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December 7, 2021 Natalia Forato

What are NFTs and why are some worth millions? Non-fungible tokens explained.

Mona Lisa by Leonardo Da Vinci Transform to Wpap Pop Art by Ahmad Nusyirwan.

The evolution of blockchain technology (and perhaps the sheer boredom and resulting creativity brought by rolling global lockdowns) means there are now far better, far crazier, and far riskier places to put your investment funds. 

Pre-pandemic, ‘meme stocks’ were few and far between. NFTs (non-fungible tokens) existed but were little known and less traded. But proof of authenticity enabled by digital tokens means non-fungible items can now command huge value. 

Examples include Jack Dorsey’s first-ever tweet, sold for USD 2.9 million, and the famous Beeple JPG file, which commanded USD 69 million at auction.

Beeple
A digital collage called “Everydays — The First Five Thousand Days” by the artist Beeple sold for $69 million in March 2021.

Although it might seem crazy to some, it’s the exclusivity of these items that draws investors looking for an offbeat and brag-worthy purchase. The phenomenon is relatively new, but the desire to own unique, beautiful, and collectible items is not. 

 

What is an NFT anyway?

A non-fungible token is a piece of digital content that can’t be replaced or exchanged with something else. Unlike currency, which is fungible – a dollar can be swapped for a dollar, and you’ll have exactly the same thing, and NFT like a video or piece of digital art can’t be swapped for a similar item. It’s entirely unique.

Digital NFTs are supported by blockchain technology. The blocks in blockchains store data (the asset), while the chains in blockchains act as a digital ledger for that data. Blockchains provide a neutral, decentralised, public record of digital transactions. 

Digital NFTs – let’s use digital baseball cards as an example – will have a unique ‘hash’ that makes them verifiable and identifiable to their creator. The unique hash means they cannot be replicated. This means a digital baseball card can now hold just as much value as a physical one.

 

Top 4 NFT examples of the past year:

  1. Grimes’ 10-piece art series went up for sale on Nifty Gateway (‘the premier marketplace for digital items you can truly own’) in February this year. The collection, centred around celestial and fantasy imagery, earned USD 5.18 million across several hundred copies made available.
  2. An official GIF of Nyan Cat remastered by the original artist Chris Torres sold for 300 Ethereum ETH – equivalent to AUD 1,921,835.36 at the time of writing. ‘I’ve basically opened the door to a whole new meme economy in the crypto world’, Torres said of the sale.
  3. If you still think the world of NFTs is a silly, time-wasting mania, this one probably won’t change your mind. The ‘Rarest Pepe’ – an illustration of Homer Simpson merged with the meme hero Pepe the Frog – was bought by its first owner Peter Kell for $39,000 in 2018. At the time, it was the highest price paid for an NFT. But Kell had the last laugh when he sold it for 205 ETH – equivalent to AUD 1,313,253.48 at the time of writing – this March.
  4. Memes are a key part of our online universe. They’re relatable and fun to share. But becoming a meme might be every internet user’s worst nightmare. Zoë Roth was only 4 when her photo became the infamous 2005 ‘Disaster Girl’ meme. She made the most of it when she sold the original photo through NFT entrepreneur Ben Lashes for $473,000 USD this April: “The internet is big. Whether you’re having a good experience or a bad experience, you kind of just have to make the most of it”. Roth, who is now 21, said she plans to use the proceeds to pay off her student loans and donate money to charity. 

 

Each market frenzy seems crazier than the last. But they all have the same roots. According to Scott Cutler, the CE of StockX, ‘younger generations want to invest in things that are culturally relevant [as well as] financially profitable. 

Upcoming generations seem to be embracing the weird and wacky. Perhaps the craziest thing is, although the assets aren’t necessarily tangible, the potential for profit absolutely is. 

While the space has numerous success stories, experts are concerned and advise caution. And although we don’t have a strong view on NFTs, we still find it incredibly interesting to watch the story unfold and love sharing it with our readers.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced, or republished without prior written consent.

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