Home About Archives RSS Feed

The Retired Investor: Non-Fungible Tokens Come of Age

By Bill SchmickiBerkshires columnist
Non-fungible tokens (NFTs) have been around since 2014, but I'll bet you haven't heard of them until this year. As part of the crypto craze, these NFTs are commanding millions of dollars in spending and expanding into everything from original art to tacos.
 
NFTs are digital assets. For those like me, who are old enough to be grandparents, and may still read the newspapers, the concept of a digital asset may not be all that intuitive. "Non-fungible" means that it is a unique asset that can't be replaced with something else.
 
NFTs are bought and sold online (usually with a cryptocurrency), and stored and encoded in the same way. The difference is that cryptocurrencies, such as Bitcoin, are fungible and can be traded, or replaced, with another bitcoin. These digital assets can include everything from original art, videos, and music, as well as collectables like electronic sports cards, in-game articles, and whatever else sellers believe will have value to the spending public.
 
Most NFTs are bought, sold and supported by the Ethereum blockchain. Ethereum, for those who don't know, is both a cryptocurrency, like Bitcoin or Dogecoin, but also offers a sophisticated, state-of-the-art blockchain that stores extra information needed for all sorts of digital transactions including the processing and handling of NFTs.  
 
Ethereum is not the only game in town, however. There is a growing list of competitors that have also entered the market. They function as a marketplace where NFTs can be stored, displayed, traded, and in some cases, created. These marketplaces are to NFTs what Amazon or eBay are to goods. So how do you access them?
 
You need to have a crypto wallet. If you already buy or sell cryptocurrencies, you probably already have one. But it must be compatible (and prefunded) with a blockchain that supports the NFT you want to buy. NFTs are usually purchased for a fixed price, or through an auction like on eBay.
 
The purchase includes a built-in authentication, which serves as proof of ownership. Each original object has its own digital signature that makes it impossible to be traded or exchanged for something that may look similar, but isn't. Therefore, the buyer can never be stuck with a fake copy of something like a digital Mona Lisa.
 
Today, although there are many types of marketplaces, universal and art-oriented platforms are the most popular. There are also nice niche players that specialize in things like collectible cards, virtual real estate, and in-game articles.
 
Some items have sold for substantial sums like a tweet from Jack Dorsey, the founder of Twitter, that sold for almost $3 million. Big business is also starting to dabble in this market. A number of Fortune 500 companies are jumping into NFTs as part of their marketing strategies. Visa, for example, paid $150,000 for "CryptoPunk," which is just one of thousands of NFT digital avatars up for sale. Nike has patented a method to verify sneakers' authenticity using an NFT system called CryptoKicks. Marvel, the home of so many superheroes, launched its own NFTs, as did Wayne Gretsky.
 
Then there is "Beeple," a digital artist, whose real name is Mike Winkleman, who rocketed to fame when Christie's, the art auction house, announced it was selling a digital work by him. The auction attracted 125 bidders and sold for $69 million. That was $15 million more than Monet's painting "Nympheas," which sold for $14 million in 2014. A video by the same artist brought in $6.6 million.
 
The clip art of a rock just sold for 400 ether, that's about $1.3 million. The transaction marks the latest sale of EtherRock, a brand of crypto collectables. EtherRock is a JPEG of a cartoon rock, built and sold on the Ethereum blockchain. There are only a hundred available, which I'm guessing is part of the attraction.
 
 What makes a cartoon rock (not even a real rock) valuable? Its scarcity value. In a world where there is an infinite supply of most digital creations, NFTs stand out because they are generally, one-of-a-kind, original artwork.  Of course, like any product there is an implied assumption that there is a demand for the object on sale.
 
Owners of NFTs are taking the chance that no matter how many times you might be able to download a copy of their original, it isn't the same as owning the Real McCoy. Frankly, you won't see me lining up to buy a virtual rock anytime soon. To me, it serves no purpose I can see beyond its ability to be bought and sold. I guess it could give you a sense of pride and maybe bragging rights in being the owner of one of only 100 such rocks, although I doubt I would want to brag about that. 
 
Don't be too quick to dismiss NFTs as just another craze, however. For the starving artist, for example, it is an avenue (without middlemen) where they can sell their works direct to the public and make a living. I believe that in the years ahead, crypto and other electronic currencies, blockchains and the like will replace existing exchange systems as well as transaction settlements.
 
As the world continues its journey into a digital reality, NFTs could grow and become an accepted part of that brave new world. As we have replaced the ubiquitous oversized travel photo books on our coffee tables, the slide show of our vacations, and even our family photo albums with digital memories, is it so hard to believe that there will be a market for NFTs?
 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.

 

     

Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
Scoil Rince Bréifne Ó Ruairc Participated in North American Open Championships
Pittsfield Police Participating in US 20 Speed Enforcement Project
MassDOT Project Will Affect Traffic Near BMC
Dalton ADA Committee Explores Expanding
Milne Public Library Trustees Announce New Library Director
Clark Art Presents Free Thematic Tour on Music in Art
BCC, Mill Town Partner to Support Philanthropy Through 40 Under Forty
SVMC' Wellness Connection: March 15
Pittsfield Community Meeting On Rest of the River Project
Slavic Easter Egg Decorating At Ventfort Hall
 
 


Categories:
@theMarket (480)
Independent Investor (451)
Retired Investor (183)
Archives:
March 2024 (5)
March 2023 (4)
February 2024 (8)
January 2024 (8)
December 2023 (9)
November 2023 (5)
October 2023 (7)
September 2023 (8)
August 2023 (7)
July 2023 (7)
June 2023 (8)
May 2023 (8)
April 2023 (8)
Tags:
Federal Reserve Congress Jobs Banks Currency Bailout Banking Europe Debt Interest Rates Taxes Employment Rally Markets Stock Market Deficit Europe Fiscal Cliff Commodities Pullback Euro Energy Debt Ceiling Greece Selloff Crisis Election Oil Stocks Recession Japan Stimulus Economy Retirement Metals
Popular Entries:
The Independent Investor: Don't Fight the Fed
Independent Investor: Europe's Banking Crisis
@theMarket: Let the Good Times Roll
The Independent Investor: Japan — The Sun Is Beginning to Rise
Independent Investor: Enough Already!
@theMarket: Let Silver Be A Lesson
Independent Investor: What To Expect After a Waterfall Decline
@theMarket: One Down, One to Go
@theMarket: 707 Days
The Independent Investor: And Now For That Deficit
Recent Entries:
@theMarket: Sticky Inflation Slows Market Advance
The Retired Investor: Eating Out Not What It Used to Be
@theMarket: Markets March to New Highs (Again)
The Retired Investor: Companies Dropping Degree Requirements
@theMarket: Tech Takes Break as Other Sectors Play Catch-up
The Retired Investor: The Economics of Taylor Swift
@theMarket: Nvidia Leads Markets to Record Highs
The Retired Investor: The Chocolate Crisis, or Where Is Willie Wonka When You Need Him
The Retired Investor: Auto Insurance Premiums Keep Rising
@theMarket: Melt-up in Markets Fueled by Momentum