Blog Podcast Alternative Investing: What Are NFTs and Should You Buy One?

Alternative Investing: What Are NFTs and Should You Buy One?

date March 29, 2021 time 9 min read 508 views

If you tuned into Saturday Night Live last weekend, it’s likely you saw the Eminem parody of ‘NFT’s.’ Perfect timing for this week’s episode of Alternative Investing, where we untangle the acronym that’s been on everyone’s lips: NFTs. What are they and should you buy one? 

Please use the Spotify link below, or if you haven’t got time, check out the transcript.

You can also listen on Apple Podcast, Deezer, Spreker and Podcast Addict

Remember: All investing involves risk. The content of the podcast is for informational purposes only and is not investment advice. Please always use caution and diversify.

CHRIS:

Hello and welcome to the 9th episode of Alternative Investing with MyConstant. I’m Chris Roper, head of communications. And here with me today is…

PETER:

Hey, I’m Peter, I’m the community manager. 

CHRIS:

Today we have a special episode for you, another news themed episode. But before we talk about what today’s episode is about, I thought I’d start with an important announcement. For those of you who have been listening to us from the start you know that Peter has been my partner in crime on this podcast for the last seven episodes. But Peter, you have some news for our listeners?

PETER:

Yes. I’m moving on from working at MyConstant. So this is my last podcast working with you guys, but hopefully this is not goodbye. 

CHRIS:

It will certainly be sad to see you go. I’m sure everyone has enjoyed your contributions listening to the podcast. And of course, we’re going to miss you here at MyConstant. That said, we wish you well for your future. And for our listeners, don’t worry, it’s not only going to be me, I wouldn’t subject you to that. 

I am inviting our content manager, Trevor Kraus, he was on the episode last week and the week before. So he’s going to come and do the podcast with me. 

So without further ado, let’s get stuck in. 

Peter, tell me, what do Grimes, William Shatner and Kings of Leon have in common.

PETER:

They’re all famous. 

CHRIS:

Correct. Anything else? 

PETER:

They’ve been in the news quite recently for some new tech — NFT’s. 

CHRIS:

NFT’s — what’s that?

PETER:

NFT’s are not new on the blockchain, but have recently become popular as they’re a way to put physical objects on the blockchain.  

CHRIS:

Yea, that’s one aspect of them. They’re also a way for authenticating digital things as well. 

So Grimes, Shatner and Kings of Leon have all benefited from NFT’s. And NFT’s have made people a hell of a lot of money recently. For an example, there’s an artist called Beeple and his digital collage, broke the world record for a digital art sale. It sold for 69.3 million dollars. This was only a couple weeks ago at Christies. 

Most expensive piece of digital art at an NFT. And Grimes did the same. And William Shatner made his own set of trading cards. 

NFT’s are a little controversial, and we’ll get onto that in a minute. But first of all, let’s understand — what is an NFT? What does it stand for?

PETER:

Non Fungible Token.

CHRIS:

It’s a token — a special type of cryptocurrency that is non fungible. And what that means is that they are interchangeable. You can swap them out and not lose value. A non fungible token is unique is that you can’t freely exchange it. 

A unique baseball card, or song by a famous artist. Let’s say I buy a painting by Turner, it’s a unique art work and only one in existence. That would be non-fungible. Anything you’d like to add to that definition? 

PETER:

Yes, I found an interesting one online, that there are four major things that make up an NFT. They can’t be on a different blockchain. They are indivisible. They can’t be cut into smaller bits. A lot of bitcoin, Ethereum, you can have a percentage of a coin. NFT’s can’t be cut and they are indestructible. They are also verifiable — you know who has it at any point in time. 

CHRIS:

Let’s say I want to buy this graphic that Grimes has made. So I buy the NFT that says that my copy of this graphic is the original one. Now, why are people paying hundreds and thousands of dollars for art like this? When it can easily be reproduce, copied or distributed for free? 

PETER:

I think individual investor boom. Many are looking for new investment opportunities. 

CHRIS:

People hear the word token and they should be into?

