One-of-a-kind digital assets that exist on the blockchain, NFTs or non-fungible tokens can be anything from a social media post to a painting. Anyone may be able to download these collectible memes, but feeling like you own one has created a whole new asset bubble.
Twitter CEO Jack Dorsey just auctioned off his first-ever tweet as an NFT, becoming part of a popularity explosion during the pandemic as investors rush to spend vast amounts of money on items that exist only online.
Dorsey got paid $2,915,835.47 for his originating tweet of March 21, 2006, in which he posted, “just setting up my twttr”.
Making good on his promise, Dorsey converted the winning bid into bitcoin and donated it to GiveDirectly, a charitable organization that gives money directly to people living in poverty, for its Africa Response.
Artist Mike “Beeple” Winkelmann just sold an NFT for $69.3 million, the third-highest price achieved by a living artist. The sale of the purely digital artwork was done at premiere auction house Christie’s, “the strongest indication yet that NFTs have taken the art market by storm,” New York Times reported.
Bloomberg puts the NFT market at $1 billion — a market that seemingly came out of nowhere and captured the imagination of artists and blockchain enthusiasts globally.
However, NFT stakeholders warn that NFTs are a bubble.
“Will some of the stuff that’s getting bought now at millions of dollars go down in value? I would say so,” said Nick Tomaino, founder of 1confirmation, a venture fund backed by Peter Thiel and Mark Cuban, which invests heavily in the crypto space.
Here are three things to know about the hot new asset in hyper-speculative asset bubble.
A non-fungible token identifies something unique that cannot be replaced, such as a piece of artwork like the Mona Lisa, a collectible, a concert seat or lottery ticket. It is a special type of token that is different from fungible tokens such as bitcoin, according to Decrypt. It can’t be interchanged for another asset of a similar type.
Nate Hart, a Nashville-based NFT investor who bought a LeBron James Cosmic NFT on NBA Top Shot for $40,000 in January and sold it for $125,000 in February, told Reuters, “It is a bubble. It’s hard to predict what the top will be.
“We’re in awe, it just doesn’t feel real,” Hart said. “We were in the right place, right time, got lucky, but we also took that risk.”
Tomaino, whose firm has invested in OpenSea, a popular NFT platform, said, “I’m a big believer in crypto-art in the long term, but I think it’s clear that we’re in some type of bubble right now.”
However, Tomaino also said that “every investment is based on people’s collective belief. People like to tell a story about certain companies having cash flows or things like that, and that is a story that makes people believe that an investment has fundamental value, but at the end of the day it’s all belief. NFTs are no different than art or traditional investments or cryptocurrencies in that sense.”
In the crypto-world, bubbles are par for the course, Alex Vuocolo wrote for Cheddar. “You might even call them growing pains or necessary bumps on the road to legitimacy.”
The majority of NFTs are Ethereum ERC-721 tokens, which allows developers to easily deploy NFTs while ensuring compliance with the broader ecosystem, including crypto exchanges or wallet services like MetaMask, according to Ethereum.org.
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These tokens can be purchased in Ethereum transactions and are secured by the world’s No. 2 blockchain.
Christie’s, the auction house founded in 1766, says it will accept payment in the digital coin Ether as well as traditional money.
“Whenever institutions of any kind try to resist inevitability, it does not work out very well,” said Noah Davis, a specialist in post-war and contemporary art at Christie’s, about accepting crypto payment. “And so the best thing you can do is embrace the terrifying.”