What the Heck is an NFT?

You may have heard about these crazy kids making millions selling digital versions of what most people would describe as Pokémon cards, all from the comfort of their bedrooms.

Well, it’s true, and they are called NFTs. The Pokémon cards that is, not the kids making beaucoup bucks.

What does Non Fungible mean?

An NFT is a Non Fungible Token. In non-techie terms, it basically means that they are a digital token which is priced a bit like how houses, second hand cars, or even second hand shoes might be.

By that I mean that the value ascribed to them can change from one point in time to the next. A house isn’t always going to hold the exact same price from one sale to the next. Nor is a second hand car, or a second hand pair of shoes.

With those illustrations there are inherent variable in characteristics that impact on the value of an NFT too. Much like the house on the beach being more desirable, and therefore valuable than a house in the suburbs.

A used car in good condition with fewer kilometers on the clock will be worth more than a clapped out bomb, even if it was the same make and model, that is barely holding on.

And the shoes, well… Need I say more?

So, let’s consider this in the NFT world. One specific NFT, for example a Bored Ape, may have a completely different value competed to another Bored Ape.

The below Bored Ape was priced at 59.69 ETH ~$194,027.72 USD at the time of writing.

Compared to another Bored Ape which was priced at 148.338 ETH ~$482,186.02 at the time of writing.

Driven largely by desirability (demand), scarcity (supply), and specific attributes or traits (uniqueness) no one NFT is necessarily considered to have the same value as another in the same set.

Once you stray to another set, you’re pretty much in the realms of the Coca Cola versus Pepsi discussion.

To illustrate this, compare the sales data for CryptoPunks shown below with the Bored Apes above. This can be simply mind-blowing to many. CryptoPunks arguably make the Bored Apes pale in comparison at this point in time. But how much longer will that be the case for? Who can really say?

Source: Larva Labs 31st August, 2021
Source: Larva Labs 31st August, 2021

Considering how NFTs are so different from one to the next, to sum it up in a slightly different way, their Non Fungibility means that the ascribed value isn’t necessarily static when moving from one person to the next.

What’s the Opposite of Non-Fungible?

On the other side of the coin we have fungible. Fungibility means that the thing that is being used holds the same ascribed value when it changes hands.

If I were to give you $10.00, you could take that same $10.00 and use it to buy things to the value of $10.00, or pass it on to someone else who would also be able to rely on the confidence based value it holds.

This is an example of fiat currency being a form of fungible value. However, the long term store of value with fiat currency is arguably unreliable. But, that’s a topic for another time.

What do I mean by relying on the confidence?

Aside from the long term store of value discussion, I’ll illustrate the inference of confidence with a point. That point being that it is only fungible provided it is recognised as legal tender, or having an exchange value in the place that you are trying to use it.

For more on an experience I had where my dollars weren’t good enough, check out this article.

So fungible is the opposite of non fungible.

So, back to the kids bashing away at their computers making millions. Seriously, WTF!?! Not to sound flippant, but that may be the actual case.

In some situations NFTs are going for tens of thousands to hundreds of thousands of dollars. In the majority of cases they can wind up sitting on websites like OpenSea and not selling at all.

For a deeper dive on what this looks like, check out the NFT Bible published by OpenSea.

Then there’s the price appreciation effect seen in the trading value of tokens associated with projects announcing they are moving into the NFT space, such as Solana and Cardano.

To say there’s a buck in NFTs is quite the understatement (if you’re doing them right). The data just released by DappRadar for August 2021 showed that OpenSea had their biggest month on record.

Source: DappRadar 31st August, 2021

Where Could NFTs Go?

If Gary Vaynerchuk is to be believed (I think it would be foolish to bet against him), NFTs have the very real potential to digitalise and dominate a paradigm that is quickly evolving from analogue to digital.

At this stage we may be in a speculative bubble, for want of a better way to put it, where the hype around NFTs is running hot. But it may not be even lukewarm compared to where it is likely going.

As Gary Vee said in the video, I firmly believe that getting in now ad being an early adopter and innovator is one of the better decisions someone could make in the blockchain space… #notfinancialadvice.

You can pick up the NFT for this post here.

Leave a Reply

%d bloggers like this: