Musfir Khawaja, Co-Founder nftONE.me
It would not be factually incorrect to assume that a considerable population of the world lives and dies while on the internet. The internet as we know has come a long way. From sending emails and messages to buying automobiles, one would think that there is not much left the internet cannot do. But industry experts say the show is just getting started because with NFTs, the internet has morphed into one big decentralized investment bank.
In simple terms, NFTs are the first step in the securitization of digital data. Most people think that NFTs are digital art, memes, music or audio but in reality, any data whose ownership is recorded on to the block chain, becomes an NFT.
You (anyone, anywhere) can sell anything digital (including images, video, audio, any other forms of digital data) by simply documenting its usage terms on to a smart contract on a block chain, creating a token out of it and then selling it to the highest bidder.
With an increase in the adoption of block chain technologies and the growing popularity of decentralized finance, NFTs have risen as a new asset class. To be fair, they are very speculative in nature. The digital data (lets for argument value assume is your photo of Dubai’s skyline) that you are selling as an NFT may or may not sell at all. There has to be a good reason for anyone to buy an NFT (Digital Asset). Lets look at some scenarios below
- Trader mindset: Investor buys into a digital asset because they feel its undervalued presently and will quickly appreciate in value.
- Collector mindset: The collector appreciates the aesthetic or collectible value of the digital asset and buys it to keep it in their collection.
For creators, NFTs open a new revenue stream. Where people earlier were collecting only physical art, digital art is fast catching up as a store of value and culture. Digital screens are everywhere, digital art is easy to load and even easier to store.
Recently, an NFT of “The Pontifex Carpet” was sold for over US$ 85,000 in Dubai, UAE. The Pontifex carpet was gifted by the Crown Prince of Abu Dhabi Sheikh Mohamad Bin Zayed Al Nahyan to Pope Francis during a visit to the Vatican City. In September 2016, the two met to discuss the strengthening of the diplomatic relations between UAE and the Vatican as well as the promotion of inter-religious harmony.
In this scenario, the collector considers this digital asset as a store of value, culture and history at the same time. The NFT represents a watershed moment in history, a unique gift and involves two very influential people alive in this day and age.
This asset could be sold for much higher in the secondary market if a new collector decides it is imperative for them to collect this NFT for whatever reason.
Now imagine a less established creator trying to sell a photo of Dubai’s skyline as an NFT. Could it sell as an NFT? Yes, but who will buy this as a digital asset that by definition should appreciate in value over time.
The answer is a bit complicated as the buyers will be either people who believe that buying this photo is a sound financial investment and it will be highly sought after in a few months could jump at this opportunity or those who want to buy the photo as digital art and are happy to receive an in-tangible return on their investment by only looking at it or perhaps using it to fill an empty space in their otherwise empty wall.
Most buyers in the NFT space today, however, are traders who are speculating on a sharp increase in value of a certain digital asset. This could very easily turn out to be dud investments in three to six months’ time but in order to hedge their risk, these buyers hype up the value of that digital asset and then invite others to buy it from them at a higher price because they want the new buyer to believe the asset is still undervalued and soon it will appreciate even further.
If you are considering getting into the NFT space, do your own extensive research before buying a digital asset. You must have a reason to buy it.