The craze for non-fungible tokens (NFTs) has generated a $27 billion (£20.4 billion) market.
So claims blockchain analysts, Chainalysis.
Huge sums are involved.
Digital artist Mike Winkelmann, better known as Beeple, sold an NFT of his work for $69.3 million at Christie’s in New York. Jack Dorsey, chief executive of Twitter, sold his first tweet as an NFT for more than $2.9 million – stating “just setting up my twttr”, it was first posted on 21 March 2006. Meanwhile, someone paid almost $390,000 for a 50-second video by Grimes.
Even the British Museum is getting in on the act, putting up for sale as NFTs a collection of paintings by J M W Turner.
While art has led the way, people are asking themselves – where else could this be headed.
Some think the property world is next. Others suggest the gaming sector. Fashion might be another.
NFT stands for ‘non-fungible token’. The non-fungible part means unique and non-replaceable. The token element means it’s digital and protected using blockchain technology, like cryptocurrency.
Mitchell Clark, at The Verge, the multimedia technology commentator, explains: “NFTs can really be anything digital (such as drawings, music), but a lot of the current excitement is around using the tech to sell digital art.
“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.”
He goes on: “NFTs can work like any other speculative asset, where you buy it and hope that the value of it goes up one day, so you can sell it for a profit.
“Every NFT is a unique token on the blockchain. But while it could be like a van Gogh, where there’s only one definitive actual version, it could also be like a trading card, where there’s 50 or hundreds of numbered copies of the same artwork.
“Some people treat them like they’re the future of fine art collecting, and some people treat them like Pokémon cards.”
NFTs are typically held on Ethereum, but other blockchains support them too.
Chainalysis cites Open Sea as the largest NFT trading platform.
It states that, on average, the best-performing collectors on Open Sea make triple their initial investment every time they flip an NFT, whereas the lowest performing group returns an average loss of 0.9 times their initial investment.
Lydia Hylton, an investor at Redpoint Ventures, told Forbes magazine how companies are ultimately driven by the potential for earnings, and NFTs are a new revenue stream and engagement tool for brands. “Exclusive brands like Louis Vuitton thrive on scarcity and are exploring LV-branded NFTs. Brands are also constantly looking for ways to increase engagement with customers.”
Kristi Waterworth at The Motley Fool sees a big future for NFTs in property – eventually.
She said: “Buying a whole property using an NFT is not something I anticipate anyone being able to do for a while. Real estate law moves slowly and changes take a long time to make. However, tokenized ownership of real estate projects is happening here and there. And it’s absolutely awesome.
“Will NFTs be a thing in real estate and real estate investing in 2022? Absolutely, without a doubt, yes.”
But a serious word of warning.
Look out for scammers on the make.
It is not uncommon for fake NFTs to be marketed to unsuspecting investors. Make sure the person selling you the token actually owns the rights to it.