to the digital realm, it is very easy to just right click and save the image (which I am sure ALL of us have done at some point or still is doing it). NFTs help establish proof of ownership with one official owner as it is like a certificate of authenticity. Even if you could save an image on your desktop, only the owner could prove it and its origin can be verified by everyone using blockchain technology since there is no way to modify past records. If I buy an NFT from you, I am only the sole owner of the token that represents the asset, not the actual asset. Unless you transfer the copyrights with an external agreement in the smart contract of the NFT to me, I cannot come up with merchandise based on your artwork and sell them commercially. NFTs could be used to authenticate non-digital items like tickets to a soccer match, property deeds, and more, or digital items like artwork, music, tweets (Jack Dorsey’s tweet), and the likes.

Fun fact: Currently the most expensive NFT artwork (see below) to have ever been sold is $91.8M.

Created by digital artist, Pak, The Merge's NFT sold for $91.8M on 6 December 2021

The controversy surrounding The Merge is whether it is a single piece of artwork or a collection of close to 29,000 unique pieces of art (I shall not go into the nitty-gritty of this) since the price was raised by tens of thousands of buyers. No matter the controversy, the fact is that it sold for that much, so this is perhaps more of a ‘worth the hype’ scenario?

When people talk about NFT currently, the topic veers typically towards NFT artwork, which is essentially a digital artwork that users can purchase from NFT trading platforms or marketplaces like OpenSea, Nifty Gateway, Rarible, and many others. It is special as it is tokenised, meaning when someone converts their artwork into an NFT, they are basically encrypting the artwork’s data within the blockchain where the artwork’s information gets stored; they then get a token ID.

Some of the popular types of NFTs include art NFTs, Profile Picture NFTs (PFPs) collectibles, game NFTs, and more. Check out some examples below for better clarity.

An example of art NFT — Beeple’s Everydays: The First 5000 Days sold for over $69M

An example of PFP collectible — Larva Lab’s CryptoPunk #5822 sold for more than $23M

An example of game NFT — Axie Infinity’s Angel sold for about $1.1M

Now that you are equipped with a better understanding of NFTs, you can begin your NFT quest! Whether NFTs are good investment or not, it does not hurt to have a discerning eye. Ensure you understand the underlying asset’s value that you are purchasing before you buy the NFT. Whatever the reason you purchase it (to sell it when the price goes higher or because it is pretty so you want to HODL for keepsake), the same general rule of thumb applies here too: never invest what you cannot afford to lose.

This article is purely for educational purposes only and is by no means financial advice, and is based on my subjective take and research done on the topic mentioned.

Written by: [Coinlive] Catherine