Exploring the Financial Implications of NFTs

Fully 81 per cent of our interviewees correctly identified NFTs as intangible digital assets that provide proof of ownership over a creative work (usually art, but sometimes other types of artistic expression).

From NFTs representing digital art (examples include prints of Beeple’s generative paintings that sold for $69 Million at auction), to other kinds of artwork, collectives and NFTs that represent music (think also NBA Top Shot), there are NFTs that represent membership of clubs.

Investing in NFTs

NFTs are a great diversifier for your portfolio … The better thing is the lack of any correlation to the stocks and bonds you have already picked. If these investment types really try to balance your portfolio, then NFTs must present an excellent opportunity to make outsized returns.

While some NFT marketplaces are focused on collectables such as art or past sports highlights as videos, others expand the possibilities to include trading cards, digital event tickets, memes, web domains and countless other digital products or items – there are even NFTs out there of celebrities such as Snoop Dogg, Twitter founder Jack Dorsey and Shawn Mendes, the Canadian singer-songwriter, who all have released their ‘memorabilia’ or artwork as NFTs available for purchase.

A token can be created for an NFT on Ethereum’s blockchain by linking it to as many as 16383 different addresses, and such tokens are simple to move between accounts, giving owners a strong securing mechanism to protect against unauthorised uses or sales of work (ie, piracy or plagiarism). This ‘securing mechanism’ also uniquely allows collectors to build communities around a particular form of work (eg, fans building fandoms around TV shows created by creator-owned studios). Such benefits can be leveraged to help creators monetise work that was previously not profitable, or to automate workflows in ways never possible before. These benefits and more are not limited to entertainment – NFTs can be used to mean something beyond mere enjoyment because they can be created to tokenise real assets (think land, or even districts in a city) or even used to digitise documents (such as diplomas or degrees showing education credentials).

NFT-Based Collectables

NFTs are already one of the hottest ways to produce and market collectables of all kinds – from swatches of designer dresses to in-game-specific emojis; from anything to everything that can be digitised into an attractive and exclusive limited-edition product.

Although NFTs can represent anything, the majority of successful non-fungible tokens represent digital collectibles. NFTs are also used to purchase virtual equipment in games, but also as branded stickers, trading cards, and social media avatars for the Voxel-based virtual neighbourhood Decentraland, and even more applications.

In fact, a growing number of unique collectibles are filling the coffers of their originators as their collectors and fans start placing increasing value on them. Musicians in particular are using tokenised artefacts such as NFTs to offer ‘extras’ to fans in exchange for them buying an album along with them.

NFT-Based Games

NFTs enabled us to create truly original collectables to become the go-to way for video games to allow players to own and trade between in-game economies and be the killer app – the monetisation tools that gave gamers a way to earn money for the undeniable value they were providing for the gaming ecosystem. Like every industry before it, the ultra-competitive and enormous video games industry was being driven by Covid-19 into adopting blockchain technology; far more than donations or the PDF/book markets, gamers needed a way to earn cash for their in-game time: they had nothing else to do and social isolation mandated that they stay in-game for longer than ever.

From gaming companies and artists discovering new ways to monetise digital works, to collectors building community-driven NFT or non-fungible tokens, blockchains are providing ways to differentiate and value digital media that never used to exist. This in turn fuels vibrant in-game economies.

But with their increasing popularity, there have been many scams surrounding NFT-based games such as pump and dump scams where some individuals or groups create a hype around any asset to rise its price, so they can make huge profits before they dump their possessions. Therefore, new NFT investors have to make sure that they do a thorough research before investing in any specific NFT collection.

NFT-Based Apps

NFTs could help preserve music, tokenise real-world assets and foster communities. Like much of the investment world, NFTs should be researched thoroughly before purchasing; to avoid pump-and-dump schemes where whales or groups buy NFTs to create a frenzy.

Most NFT apps are built on Ethereum blockchain, which has become the de facto standard for these types of apps. Almost all popular crypto wallets, including MetaMask and Trust Wallet, support this standard. It is, therefore, easier to buy and send NFTs. OpenSea and Axie Infinity are some platforms that offer NFPs. NFTs can be leveraged to support social good, and can help in reinforcing social causes and brand legitimacy. The NBA, for example, is using NFTs as part of its fan engagement, and also as a method of rewarding loyalty.

NFT-Based Software

NFTs (or ‘Neighbour Friend Transfers’) are software determinants that allow stakeholders to represent and transfer virtual assets in blockchain networks. They can also be used for identity protection, as information stored about someone on an unalterable blockchain cannot be accessed or stolen without the keys for viewing or changing it.

They’ve done this through exploiting this feature, which can now be applied to produce digital art, games and collectibles, as well as crowdfunding campaigns, sports prediction markets and, most recently, as an antipiracy measure.

They allow for a situation, through direct blockchain technology allowing fractional ownership, in which photographers can sell photos that have many owners, thus admitting consumers to ‘owning’ parts of high-value assets, while also giving investors a chance to profit from such endeavours.