Non-fungible Tokens (NFTs) and Why People Are Paying Millions for Them
Just when you thought you’ve finally saved up enough capital for to buy your first Bitcoin in the cryptocurrency market, a new player has entered the game and already shaken things up. That new player is none other than Non-fungible Tokens (NFTs).
Non-fungible tokens might be new to the crypto game, but bids are already as high as $2.5 million for Jack Dorsey’s tweet.
In fact, the Nyan Cat was just acquired this year for $590,000!
So what’s so special about NFTs and why are people willing to pay millions for them?
If you are like this guy below, you’ve come to the right place.
What are Non-fungible Tokens?
First things first, let’s get definitions out of the way.
I googled “Non-fungible Tokens” and here’s what I observed:
- People are willing to pay millions for them (Canadian artist Grime sold her digital art as NFTs for $6 million!)
- Taco Bell is hopping onboard the NFT train
- Tweets, music and art are somehow involved in the trade
Yes, these findings don’t really make it any clearer.
I decided to look on Twitter too.
All I could deduce from here is that NFTs are highly valuable.
I’ll be real, it was a bit difficult to understand what exactly non-fungible tokens were and how they worked.
But CoinDesk defines NFTs as a “digital asset” that represent a vast variety of unique, intangible and tangible items such as virtual real estate, sports, cards, art, tweets and almost anything, really.
Here’s another definition from Cowrywise:
Unlike regular tokens like Bitcoin & Litecoin – where you can trade one for the same token – NFTs are like a distinct trading card where you trade it for something completely different; that’s what the term “non-fungible” means in NFT.
NFTs are not an entirely new concept. The first use of NFT came about in CryptoKitties, which is a game on the Ethereum blockchain where plays can collect, buy, freed and sell virtual cats that was released in 2017.
How do Non-fungible Tokens Work?
Take whatever you know about cryptocurrency and shelf it for now.
Like I mentioned earlier, NFTs do not function like Bitcoin or other leading tokens. They are vastly different in terms of function and characteristics (more on this later).
No two NFTs are identical. Think of your NFT as a Pokemon card. You would want to trade your regular cards for better and more valuable ones instead of the same thing. Say you have a Charizard (that could go up to a whopping $2,499.95 for the 1999 1st Edition, mind you), you don’t want to trade it for another Charizard. Instead, you should trade it for other valuable cards like the Pikachu or Shiny Mew.
Another way you could think about them is a flight ticket. Each flight ticket has the traveller’s name, passport details, destination, and seat number. Essentially, you can’t really pass off someone else’s flight ticket as your own. You’ll just get into trouble.
The first Non-fungible Tokens were part of the Ethereum blockchain and the large majority of NFTs remain past of the blockchain. But other blockchains like TRON have already begun producing their own version of NFTs.
Other Important Characteristics of NFTs
1. They are Indivisible
Unlike Bitcoin, you can’t divide your non-fungible tokens into smaller units. For instance, if the NFT is a house, you can only buy the only house and not just a room within the house.
Kings of Leon made history for being the first band to release an album in the form of an NFT. You can’t only buy one song, you need to buy the full album.
2. NFTs are Rare
An NFT is like an Hermès Birkin bag – they are super rare because of scarcity. And that’s probably why bidding could go up to millions!
3. Each Token is Unique
Medium attributes the uniqueness of Non-fungible Tokens as one of its most valuable feature. Each NFT comes with a permanent information tab a sign of its uniqueness.
To understand this, think of your NFT as a concert ticket (to a concert that’s already sold-out. I’m thinking BTS Love Yourself World Tour). You have the name of the concert printed on the ticket with your section, seat number, code and other unique details.
What’s with the Hype?
The marketplace exceeds $130 billion as of March 2021.
Unless you are actively involved in Crypto-trading, you probably wouldn’t care much about the rise of NFTs, but there are a couple of interesting reasons why it is rapidly gaining ground in the digital space.
I’ll admit that while reading up on why people have been buying into the NFT trend, my head hurt a little, but probably the biggest attraction here is ownership over the item in question.
When you buy an NFT, you don’t get the original artwork, audio file, copyright or production rights. Instead, buying the NFT gives you the license to display the art or share the song on a public space like social media.
Bloomberg attributed buying NFTs as buying bragging rights.
In a nutshell, buying an NFT means you are acquiring “ownership” of a token used to represent a unique object.
Why Should I Care?
“I can’t believe people would spend millions on digital artwork!”
Well, you better believe it because the NFT phenomenon is taking the world by storm and brands are Already Jumping on the Trend
Earlier I mentioned that Taco Bell had already boarded the NFT train, but let’s look at brands that are probably more recognisble in Singapore.
These international brands have already started experimenting with NFTs. Nike, in particular, has developed patented shoes called CryptoKicks as NFTs in December last year. CryptoKicks enables users customise sneakers and “breed” different shoes that will then be manufactured by Nike.
Not only does this gives customers the opportunity to get creative and personalise their sneakers, but it also opens more opportunities for brands and customers to interact beyond sales.
Should I Start Incorporating NFTs into My Business Strategy?
Sure, buying NFTs seems like sunshine and daisies, you buy some, sell some, and profit.
But there is a lot more than meets the eye.
NFTs do not come without hefty price tags. You might want to do your own homework and research to find out if NFTs will fit in with your overall business strategy and whether your business has the funds and the opportunity to experiment with NFTs.
Businesses and marketers are constantly on the lookout for new ways to create that connection with their target audience. Do tread carefully if you intend to hop on this train.