What is an NFT? An NFT is a Non-Fungible Token. Fungible is defined as (of goods contracted for without an individual specimen being specified) able to be replaced by another identical item: mutually interchangeable. In other words, a dollar bill can be exchanged for 4 quarters. Gold can be a brick or jewelry. Cryptocurrencies are fungible. They can be used to purchase other items. When something is non-fungible, it essentially means, one of a kind. It can’t be turned into or exchanged for something else. An NFT is a unique token on the blockchain, or digital ledger for lack of a better explanation. What is most important to take into advisement is that an NFT is not a physical asset in and of itself. It’s a digital, asset.
I’ve been contemplating NFT’s for a while but was only motivated to write this post when I read about a rare Japanese Whisky NFT being auctioned. The bidding started at $75,000 and for that, you own the physical bottle but it’s the NFT that’s most important. At the point of purchase, you would likely keep the bottle in storage, as a premium liquor investment so that everyone knows the bottle is out there. The owner can hold on to it, choose to re-sell it to another investor, or take it out of storage, and have the physical bottle shipped so the owner could display it, or drink it. At that point it’s referred to as being “burned” and is pulled off the NFT marketplace. Once that happens, it can never again return to the NFT marketplace.
With one less rare bottle available, everyone else who bought the liquor NFT, likely sees their investment increase because it has become rarer by one bottle. But it’s not about purchasing rare spirits. If that was the case, any wealthy billionaire could simply go out and purchase any bottle they want. No reason to purchase an NFT. The real value is the investment and what is perceived to be another way of making huge profits. It’s popular among those who are heavily invested in cryptocurrencies. It’s the opportunity to own something very rare, one of a kind. However, as mentioned earlier, in order to hold onto the rare bottle of Japanese whiskey in this case, it needs to remain an NFT and can therefore never be owned or drank, simply for the enjoyment of savoring something so rare.
NFTs have recently gravitated towards works of art. But the NFT art market has experienced a slump overall, as it will take a lot of people buying into the idea that the digital art world rivals the real art world. Owning an art NFT gives you the right to post it online or use it as a cover photo. But the artist has the right to retain the copyright and reproduction rights which means you own the NFT, but you don’t actually own the artwork. That might be enough of a reason not to buy into this new platform. But people purchase music every day in the same fashion by using iTunes for example. You buy the rights to play the music, but you don’t actually own anything such as the CD, which is a physical disc that’s yours to keep. The difference being of course that everyone can own the same CD but there is only one owner tied to each NFT. However, if owning that NFT is something that means something to you, or if you believe it will appreciate in value, then it might be worth looking into.
At the end of the day, NFT’s demonstrate that there are a lot of people looking for ways to make money in the digital space. If enough people buy into it, that creates the market. Many people consider Crypto to be a Ponzi scheme. It’s people’s acceptance of it as an Invesment and currency, that allows it to survive and until recently, to thrive.
Anyone can sell an NFT. It is not limited to a select few. However, it can be very costly to create and more importantly to sell your NFT. If it doesn’t sell, (although from what I’ve read, most do sell), you do not receive a refund of the fees associated with selling the NFT. Something that needs to be considered if you’re not rolling in dough.
From a philosophical standpoint, nothing we purchase has a value. Artworks are merely oil or watercolors on canvas. We give artwork a value by desiring it and in our willingness to pay currency to own it. If tomorrow, the artworld decided that Picasso was in fact a terrible artist and no one wanted to pay to own a picture of a face with the nose in the spot where the mouth should be, it would be worthless. Human beings give artworks their worth by agreeing to pay large sums of money to own them.
It remains to be seen whether NFT’s will expand or whether at some point, people reject them. Perhaps the example of the Japanese whisky is the future of NFTs. You purchase the bottle and leave it as is so other people can view your rare bottle of whisky, in this case. There are an infinite number of items that can be turned into NFT’s but that doesn’t mean there will be people willing to invest in those items. Until the NFT market grows and becomes more mainstream, it will remain in the minds of many, a scam.