Future historians may look back at this time as the Age of Speculation. Driven by the boom in cryptocurrencies, some assets are seeing an exponential increase in value. One of them is NFTs, also known as non-fungible tokens. Though not widely understood, some are drawing in enough investor interest to give them nosebleed valuations.
The explosion in the value of cryptocurrencies like Bitcoin has had an interesting side effect: Surging demand for NFTs, or non-fungible tokens. Investors everywhere are asking themselves whether owning the digital rights to street art, LeBron James slam dunks or Jack Dorsey’s first tweet can possibly be worth the eye-popping valuations they’re fetching in the market.
Think of NFTs like purchasing a vintage sports car or a historic mansion. Without thorough due diligence, it’s very hard to know whether you’re buying a rare item of value or a lemon that will make you deeply regret taking the plunge.
To put it another way, it’s very challenging to differentiate between fool’s gold and the real deal, especially when the NFT market is in the throes of a massive bubble. From a certain point of view, the value of NFTs is in the eye of the collector.
After all, owning a totally unique object—the ultimate criterion for every true collector—may be worth nearly any expense if you want it badly enough.
What makes NFTs valuable?
You can copy a digital file as many times as you want, including the art that’s included with an NFT.
But NFTs are designed to give you something that can’t be copied: ownership of the work (though the artist can still retain the copyright and reproduction rights, just like with physical artwork).
To put it in terms of physical art collecting: anyone can buy a Monet print. But only one person can own the original.
Mark Winkelman, the artist known as Beeple, made $69 million at Christie’s when he sold a piece of digital art as an NFT. This makes him among the top three most valuable living artists, according to the auction house.
So what makes NFTs so exciting?
NFTs have the potential to provide ownership for users that will authenticate their ownership rights. This would allow digital assets to be transferred globally far more easily than any set of collectibles that have come before.
Another point is that NFTs provide authenticity, giving buyers confidence when they buy their assets.
The use cases for NFTs are only just beginning to be explored. For example, someone may choose to purchase online news articles as NFTs, and while this may seem like a gross indulgence of the super-rich, there are more practical uses that are on their way.
Until now, the crypto market has been laser focused on fungible digital assets like bitcoin and Ethereum. NFTs have changed that by providing a marketplace for assets such as digital art, game items, concert tickets, real estate, and more.
These new tokens allow digital artists to monetise their work by providing proof of ownership, regardless of how many people download and use the images.
How to invest in NFTs?
The problem with NFTs is that they are not like publicly traded liquid tokens that you can just buy and sell. NFTs are extremely diverse, have different value drivers, and are thinly traded. Someone who is new to the market can’t simply jump in and start buying stuff.
“Investing in NFTs is like investing in small businesses or playing the lottery – the chances of success are low but the payout is high if a winner is picked,” says Sean Sanders, CEO and founder of crypto platform Revix, which is backed by JSE-listed Sabvest.
Investing in the blockchain infrastructure that supports the NFT industry (selling the spades in a goldrush approach) seems like a more sensible approach.
A direct way to get exposure to the underlying decentralised blockchain technology is to invest in Ethereum or the Smart Contract Bundle; both are available on Revix’s digital platform.
Revix customers can get started investing with as little as R500. The fintech charges no sign-up, monthly account, or subscription fees, but rather a simple 1% transaction fee for both buys and sells.
Ethereum
Most NFTs are created and recorded on the Ethereum blockchain, which provides a detailed record of the NFT’s chain of ownership and custody. Blockchains like Ethereum are essentially massive spreadsheets that have proven tamper-resistant and hack-proof.
“There’s been a lot of discussion around decentralised finance, or DeFi, and how this is changing the world of finance by making it possible for people to invest, lend, borrow and earn interest outside of the banking system,” says Sanders.
“The recent emergence of NFTs is another instance of these new technologies being applied in creative ways to provide a new marketplace for artists, real estate owners and owners of collectibles, to name a few.”
It may be difficult for most people to understand how a tweet from Jack Dorsey can sell for millions of dollars, and few people would be in the market for this kind of thing.
What is more certain is that this new emerging market relies on blockchain technology, Ethereum in particular, but other cryptocurrencies will likely benefit from this new technology, such as Cardano and Polkadot.
In much the same way that Android and iOS operating systems work with mobile applications, smart contract cryptocurrencies enable developers to deploy NFTs and build applications on top of the blockchain.
These applications allow users to trade goods, cryptos, to lend, borrow and perform innumerable financial transactions – all without an intermediary, such as a stock exchange or a bank.
The jury is still out as to who will win the race to dominate the DeFi space, though Ethereum currently has a solid head start. Nipping at Ethereum’s heels are Cardano and Polkadot, which also accommodate smart contracts.
The Revix Smart Contract Bundle comprises five cryptocurrencies: Ethereum, Cardano, NEM, EOS and Polkadot.
Revix spreads your investment equally over these five cryptocurrencies, and its algorithms automatically rebalance the portfolio each month to ensure each cryptocurrency achieves a 20% weighting in the portfolio.
The Revix Smart Contract Bundle has appreciated by an astonishing 200% since January 1 this year. Sanders concludes: “Whether this is a fad or a long-term trend remains to be seen – but those who are willing to learn, engage, and become early adopters may be able to take advantage of some massive gains over the months and years ahead.”
Why You Should Invest in Non-Fungible Tokens?
NFTs have proven to be a profitable form of investment owing to some of the following reasons:
Creates Value for the Tokenized Asset
NFTs create a medium whereby physical objects like art works can be tokenized, thus eliminating the duplication of such art work and limiting ownership to the artist. This in turn creates scarcity for the art work and hence, value for it.
It provides Investors more Liquidity
Tokenizing assets gives investors more liquidity over their assets when they need it. An example is when a virtual land owner decides to rent out his/her virtual space to advertisers or influencers for a fee, while still retaining ownership over the land. The virtual land in this case still belongs to the owner, but part of it is liquified as rent.
Potential for growth and development
NFTs possess potential for growth and development of the land sector. Pegging NFTs to land pieces has proven great potential for growth and development, for instance in real estate, owning and controlling virtual lands gives you the power to decide what you want to do on your land. You can decide to rent it out, build up a solid and secure business for advertising or online sales.
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