Cryptocurrency is one of the most exciting financial developments of recent times and the latest crypto-trend comes in the form of non-fungible tokens (NFTs). Defined by Design Boom as “the registration of ownership of a digital object on a blockchain”, NFTs can be any type of digital media including music, videos and text. Most are part of the Ethereum blockchain, which is a type of cryptocurrency blockchain.

What is an NFT?

Put in more simple terms, NFTs are a type of digital trading card or passport and it is their uniqueness that makes them so sought after. It may be an unusual concept to wrap your head around – investing millions into something that anybody can access for free – but one way to think about it is to consider the difference between hanging an original Picasso in your home or buying a poster; it’s the ownership that creates value. And that ownership exists on the blockchain for full transparency in a place where NFTs cannot be copy and pasted, edited or deleted.

Only one person can have that ownership which makes NFTs irreplaceable, powerful for their authenticity and a pioneering new concept that is driving an emerging economy of digital collectibles and virtual goods.

Cultural Cachet

While the concept of NFTs has been around since 2015, this current stage of their journey is gathering pace fast. This is partly due to advances in blockchain technology and the increasing movement of cryptocurrency into mainstream conversation. A lot of this popularity is also down to the cultural cachet associated with owning NFTs which is gaining traction across all different forms of media.

Artist Grimes sold her crypto art NFT collection for $6 million in less than 20 minutes with the highest single piece going for $389,000. A video of basketball star LeBron James sold for $200,000 while rock band Kings of Leon released their new album as an NFT, meaning fans who bought it now own first edition copies.

It’s a very modern type of (speculative) asset management for the buyer but, as this is 2021, the trend also positions “bragging rights” as highly valuable. On its most basic level, investing in NFTs allows people to financially support their favourite artists and own basic usage rights to their work. NFTs are set to play a major role in the next stage of the digital economy as the trend breaks new ground into a type of crypto-collectible arena with the potential for multi-billion dollar sub-industries.

Breaking Records

NFTs are also breaking new ground. On March 12 this year, NFTs enjoyed a record-breaking sale of a digital collage by the artist known as beeple. The collage sold as a single lot for USD$69 million to a well-known entrepreneur and blockchain angel investor, propelling beeple to the position of top three most valuable living artists. It should be noted here that artists can retain the copyright and reproduction rights of the media, just like with physical artwork, while NFTs have a feature that enables artists to be paid a percentage every time the NFT is sold or changes hands.

The beeple sale broke new ground in new ways as it marked a firm step in crypto’s fast-moving journey towards the (high-end) mainstream sales arena and clear recognition of its immense value. How? In the form of two groundbreaking firsts for the crypto-industry – Christie’s as the first major auction house to offer a purely digital work with a unique NFT, and the first to accept cryptocurrency in addition to standard forms of payment for the lot.

The Environmental Question

There is one key argument against NFTs and that’s the sheer amount of energy it takes to create (“mint”) them. Most Ethereum is minted using a proof-of-work system which has a large carbon footprint – there is currently no mainstream viable alternative although the proof-of-stake system has great potential. Copyright is also a struggle but the cryptomedia star continues to rise thanks to solid fundamentals and a range of flourishing NFT marketplaces.

As shown with the Kings of Leon example mentioned above, NFTs are transforming the very basic economy of the creative artist with artworks created entirely on the blockchain and away from the central marketplace. With superfans snapping up NFTs left, right and centre, the emotional value of this type of investment clearly cannot be underestimated, too – and that’s a very powerful driver behind 2021’s most intriguing asset management opportunity.