Are Non-Fungible Tokens The Investment Of The Future:
Our ‘innovation’ blog section always feels like it ventures into the weird and wonderful. But, in recent times, many of our posts have had cause to focus on cryptocurrency and its latest workings. So, it is with a sense of delight that a new phrase has crept onto our radar this week. So, here we are: introducing (drum roll, please!) ‘Non-Fungible tokens!’
It’s true that every now and then, there is a phrase that causes great amusement amongst our marketing department. Convincing them that Non-fungible tokens in the first instance was not swearing, and in the second, nothing to do with mushrooms (of any variety!), we figured it might be worth putting an explanation out there. So, here goes!
What are Non-fungible tokens?
Most people are (by now at least!) familiar with the concept of cryptocurrency. It is effectively digital money that can be used to buy goods and services developed using ‘blockchain’ technology. In essence, Non-fungible tokens (or NFTs) are very similar – they are an asset developed on blockchain.
To fully understand what one is though, it makes sense to first determine what ‘non-fungible’ means.
What does non-fungible mean?
Fungibility is the ability of an asset to be interchanged for another of the same type. So for example money is a fungible asset. A ten-pound note can be exchanged for ten one pound coins and vice versa. Irrespective of whether you lend someone your ten pounds and are repaid using the same note, ten pound coins, or two five pound notes, the value remains the same.
On the contrary, assets like cars and houses are non-fungible. While they can be assigned a value and exchanged for assets amounting to that value, each unit has its own unique properties, which cannot be wholly interchangeable. If you were to lend somebody your Lamborghini for the weekend and a Metro was returned, that would likely be an issue. While they are both cars, their value is not comparable.
So why does this matter, and where do tokens come into this?
An NFT acts as a non-duplicable certificate of ownership for a digital asset. This means that a video, an image or even a tweet can be designated an ‘owner’ – somebody who has the inalienable rights to resell, distribute or license the digital asset as they see fit.
It sounds unfathomable, doesn’t it? Surely a tweet cannot be sold? Yet, only last month, Twitter founder Jack Dorsey’s first-ever tweet sold for £2.1m!
Other recent examples include an NFT representing a collection of digital art pieces by digital artist ‘Beeple’ called ‘Everyday.’ The ‘First 5000 days’ sold at Christie’s auction on 11th March 2021. It consisted entirely of 5000 works, which the artist had been posting online daily for more than a decade. It realised a sale price of over $69.3 million! That makes it the third-highest price of all time, for a work by a living artist!
While most NFTs do not reach a valuation amounting to even a fraction of that price, it has set an interesting precedent for the value and potential of digital artworks. It has also earmarked this technology as an opportunity both in the arts and in the financial world. So, the astute investor will certainly be watching them unfold with interest in the weeks and years to come.
How we can help
At Lewis Brownlee Financial Services, we specialise in savings and investment opportunities. While new and exciting opportunities are always worth finding out about, it is always important to keep in mind that the value of investments and assets may go down as well as up. But that’s why we are here to help – so if you would like to find out more about our saving and investment services, please do call us on 01243 767 469. We’d be happy to see how we can help!
Written by Steve Burns
Steve is a chartered financial planner who has been with Lewis Brownlee for over 20 years, who now heads up Lewis Brownlee Financial Services. Under his directorship, the firm has established itself as a specialist provider of professional, informed and impartial advice.