NFTs for Dummies
- Caleb Kisler
- Feb 9, 2022
- 3 min read
Caleb Kisler
Finance is constantly evolving. Investors continue to find new ventures and ideas worth their money. It feels like just last week people were hearing about cryptocurrency for the first time. So what is it this time? Non-Fungible Tokens, also known as NFTs. The basic idea behind NFTs is that you are buying a JPEG. Yes, a picture. A picture that anyone on the internet can screenshot and use for themselves. You may be asking yourself “why would anyone spend money on a JPEG?” Well, so am I.
Non-fungible means unique or unreplicatable. So, each token is a one-of-one, making it the complete opposite of cryptocurrency. The idea of cryptocurrency is that whatever you buy will be the same, for instance if you traded an Ethereum for an Ethereum it is a one for one trade, they will always have the same value. However, NFTs are considered art, in the sense that each token has a different price tag that is determined by investors and how much they are willing to bid. Believe it or not, people are willing to spend MONEY on these tokens. As of December 2021, the most expensive NFT was sold for $91.8 million. Yes, $91.8 million. In fact, the top ten most expensive tokens were all sold for over $5 million.
When you look up NFTs, the first images you see are of “Bored Apes Yacht Club” and “Cryptopunks.” Odds are that you have seen one of these before. Celebrities are buying these and using them as their profile pictures for twitter, instagram and various other social media sources. Eminem, Meek Mill, Travis Barker, Lil Durk, Lil Baby, Faze Banks, etc. The list is endless. I am starting to understand at least why celebrities are investing in NFTs. In every picture or social setting these stars are dripped down in designer clothing, jewelry and driving luxury cars. We know that those things are expensive, but we don't actually know the prices. With an NFT, anyone can look up the price. Multimillion dollar acquisitions are common amongst celebrities, but for the first time we are seeing celebrities flaunt their wealth digitally, choosing BoredApes over Balenciagas.
Non-fungible tokens are stored and traded on the Ethereum blockchain, making my previous argument of “being able to screenshot or copy the token” inaccurate. Yes, you can take a picture of the token. But, since it is stored on the Ethereum blockchain it is well documented and noted who the owners are of most NFTs. Let's say I go to Paris and visit the Louvre museum and see the authentic Mona Lisa painting. Then I go to the gift shop and buy a print of the Mona Lisa to bring back home with me. Everyone knows I do not own the original Mona Lisa, it's still cool, but it’s worthless. That is the same concept for NFTs. You can download the image and use it, but everyone will know and can tell that it is worth nothing with an ounce of research.
With the announcement of the Metaverse in 2021, NFTs and their viability for investment becomes realer than ever. The world continues to move further into the web and now, more than ever, people are living on computers. The general concept of the Metaverse is an online life. So NFTs can be used as a form of art there. You could buy an expensive art piece and display it in your home, or you could buy an NFT and show it off in the Metaverse. Whether you like it or not, the world is moving to a more virtual route. Companies have realized how fast the world is switching and have hopped on the trend. Gucci, NFL, Adidas, McDonalds and tons of other companies have come out with their own tokens, and many more will follow.
One big concern with NFTs is the cost. Right now, I am sure that the market is inflated because of all the celebrities buying tokens and because of the recent announcement of the Metaverse. The prices can appear absurd and may not make logical sense to everyone. My biggest concern is that there are little to no options for the average investor. Almost every NFT out there is more expensive than one share of Apple stock. The NFTs that the average person can afford have little to no credibility. There have already been plenty of scams with NFTs, making it extremely risky to buy cheaper ones. This being because the easiest people to scam are the ones who are new to the space or want to fit in.
NFTs are the literal definition of “modern art,” so are NFTs worth the price for an average person? I honestly could not tell you. Like traditional investing, a lot of research should be done and you have to determine your risk tolerance.
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