A Dummies Guide to NFT

By: Andrew Rosen, CFP®, CEP®

Alright kids, buckle up time to go for a little ride.  A ride that is to do my best to explain the latest and greatest new market craze.  What we are talking about here today is the emergence of NFT’s (or non-fungible tokens).  Did I lose you yet? 

If you haven’t read, well any news lately, here is an article about how an artist that goes by the tagline Beeple (real name Mike Winkelmann) sold a piece of digital art for…… you guessed it $69 million dollars.  You paying attention yet?  That is correct, Beeple sold a digital image for almost $70 freaking million dollars.  There is no typo there.  There is no exaggeration.  Yes, I am talking about an image on a computer screen.  Oh, and if you are curious his previous highest piece of digital art sold for $100 (no extra zeros).

Now, I am not even going to attempt to try to explain why this digital art sold for I believe the 3rd highest price paid for an American artist artwork ever.  Because quite frankly it doesn’t make sense.  But, to explain the technology behind it, I can certainly give the old college try.

NFT

NFT

Now, as I stated earlier NFT stands for Non-Fungible Token.  Non-Fungible means not easily exchangeable for something of equal value.  Token is how they are traded and proofed essentially.  To break-it-down into its simplest form here is what happens.  The creator, or owner, of a digital image, issues a kind of receipt to the purchaser of that image on Ethereum blockchain (usually).  Thus, transferring ownership of the image with proof-of-purchase receipt stamped digitally on blockchain.

What makes that interesting is once issued it cannot be reproduced.  So, if you own the rights for instance to Beeple’s $69 million-dollar digital image it cannot be forged or reproduced.  You are the only owner there will ever be until you transfer ownership to another individual.  Also, if you are the owner of this artwork I am taking on new clients

Another interesting wrinkle is you have to purchase this image using cryptocurrency, in this case Ethererum.  Mind officially blown yet?  Head spinning at very least? 

Why all the rage?

Well, NFT’s aren’t brand new as they’ve been around for a year or two.  But they certainly are the new “big thing”.  They are opening a new marketplace for digital trading.  Now someone can own an original tweet, video, or artwork.  Yes, it can be replicated and true you aren’t likely to invite friends over to look at your computer screen Beeple artwork all night.  That said it is opening up a new world as a store of value and people want in at the ground level.  It is like a baseball trading card marketplace for everything digital.

Is there something worth investing in?

Value and risk is in the eye of the beholder.  My gut tells me something will come of this in the investing world, but not yet.  For today it is a total speculation play and a marketplace that thrives on supply and demand.  If you happen to have $69 million extra dollars laying around, I can certainly find a less volatile and more secure place for these funds.  I am not one to ever rush into a market fad that has such astronomical swings.  Additionally, to “invest” in this world is essentially throwing darts in the dark and hoping that whatever you purchase will be worth tons of value to the next acquirer.

With all that said the technology is fascinating and another proof that blockchain is here to stay.  It is shaking up our world at a rapid pace and will continue to lead to other interesting advancements in this space. 

If you need to open a bottle of red wine now to digest all this I don’t blame you.  All I ask is let me know what you open and what you think about it.  I’d join you but it is 8:30am right now so a bit earlier than when I prefer my red wine.

Thanks for reading and stay wealthy, stay healthy, stay happy.

In his role as Financial Planner, Andrew forges lifelong relationships with clients.  He coaches them through all stages of life and guides them to better achieve their life goals.  For more information about Andrew or the other firm partners, Kyle Hill and David Levy, click the link below.

Find out more about Andrew Rosen, CFP®, CEP®
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Financial planning and Investment advisory services offered through Diversified, LLC. Securities offered through Purshe Kaplan Sterling Investments, Member FINRA/SIPC. Headquartered at 80 State Street, Albany, NY 12207. Purshe Kaplan Sterling Investments and Diversified, LLC are not affiliated companies.