Non-fungible tokens (NFT) have recently reached the big leagues. Spreading rapidly throughout the National Basketball Association, National Football League, Major League Baseball, and more, NFT’s appear to be the future. However, they are surrounded by question marks. Some experts believe NFTs will remain the future of investing, while others wonder if the bubble is set to pop.
A non-fungible token is a unit of data stored on a digital ledger, called a blockchain, that certifies a digital asset to be unique and therefore not interchangeable. NFTs can be used to represent and own items such as art, GIFs, videos and sports highlights, collectibles, virtual avatars, and video game skins, designer sneakers, and music, thus creating digital scarcity. They are bought and sold online, most frequently with cryptocurrency, and are generally encoded with the same underlying software. Originally created in 2014, NFT’s have recently exploded in popularity as a way to buy and sell digital artwork.
According to Forbes, $174 million had been spent on NFTs from 2017 to 2020. In the first quarter of 2021, a staggering $2 billion have been spent on NFTs, including a record-setting $69 million on Beeple’s Everyday—The First 5000 Days. American billionaire entrepreneur and owner of the Dallas Mavericks, Mark Cuban believes that Generation Z’s dependency on the internet and phones is a leading cause of this spike in NFT sales.
“The crypto natives, particularly Gen Z, their most valuable assets are on their phone,” Cuban said in a recent interview with Business Insider. “Unless you have a house or a car, everything that you value, your brand is your Instagram, or Snapchat, or TikTok account. Everything that you’ve ever captured in your life that you find dear to you, you keep on your phone. That’s why people my age don’t fully understand that this is not a transition, this is not hard, this is natural.”
Typical forms of NFTs include iconic clips from NBA games or securitized versions of digital art. While any individual with access to the internet can still view these items, an NFT allows an individual to own the item. When purchasing an NFT, you receive a built-in authentication to serve as proof of ownership. These digital bragging rights are almost worth more than the actual item itself.
While NFTs could serve as a lucrative investment going forward, their future value is unknown and some experts don’t believe that they are worth the money. An NFT’s value is based solely on what someone else is willing to pay for it, meaning that demand will drive its price fluctuations, unlike how fundamental, technical, and economic indicators influence the stock market. This unfortunately means that an NFT may resell for less than the purchasing price. So, with NFT’s uncertain future, it is clear that they are a risky, but potentially lucrative investment. In order to benefit regardless, NFTs are best if the specific token has a certain special meaning to the buyer.
There are many other downsides to NFTs as well. The blockchain verification process requires a substantial amount of energy and is damaging to the environment. The environmental footprint of selling an NFT artwork versus a physical copy is 100 times larger. Additionally, one artist canceled the sale of 6 of his works of art once he calculated that those sales would use the same amount of energy in 10 seconds as his studio apartment did in two years. Another potential downside to NFTs is that there is a danger of a speculative bubble. In other words, NFTs could be rendered valueless if this bubble were to burst.
One organization spearheading this NFT movement is the NBA. Recently, they released NBA Top Shot, a blockchain-based platform that allows fans to buy, sell and trade numbered versions of specific, officially licensed video highlights. They started this concept to transform fan-favorite, unforgettable highlights into a new category of collectibles. They place each highlight into digital packs, just like regular trading cards, and sell the packs on the official NBA Top Shot website for prices ranging from $9 to $230. The pack prices depend on the quality of highlight, the stardom level of the player and the exclusiveness of the card. Once you purchase a pack, those highlights go into your encrypted, secure highlight wallet to be showcased or re-sold on the NBA Top Shot Marketplace. This is also serving as the NBA’s newest means of marketing and customer engagement as all of the hype surrounding NFTs has proven to be increasingly beneficial for the NBA. It looks as if NFTs are the future of this industry, but at this point, only time will tell.