BINGHAMTONREVIEW.COM
WHAT IS AN NFT, AND WHAT ARE THE RISKS BEHIND IT?
What is an NFT, And What Are The Risks Behind it? By Charles Forman
A
n NFT (Non-Fungible Token) is a digital asset that runs on Blockchain. It serves as a way to give digital assets to one another. Similar to trading art, NFT’s hold the value given to them by buyers and sellers. The value can go up, and it can go down. In recent months, NFT’s have exploded in popularity, making some buyers millions of dollars with the digital assets. In short, an NFT is a unique unit of data. The simplest way to explain the ownership of NFT’s is through royalties. When you own the rights to a song, you take a share in those profits whenever that song gets streamed because you own the rights to the music. When that song is played, you get a royalty paid out to you. This same principle can be applied to NFT’s, as you can buy an NFT song or any other digital asset which you can use to make passive income. NFT’s can also be a digital asset like a trading card that does not have licensing rights but would hold value because of the sentimental value that it can hold. Think about NBA TopShot videos. If you own the rights to a clip from an NBA game, you have the right to license that clip out to media outlets in exchange for money. This has made some millionaires not because they are licensing the rights to the video but because the video has become worth what buyers are willing to pay for it. Art maintains its value because it becomes timeless, but not all art is created equal. Some art is worth more than others, and therefore, it is essential to conduct a TON of research before splurging on these tokens. Kevin McCoy made the First NFT, and it was called Quantum. He made it in 2014. Now, it holds a value of more than $7 million. Additionally, CryptoPunks, a digital art piece that features a pixelated “punk,” was made in 2017 and was the first NFT on the Ethereum Blockchain. It is important to note that I write this article based on an investing standpoint, not from a technical perspective. Therefore, if you are looking to learn about the technical side of NFT’s, I recommend you check out a video by the Wall Street Journal called NFTs Are Fueling a Boom in Digital Art. Here’s How They Work on Youtube. Social Media had a significant role to play in the explosion of NFT’s. Digital artists like Beeple sold their work for over $69.5 million to a crypto kingpin. But, the artists are not the only ones who can profit from the assets. Take Michael Levy, for example. The Wall Street Journal reported that Levy spent $175,000 on purchasing NBA Top Shot videos last September. In the months that followed, those assets became worth $20 million. It is no wonder that with stories like Levy’s, the masses would want to get in on this fad. However, many people will aimlessly invest in things; when major news outlets like The New York Times, The Wall Street Journal, The Verge, USA Today, and many, many more are writing about this, the information gets into the hands of the masses. They became trending, and once that happens, institutions like hedge funds, big banks, and other investment ad-
editor@binghamtonreview.com
visory firms start to pour millions into it. Even billionaires like Elon Musk, Mark Cuban, and Jack Dorsey have all gotten in on the action by either buying some of the assets or selling their own. Earlier this year, Jack Dorsey sold the first-ever tweet for a whopping $2.7 million, which he donated to charity. When investments like NFTs go mainstream, the profits start coming in. But, now that NFT’s are not the most talked-about thing this week, how will these assets perform in the future? One thing that is important to remember about the future of NFTs is that we are living in an increasingly digital world. With readily accessible augmented reality and virtual reality around the corner, NFTs will become a crucial part of the digital economy. That being said, NFTs have a general-purpose in our world. Many investors will own physical assets such as art which they will appreciate. However, not all investments are created equal. There are assets like tweets that do not hold any real value other than the value assigned to them by investors. Yet, that value can be millions. Similar to cryptocurrency, they have the value assigned to them by the community. There are no quarterly earnings reports filled with disclaimers and reasons why they might be a bad investment. The investor must do their research. NFTs do carry risks. With any new investment, there will be scams and assets that will not do anything. The risk of losing everything is much higher investing into NFT’s than it would be investing into an ETF, but as the old saying goes, the more risk, the more reward. In my personal opinion, the most valuable NFT will be the digital maps that you can use in video games. As video games continually grow and gain a larger audience, it is essential to remember that digital assets in certain games will balloon in price. Skins and other cosmetics within video games will continue to grow as the market share reaches more people. Moreover, NFTs can provide a great source of crowdfunding. It may become easier for startups to raise capital like never before by selling digital rights to a movie or program. While many start-ups would regularly rely on connections, the NFT can help them achieve their goals and get things done. There will be a ton of money made on NFTs in the coming years and decades, along with all the fomo that comes with it. However, it is essential to research anything before buying. Talk to people, read articles, and watch Youtube videos. Remember to use trustworthy sources, and remember that some people may have biased opinions because they want to make money.
BINGHAMTON REVIEW
9
