Quick dive Friday (On What we understand about NFT’s)

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NFTs are creating a brand new marketplace for digital content. In a world where digital files are often thought of as cheap, many say this is a huge opportunity for digital creators to sell their own work. In January alone, OpenSea(a trading platform for NFTs) volume hit a new all-time high above $3.5 billion.

Recently at ComiBlock, we took a more deep dive into NFT’s; here are a few points we think you need to understand about NFT’s.

What Is It?

NFT stands for non-fungible token. Simply put, “non-fungible” refers to something unique and can’t be replaced with something else.

Then: A non-fungible token is a data unit stored on a blockchain that certifies a digital asset as unique and thus non-interchangeable. NFT’s can only have one owner at a time. Even though they have no physical form, NFTs can be bought and sold just like any real-world asset. NFTs enable true ownership of any form of digital asset, be it a digital work of art, a tweet, or a gaming asset.

Jack Dorsey’s first tweet sold for $2.9 million as an NFT

NFT and Bitcoin

Bitcoin is fungible as one Bitcoin is always equal to another Bitcoin. The fungibility of crypto plays a critical role in the way blockchains work.

How do NFTs work?

Let’s go back to basics: what’s a blockchain? Consider a blockchain to be a type of database that stores data in blocks that are digitally linked together.

Each data block has a limited capacity, and therefore when its capacity is reached, additional data is transferred to another block that is chained to the original. In the end, all of the chained blocks create a long record that is permanent.

When an NFT (token) is sold, the new ownership information is added to a new chain on the blockchain, making sure that the history is preserved and ownership is secure.

Stored on the blockchain — just like other cryptocurrencies, e.g. bitcoin, Ethereum. etc.

Each token represents ownership of a specific item. NFTs also act as an artist’s “digital signature” which can be used to verify the origins of the item — much like an artist’s signature can be used to verify the authenticity of his or her paintings. And because this crucial information is on the blockchain, it’s impossible to forge or counterfeit.

NFT as an Asset

This blockchain verification, combined with the nonfungible characteristics of these tokens, creates scarcity in the marketplace.

Cryptocurrencies and traditional currencies (like the US dollar) are fungible — meaning, each piece of currency is interchangeable and can be subdivided into smaller fractions. For example, my $1 USD is worth the same as your $1 USD, and both of our dollars are worth 100 pennies.

This isn’t the case with NFTs. Since they are nonfungible, no two tokens are ever identical, and they cannot be subdivided.

Why Buy an NFT?

Tokens symbolize ownership. But you can still download a piece of artwork from social media or take a screenshot of it for free. So why shell out thousands of dollars for an NFT when you have no way to control the actual item itself? While anyone can download or take a screenshot of the file, theoretically their copy won’t have the same value as the original backed by an NFT.

And for most collectors, ownership is the point — Anyone can see pictures on the internet of the most expensive artworks; posters are sold in museums,” Vincent Harrison, a New York gallerist, told Wired.

“But it’s the ownership that creates value. So with NFTs, not only do you have ownership, you have ownership on the blockchain, you have ownership that is transparent for everyone to see.”

Have a great weekend

These are meant for informational purposes only, are not intended to serve as a recommendation to buy or sell any security, and are not an offer or sale of a security. They are also not research reports and are not intended to serve as the basis for any investment decision and do not constitute a comprehensive description of ComiBlock’s advisory services.

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Quick Dives

Quick Dives

Our dives are the result of our relentless in-depth analysis and our convictions. We share them so that you can invest with conviction, too.