OVERCOMING YOUR NFT FOMO (Part I)
By Shane Shin
If the news of an artist known as Beeple selling his digital art for a few million dollars didn’t surprise you in 2020, perhaps you were intrigued to hear about a music producer/DJ 3Lau selling his collection of music albums tokenized on the Ethereum blockchain for over $11million in February last year. Or perhaps you started to develop fear-of-missing-out on these head-turning opportunities after Christie sold a digital collage NFT for a whopping $69.3million just a month after that. With multi-million dollars and extravagant sales seemingly becoming the new norm, the NFT market was on fire and left many people including myself with a major FOMO.
Truly, it was not long after the intricate technicalities of cryptocurrencies began to sound a bit familiar that non-fungible tokens (NFTs) made headlines around the world. Ranging widely from a simple tweet, art and collectibles, music, in-game items, videos, event tickets and so on to domain names, digital real estates, social tokens, etc., non-fungible tokens can be characterized by digitalized content, ownership, uniquity, non-interchangeability, and smart contracts.
NFTs are essentially digital contents tokenized on the blockchain, with each token representing unique ownership of a tangible or intangible asset whose value cannot be replaced with another. A single NFT typically consists of digital or media content, its unique token identifier, and metadata that describes fundamental properties of the asset, including but not limited to a name, description, price, and other attributes such as a media link.
Difference between NFTs and cryptocurrencies
As NFTs, like cryptocurrencies, are governed by smart contracts on the blockchain, ownership and transferability of the each NFT is safely stored and tracked on the decentralized public ledger. In a world where duplication of most digital content is only two clicks of the mouse away at no cost, the concept of anyone being able to verify the creator and owner of a digital (or digitalized) work, let alone owning that asset on the digital platform, is indeed what makes NFTs so interesting and valuable.
NFTs share some similarities with Bitcoins and other cryptocurrencies as they are built on the same kind of programming, but cryptocurrencies and fiat currencies are ‘fungible’ and thereby replaceable. A ten-dollar bill is always worth ten dollars, regardless of its serial number or whose wallet or bank account it sits in. A single Bitcoin is interchangeable with another Bitcoin.
A non-fungible asset, on the other hand, cannot be exchanged equally for another asset of the same kind; one non-fungible token is thus distinguished from all other tokens. There could be multiple editions (i.e. copies) of the same digital asset, but each edition is issued a unique identifier as a separate token and represents a different ownership value in both monetary and personal terms. Compare having the first edition of collectible cards to having the 59th edition. Or imagine Lionel Messi donating personally-signed jersey shirts to 50 of his fans, but the shirts have random squad numbers from 1 to 99 on the back rather than the No.10 and No.30 he wore and wears at Barcelona and PSG teams, respectively – anyone would be lucky to be one of the 50 people that receive his personally-signed shirts, but the value of owning the No.10 and No.30 jerseys would be immeasurable to any fan.
To be sure, a fungible asset can easily evolve into a unique, non-fungible asset if endowed with intrinsic or special values and abilities. That’s why the CEO of Twitter was able to sell his first tweet ever posted as an NFT for over $2.9million. What NFTs essentially did was reintroduce scarcity and ownership of digital assets in an online world that has largely been ignorant of such concepts. Online content is remarkable in that it can flow freely without boundaries. One does not have to own a tweet to copy, replicate, share and distribute. But what if you want to own that first tweet ever posted because you believe it signifies something greater, say an evolution of technology or an artistic value equal to Leonardo Davinci’s tiny sketch of a bear? Now you can, as long as that thing you wish to own has been minted on the blockchain. It is amazing how NFT technology enables digital content to be purchased, owned and sold by individuals, just like any other physical good.
That’s not to say NFTs, however fool-proof smart contracts on the blockchain may be, are safe investment alternatives for everyone to dive in. Fake NFTs are commonplace, as well as NFT art scams and phishing for personal details under the pretense of free NFT giveaways. Much skepticism exists about the true efficacy of NFTs, with some experts saying non-fungible tokens are a bubble poised to pop. Of course, mainstream adoption of NFTs as a stable means of exchange may never come. But we believe that with every enthusiast comes a skeptic in the advancement of new technology.
We at Shorooq Partners are eager to invest on the right path the future takes us. As we take pride in our rigorous efforts to learn about our partners’ businesses every day, let us dedicate some time into sharing what we learn about NFT’s along the way – so you don’t have to feel anxious about missing out on rewarding opportunities. Given their extravagant but short history, the future of NFTs remains yet uncertain. Whether or not you believe NFTs are here to say, we believe an exploration is required. Are you ready to overcome your FOMO with us?
