A few years ago, in a meeting with a banking client, they used the word “fungible”. I love learning new words and had never heard of this one – so I brazenly admitted my ignorance and asked what the word meant. His explanation was that something was fungible if it could be easily broken up into parts and exchanged for other things – like money, as a €50 note can easily be exchanged for lots of smaller denominations that add up to the same value. He used a sculpture as an example of something of value that couldn’t easily be broken up and if you did smash a sculpture it would not retain the same value.
Fast forward a few years and I hear a lot about Non-Fungible Tokens or NFTs. At least I have an idea from that old conversation about what Non-Fungible means, but what are NFTs, and why are we hearing so much about them?
An NFT is a digital “thing” that is tied directly to a one-of-a-kind “thing” in the real world. These items might genuinely be a once-off creation, or they may be deliberately created to be unique or part of a limited set. This deliberate step is to limit supply, in the hope that there will be enough demand to drive the price higher for people interested in owning the digital asset. Basically, NFTs are a way to create digital scarcity, and so create a market where people are competing with each other to buy these items.
A simple analogy for NFTs is to compare them to baseball cards, collected so zealously in the US. If there is a very rare card, that card may be worth a lot of money – its price is driven by its scarcity and the fact that many people out there want to buy this card. Owning the card does not mean you own the person pictured on the card – the card itself has assumed independent value. Likewise, if someone were to create an NFT associated with the Mona Lisa, and if I was able to afford to purchase that NFT – that does not mean I now own the Mona Lisa. This is ok as I just don’t have enough space in my shed to store it properly.
So far so understandable. NFTs are basically digital baseball cards. Where things get more complex is that the payment and trading of NFTs are tied up closely with cryptocurrencies. So people looking to buy and sell them typically use Etherium or Bitcoin to make their transactions. If you are vague about how cryptocurrencies work, you will definitely be baffled by how NFTs are bought and sold, but perhaps it’s enough to accept that cryptocurrencies are the currency of choice for people trading NFTs, and not delve into that aspect anymore.
Another interesting aspect of NFTs is exactly what items can be used to generate or associate with an NFT? Twitter’s CEO Jack Dorsey sold an NFT of his first tweet for the equivalent of USD 2.5 million. The National Basketball Association in the US has been selling video compilation clips of iconic sporting moments as NFTYs. Digital artist Beeple was auctioned at Christie’s and sold to another crypto entrepreneur for the eye-watering sum of almost $70 million. A pop-art animated colorful cat whose body is in the shape of a pop tart sold for over $1 million equivalent.
1980s British pop band, Duran Duran has announced a project to NFTs to newly-planted, native trees in New Zealand as part of an initiative to start new micro forests around the world. Each tree will have an NFT associated with it. Two cryptocurrency workers got married and rather than exchange rings in the ceremony, they exchange NFTs. A novel blend of old custom and new technology!
Is this a fad, or is this a long-term market of the future? Whichever proves to be the case, maybe the next time your child brings home a piece of artwork from school, instead of dropping it into the recycling bin, perhaps you can consider trading it as an NFT? There just might be a chance that your budding artist becomes an NFT legend!
In the same way that NFTs have opened up new worlds for people familiar with the technology, Aspira leverages its technology expertise to help clients deliver technology projects. If you are interested in finding out more about our project services, get in touch for a chat with the team.