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Non-Fungible Tokens (NFTs): What Is the Hype All About?

CryptoPunks NFTs by Larva Labs
CryptoPunks have sold for as much as $7 million US.

Virtual ownership rights to 8-bit-style JPEG characters and artsy GIFs are being sold for millions of dollars. Yes, you read that right. In other news, NFTs from top-selling digital artists like Beeple are being sold for as much as $69 million US. Are NFTs going to change the way we see art, is it simply a virtual derivative of the art market, or are we witnessing the birth of a new asset class?

Möbius Knot NFT by artist Pak
Möbius Knot NFT by artist Pak, latest sale: $42,720 US.

Tokenized digital art

NFTs being digital art on the blockchain, the ownership concept might be hard to grasp for some. The authentication technology behind Non-Fungible Tokens is quite impressive and innovative. Six properties are key to NFTs: standardization, interoperability, tradeability, immutability and provable scarcity, liquidity, and programmability. Be careful not to get caught in the highly technical blockchain semantics, it is all very much in early stages, and projects coming out of it have yet to mature, including Non-Fungible Tokens.

NFTs as investments

Seasoned crypto investors might recognize the similar market sentiment towards NFTs, linking it with the Initial Coin Offering (ICO) craze of 2017 when retail investors got trapped investing large sums into vaporware. While gamblers and high-risk investors might strive in this environment, it is important to note that the space is in its early stages, and just like with ICOs, most Non-Fungible Tokens will lose up to 95% of their value. Trapping typical retail investors in the dream of the blockchain future with catchy, futuristic, and appealing terms, NFTs will be the downfall of many.

Parabolic risks, and gains

When euphoria and greed take control over a market, what usually follows is a big bust. The cyclical nature of the crypto market is not to play with; most 2017 ICOs having lost 90% of their initial valuation. However, just like ICOs matured into IDOs and IEOs, NFTs are here to stay and the possibility of building out an allocation to Non-Fungible Tokens as an emerging asset class over time is not something investors should ignore. FOMO-ing in right now, when the NFT market is driven purely by a speculation bubble is a bad idea. You might not want to bring Non-Fungible Tokens up at your next accountant or financial advisor for some time until the market matures.

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