The Wild World of NFTs

It seems that technological developments using blockchain technology are always the most exciting and unusual news stories. Take the buzzy new digital items NFTs or Non-fungible tokens, for instance. Non-fungible as in irreplaceable and token as in the digital ownership of the irreplaceable digital item via the Ethereum blockchain or any other blockchain that chooses to support NFTs. As of now, Ethereum backed NFTs are the most popular. So what are NFTs exactly, and how are they being used? At VerifyInvestor.com, we are always excited to talk about developments in the blockchain space.

NFTs are the digital ownership of literally any digital item that is unique and cannot be replaced. For example, the Mona Lisa is unique and irreplaceable; therefore, it is fungible, and the digital version of it could be sold as an NFT. On the other hand, a quarter you picked up off the street might have unique marks and discoloration; however, it is replaceable by any other quarter and therefore is fungible. Just as the digital equivalent bitcoin (worth more than 25 cents, obviously) is fungible and can be replaced by any other bitcoin, therefore is not an NFT despite being a digital item.

So far, NFTs have widely been used to sell popular art and viral content, especially from social media. For example, Jack Dorsey sold his first tweet (the first tweet ever) for almost 3 million USD. This sold at auction like a Security Token Offering, blockchain-backed ownership of the digital asset is given to the highest bidder of the NFT.

How does this work in terms of reproducing the digital item and the ownership of the original creator of the digital work? Imagine you paint a circle in Microsoft Paint and sell it to your friend for USD 100,000 (you must have very generous friends!). As with an actual physical painting, your friend has ownership of the painting, but you can still hold the copyright and produce reprints. However, your friend would retain digital ownership of the original painting! Nothing beats the original circle painting you made, not even a reprint!

Naysayers may say NFTs are ridiculous, and from some of the more noteworthy NFTs being sold, it may be all hype. However, we live in a digital world, and anything original produced digitally can have just as much worth as a physical item. It depends on the buyer and how much ownership means to them. Like in physical art buying, many individuals would find that wasteful if someone buys a Picasso for millions of dollars. However, if it is worth that much to the buyer to own the original, then that is how much the artist will get paid for their item.

Could NFTs work in the crowdfunding industry? Who is to say? A group of investors (maybe even accredited investors) may want to pool their resources to afford the high cost of a GIF of a flying cat with the body of a pop tart (i.e., the NFT for Nyan Cat sold for $600,000 USD!) Really anything is possible in the digital world and Non-fungible Tokens are a perfect example of that truth.

Updated 6/30/2023

The NFT market faced several scandals in 2022, leading to a loss of confidence among users. However, NFTs are still a viable asset, particularly in the collectibles space, and are expected to transition from hype to utility in the coming year. Many crypto companies that utilize NFTs also have tokenized digital assets and used exemptions such as Regulation D to gain investors. NFT platforms are exploring ways to provide tangible benefits to users, such as earning points and community building, rather than solely focusing on quick cash from NFT sales. The article highlights a partnership between the NFT brand Psychedelics Anonymous and EZU, where buyers need an NFT to purchase apparel and can participate in a lifestyle application that offers NFTs and rewards based on real-world data.

Major brands like Starbucks, Porsche, and McDonald's are also adopting NFTs to enhance their marketing reach and engage consumers in a more meaningful way. Starbucks has launched a rewards program, Starbucks Odyssey, integrating NFTs as part of interactive activities, games, and virtual tours. Security concerns in the NFT space have prompted the need for a cooperative community and crowdsourced reporting to protect digital assets and identities. Educating users about security practices and guiding them to clearly identify their goals in Web3 will contribute to a safer and more connected NFT space in 2023. Overall, NFTs are seen as a building block for a stronger foundation in the Web3 ecosystem.