Is this the right time for you to buy an NFT?
03rd June 2021
Fact: NFTs are all the rage in 2021.
Another fact: No one really knows where the NFT train is headed, and whether it will end in a sorry train wreck.
For NFT (Non-Fungible Token) aficionados, the announcement this week by venerable auction house Sotheby’s that they are set to run an online sale of digital art is the stuff of dreams. Each buyer of a piece of NFT art will receive the NFT in their cryptocurrency wallet – because there’s no real-world, tangible art involved. That would be so 2020.
For anyone still out of the loop on NFT art, a little reminder that an April sale of just one artist’s works by Sotheby’s fetched a whopping $16.8 million.
The upcoming big NFT sale has drawn quite some interest. (The Sotheby’s auction includes the above digital artwork by Western Sydney artist Serwah Attafuah. Source: Sotheby’s/Reuters). As with all other crypto innovations, NFTs are attracting the frenzied attention of cybercriminals. Cybersecurity firm Intel 471 reports this week that Russian hackers are submitting papers as part of a competition on how best to nefariously target crypto technologies, including – no surprise – NFTs.
If you’ve read up to this sentence and are still wondering what NFTs really are, here’s quick primer.
The closest ‘real-world’ analogy is photos, books, etc. autographed by famous people (think sports stars, Hollywood actors, JK Rowling). The buyer of a digital work of art has their identity and ownership recorded on a blockchain ledger, just like cryptocurrencies. NFTs are currently on the Ethereum blockchain, although that is by no means an exclusive relationship. The key difference is that, unlike Bitcoin, Ethereum, and other cryptocurrencies, NFTs are not mutually interchangeable because of their uniqueness. Which is just what ‘non-fungible’ means. Note that this proof of ownership is completely separate from copyright, which rests (usually) with the creator.
Since January this year, some really mind-boggling NFT transactions have made headlines, from the US$2.9 million for the first-ever tweet, posted by Twitter co-founder and CEO Jack Dorsey in 2006, to a digital artwork by Mike Winkelmann (a.k.a. Beeple) that went for an astounding US$69.3 million in March.
The explosive growth of NFTs within months has driven a similar expansion in the number of NFT launching platforms with built-in marketplaces to make it all a cinch.
Yes, getting into the NFT game, in particular investing in NFTs, is looking increasingly tempting. Especially when you consider the countless Bitcoin sceptics of 2010 kicking themselves in 2021.
But before you consider putting your hard-earned money into NFTs, it’s not a bad idea to give some thought to the following risks:
- The ambitions of highly skilled hackers, already mentioned in this article.
- Fraud in the still incipient NFT market, where fast growth means some aspects of security will inevitably get overlooked.
- Not yet being savvy enough to discern good value in a digital asset.
- The maddening volatility of a very new and very different market.
- The key question of liquidity: how readily will your NFT purchase be exchanged for cash in the future?
The above list is by no means comprehensive, but we all know there will always be adventurous buyers who brush aside all warnings and, driven by optimism and adrenaline, snap up NFTs at eyewatering prices. These are the pioneering investors who march ahead and create new markets.
And, as the Sotheby’s auction gets underway, we raise a toast to this brave and bold tribe.
At MyTreasur-e, we keenly track technological, economic, financial, and social trends that can impact our customers. Our passion for anticipating and managing risk in all its forms is what accounts for our customers’ satisfaction with our cutting-edge treasury and risk management solution.