Non-Fungible Tokens (NFTs) are considered the decade’s hottest emerging asset class, and are touted to become a standard feature of investment portfolios in the near future. So, what are NFTs and what makes them interesting?
An NFT is a digital asset whose ownership is recorded on a tamper-proof digital ledger known as a blockchain. It can also be described as a digital record of ownership of a license to content that is held securely on the blockchain. A buyer of an NFT receives a certificate secured in the blockchain technology, which authenticates them as the owner of that NFT. The digital asset cannot be replicated or forged and has only one owner at a given time. NFTs are a fast-growing subset of the cryptocurrency and digital assets universe (cryptosphere) and can be the original digital version of almost anything: an image, an audio clip, a GIF, a painting, a song, or even a stamp. In other words, NFTs are a type of cryptocurrency, but instead of holding money, they can hold any of the assets above. According to Nigel Green, the CEO of the deVere Group, an independent financial advisory, asset management and fintech organisation, investors have been piling into NFTs mainly for three reasons:
Viable Proposition in a Digitalised World
First, this new digital asset class has value due to the blistering pace of the digitalisation of the world. Millennials (those born from around 1981 to 1996) and Gen Z (those born in the late 1990s and early 2000s) especially have digital lives and it’s natural to want to take digital representations of say, luxury brands, music, sport and art into these worlds – something that can now be easily done through the instrumentality of NFTs.
Making Business Models More Viable
Second, NFTs are making business models, especially in the creative sectors, more profitable and rewarding. Artistes and musicians, for example, can:
- provide enhanced virtual experiences for collectors and buyers. For instance, Zimbabwean artiste, Hulio’s (real name Nyasha Warambwa) art piece, titled We’ll Meet Again – a digital drawing of late African American entertainment and sports stars DMX, Kobe Bryant, Aaliyah, Chadwick Boseman, Tupac Shakur, and Nipsey Hussle – was beamed on a New York’s Time Square Billboard without the involvement of a gatekeeper such as gallery, thanks to the NFTs phenomenon. It earned him plaudits and recognition from some of hip-hop’s megastars, such as Drake and Timbaland. Michael Musekiwa aka VITheLaw, GreatJoy Ndlovu, Indigo Saint and Nicholas Jim are some of the young Zimbabwean artistes that have sold their artworks as NFTs. The art world is responsible for the most expensive NFT sold, with The First 5000 Days by Beeple selling for US$69 million at a Christie’s Auction. In March 2021 American band Kings of Leon, released their Album, titled When You See Yourself, in the form of a non-fungible token (NFT) – becoming the first ever band to do so;
- prove if their works are counterfeited. Once an NFT is created, it can be digitally traced forever. And unlike a simple image file, for instance, an NFT cannot be duplicated, giving it a similar cachet to an original art work, and last but not least;
- include criteria to get royalties every time their works are re-sold in the future.
Diversifier Factor
And third, this asset class can act as a major diversifier in investment portfolios, which is arguably the most important of the three reasons, for the majority of investors. – ©MFSB