Is Owning an NFT Worth It?
Non-fungible tokens (NFTs) have taken off in recent months, making headlines around the world. From the first album released as an NFT to old memes resurfacing, content creators are keen to explore new ways of making a profit in uncertain times. The publicity is paying off – the market cap for NFTs stood at $338 million in 2020, but spiked 1,785% in the first three months of 2021.
What’s the Point of Owning an NFT?
To understand why there is so much hype around NFTs, let’s begin by revisiting the definition of an NFT – eloquently worded by my colleague, Yves Renno (Head of Trading at Wirex):
“An NFT is a unique token governed by smart contracts that lives on the blockchain. Smart contracts are built to automatically execute transactions if certain conditions are met and will define what an NFT can do. Like any other token, an NFT is transferrable and tradeable, but not interchangeable…”
To explain it in layman’s terms, think of it as a painting. I’m going to choose Woman Fish by Marc Chagall, because that’s my favourite. Now, I can go to the Tel Aviv Museum of Art to view it as many times as I want. I can even buy multiple reproductions of the painting. But I do not, sadly, own the painting. It’s the same with NFTs – say, the one of Nyan Cat. I can view a video of Nyan Cat on YouTube, I can draw Nyan Cat, but I do not own Nyan Cat.
Incidentally, another work by Chagall exemplifies why NFTs are so valuable. Back in the late ‘90s, his painting La Mariée was reproduced for the film Notting Hill. Producers received permission from the painting’s owner to create the reproduction, but after filming, the copy was destroyed. The producer explained, “…we had to agree to destroy it. They were concerned that if our fake was too good, it might float around the market and create problems.”
Protection Against Copyright
NFTs are protected against forgeries by nature of the blockchain: each block is encrypted and interlinked with both preceding and successive blocks, making a forgery nigh impossible. This does not mean, however, that more NFTs using the same content cannot be minted.
In this case, trading cards are an apt comparison. If you’re like me, you may have traded Pokemon cards as a kid – and you were willing to trade a whole lot of basic Charmanders for a holo rare Mewtwo (although looking at the prices now, that may not have been a wise investment). Here we’ve identified two key market drivers – scarcity and demand. If I had known back then that Mewtwo wasn’t as rare as I thought and that actually, there would be more demand for a starter Charmander down the line, I might’ve changed my trading tactic.
Multiple Editions of Unique NFTs
Similarly, multiple copies of the same NFT can be created, but scarcity and demand are what drives value. And, unlike paintings or trading cards, NFTs can also offer content creators and prospective buyers more options. Because they exist on the blockchain and are subject to smart contracts, all sorts of caveats can be added. For instance, look at the music industry.
NFTs and the Music Industry
Seeking to counteract the global pandemic’s adverse effects on their livelihoods, musicians have started releasing new music as NFTs. Releasing new music as NFTs enables artists to cut out intermediaries, such as distributors and publishers, while stipulating that they still receive a cut of any resale value later. And it’s good for the fans, too – giving them additional ways to engage with their favourite musicians. For example, when Kings of Leon released their album, they added exclusive perks, including limited-edition vinyl and front row seats to future concerts.
So while it’s true that NFTs are still in their infancy and the technology comes with inherent risks, the promise of a new asset class, a more secure proof of ownership, and an additional revenue stream for content creators makes owning an NFT worthwhile.
If you’re looking to dive into the world of NFTs, why not get your hands on an exclusive Wirex-branded NFT for free this week? Working with leading NFT producer, Terra Virtua, we’ve produced 500 vFlects, aptly named WireXX and WireXY, to give out to the first group of people that upgrade their X-tras accounts to Premium and Elite between the 7th-14th June. Find out more here and upgrade today!