PETER:

There’s a level of paying a high price for an item and thus creating a high value for that item. 

It’s interesting, because if you pay a high price for something on the chain. Do you think you’ll lose a lot for that investment? 

Someone could just as easily take that same item and put it on another NFT blockchain. 

CHRIS:

There is a problem with copying art and issuing their own NFT even though they’re not the original creator. 

But just to go back to the NFT again. It does raise interesting questions about perceptions of value. I read a good analogy about NFT’s on the verge and they said that anybody can buy a print of a Monet. But there’s only one Monet in existence. And I think NFT’s have been used as a way of authenticating fine art. 

Also, I did come across them authenticating Nike’s: Crypto kicks. 

So I supposed the idea is that people want a slice of something permanent. They know it wont last forever, or at least a long time. And blockchains are about as permanent as you can get. It’s also a lucrative way of monetizing something that’s easily reproducible. 

PETER:

And you can get a piece of a sale that happens after the sale of the first sale. Royalties.

CHRIS: 

But why do they go for so much money? You create something, how do you estimate the value of it. I understand if a Lebron video clip NFT is sold for lots of money and there is a perceived value. But how did they get to that first price? 

PETER:

I think there are many factors. It’s interesting that you pay in crypto. There are some places that accept Bitcoin or Ethereum, but not a lot. If you have lots of crypto and is a volatile market, so people might want to use a chunk to keep it more stable as an NFT. Almost like diversification. 

CHRIS:

If you have lot’s of bitcoin, you might use it to buy NFT’s or various things to spread the risk. Although, the volatility of NFT’s — they are not openly traded the way Bitcoin is. There are a number of NFT trading platforms but I imagine that something like a piece of art doesn’t change hands as quickly as bitcoin would. It’s not as liquid. 

PETER:

And everything is clearly listed. You know exactly how much someone paid for something. So making the trade again is easier since you know how much something is worth. 

CHRIS:

Right, you know how much something is worth. And that a problem in the art world, trading cards, comic books. Authenticity is a real issue and there are processing in play where they can asses if something is real and it’s condition. 

And with NFT’s not, you can do it with a permanent record on the blockchain, so it’s easy to check. 

Have you checked out the NBA’s top shop platform? Would you buy one? if you had the funds?

PETER:

I’d think about it. It seems — the NBA — they’ve gone and said it’s an official sport. 

CHRIS:

The trading cards market is huge. The collectables market is huge. It’s crazy what people re willing to pay for unique things. And the only difference with NFT’s are, it’s a blockchain issued representation of an asset. Blockchain collectable aren’t new. A few years ago in 2017, you might have heard of crypto-kitties? Collect, breed and trade kitten characters. 

When it was first launched it was such a huge success, that it slowed the Ethereum network to the point that no transactions were going through. And you have an interesting statistic about that don’t you Peter? 

PETER:

Yea, apparently right now, it uses 15% of Ethereum’s processing power. So it’s a lot. 

CHRIS:

The idea with crypto-kitties were cute and you could buy them and breed them with others to create new crypto-kittes. So it played into that collectable idea with a  bit of gaming. This was one of the first examples with the problem of scalability in blockchains. 

When Crypto-kittes became so successful, it was clear that the Ethereum network couldn’t handle that amount of trading. So that’s one issues that may face the NFT craze that’s going on at the moment. 

If everyone starts using NFT’s to exchange things like art, fine wine, sneakers among other things. They need to fix the scalability issue. 

PETER:

They are working on it. They’re trying to switch to proof-of-stake.

CHRIS:

If NFT’s are taking place on a proof-of-work, and they haven’t switched to proof-of-stake, these networks (proof-of-work) are using an extremely high amount of energy to approve transactions on the network.

Any who knows where this electricity is coming from. If it’s coming from fossil fuels, all these NFT’s would be negatively impacting the carbon footprint. 

PETER:

Why is the music industry so excited about NFT’s? 

CHRIS: 

I know that Taylor Swift has been fighting for ownership of her work for a long time, so potentially it has something to do with the ownership. There’s probably a royalty feature you can build into the NFT.

if you have an NFT for a music album, whether you’re the creator or not. You could license that to a streaming platform and they’d have to pay you for use. So that’s how it might go in the future and they way to prove it’s yours and that it’s the master copy is the NFT. 

So that might be an interesting way it might go in the future. 

I know Kings of Leon released an album as an NFT. But this is the thing, if something digital can be reproduced, downloaded and shared for free. It could be really easy for a criminal to capture someones digital work or tweet and sell it as an NFT. So I think that’s an issue going forward. 

PETER:

Yea, and if that’s made on the blockchain, that’s the one.

CHRIS:

On blockchain you have relative anonymity. Anybody can take something and create an NFT out of it. And make millions of dollars. 

PETER: 

I know there are some blockchains that do a non fungible exchange process. 

CHRIS: 

So this is an alternative investing podcast and we’ve been rambling on now for about 20 minutes. Is it a viable investment opportunity?

PETER:

If you’re in crypto? For sure. 

CHRIS:

Is it a speculative investment opportunity?

PETER:

Absolutely.

CHRIS:

It depends on the demand for the NFT that you’re looking at. 

PETER:

How to you start trading NFT’s? Where do you go?

CHRIS:

Go to any NFT trading platforms and if you Google that, you’ll come across loads. And you do need a crypto wallet. It’s a digital asset, so you need a hot or cold wallet.

There is a possibility for rare NFT’s to go for lots of money — millions of dollars. There is this element of alternative investing. But because NFT’s are indivisible, as we said, you’re probably not going to be able to own a share in a famous artwork that’s been NFT’d already. 

In some ways they’re a counter movement to the securitization of certain capital markets. Because securitization is where you fractionalize an asset, like a piece of fine art. Split up into shares and then you sell it. 

An NFT is one token for one asset. If you’re buying a share of a Turner paining that’s represented by a token on the blockchain. That would be different than buying the entire piece of art. 

Have you heard of MasterWorks?

PETER:

Yes I have. 

CHRIS:

MasterWorks fractionalizes fine art in SEC approved shares. And you can trade them — they’re fungible. This is the opposite to what NFT’s are doing. 

There is a counter movement. NFT’s are really for those who are quite wealthy at the moment. This goes back to the question of value. 

If you have 150K dollars to spend on a graphic and you’ll own the signature and you’re proud to own it. Then I guess it’s a reasonable way to spend your money as it would be to buy a case of Crystal champagne. 

PETER:

I mean, let’s say you’re back in the 90’s and you have that Beanie Baby sitting on your shelf. You could sell it — give me $100 dollars for it. It used to be $2,000 but now i’ll give it to you for $100. And now with an NFT, can you really liquidate it in the same way? 

CHRIS:

I think by that time blockchain has reached mass adoption and more of this stuff is put on blockchain, then maybe. We’re in the middle of a tech culture where we put value on meme’s and rare internet weirdness. Culture changes and shifts over time. 

I’m not sure if some of these things will retain it’s value. 

Well, I think that sums up everything, unless you have some final words on NFT’s Peter. 

PETER:

I think I said my piece Chris. 

CHRIS:

To summarize, NFT’s are a non fungible token. A blockchain issued asset that can’t be exchanged freely while keeping it’s value. It’s indivisible. It’s popular at the moment because there’s a spate of artists and celebrities that are selling NFT’s that certificate their authenticity. 

We’re living in some interesting times blockchain wise. Bitcoin, NFT’s, DeFi. It feels like the industry is maturing. 

PETER:

For sure. There are interesting ways to invest everyday. 

CHRIS:

And if you’re an artist, maybe you want to create a piece of art and sell it as an NFT. 

On that note, we will say goodbye. And Peter, I wish you all the best for your future. Thank you for your contributions to the podcast. 

PETER:

It’s been a pleasure going on this alternative investing journey with you all. I plan to be in it for the rest of my career. 

CHRIS:

Thanks very much everyone. We’ll see you next time. 

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