Digitalisation has permeated the world of art and music. For music, gone are the days of CDs and DVDs, the trend now is music anywhere and anytime through the likes of Spotify. The Internet has also played a major role in extending the boundaries of what is considered “art”. Digitalized art such as NFTs has heralded a new way in investing and collection.
What is NFT?
NFT stands for “non-fungible token” and refers to digital tokens that signifies ownership of any type of asset, both physical and intangible (example digital assets like photo files). Each NFT (or token) is unique, which means no one else can duplicate it. Because they are one-of-a-kind, an NFT can be viewed as the actual thing it represents. Hence, selling an NFT also means selling the “real thing” it represents.
Additionally, NFTs are anchored in the block chain, an immutable registry of records that cannot be manipulated or controlled by any single entity or malicious person.
Known as a data unit on the block chain digital ledger, each token can represent a unique digital profile, serving as an electronic certification or certificate of virtual commodity ownership.
NFT Investment Value
The three key factors to consider when evaluating the intrinsic value of an NFT are rarity, utility, and tangibility.
Demand for an NFT is directly proportional to its perceived scarcity. However, to have fundamental value, an NFT needs to be utilized in a real-time application like online gaming where the NFTs could be used to represent virtual lands or game characters. In addition, NFTs are often associated with tangible assets, like unique artworks from renowned illustrators and thus, holds the same intrinsic value.
The market for “one-of-a-kind” NFT assets, including illustrations, paintings, sculptures, animated GIFs, music, songs, games, etc., has grown rapidly in the world of digital marketing. Katun is perhaps one of the most renowned Malaysian graffiti artists who has been actively exploring the potential of NFTs market. He made waves in the news when two of his NFT collections were sold out without 24 hours. Collectively, they were sold for 127.6 ETH (Ethereum) which amounted to more than RM1.6 million and by far became the most expensive batch of NFTs sold in a single release by a Malaysian artist.
Another Malaysian born artist, Red Hong Yi ventured into NFTs through “Doge to the Moon” which is her first artwork in a series is called “Memebank” involving spoofing and redesigning banknotes from different countries. It was auctioned off on Binance for 36.3 ETH.
Factors to Consider Before Investing in NFTs
Before investing in any form of asset, it is a good idea to assess the potential downsides versus the potential benefits. NFT values have risen dramatically in recent years, causing a stir in the investing world. Physical collectibles have generally been trustworthy in terms of value appreciation, and many expect that the market for digital art will behave similarly. However, their value is subjective and varies in reaction to customer demand. For example, the Nyan Cat GIF was created and promoted as an NFT. However, it is difficult to predict whether the Nyan Cat will remain culturally relevant in 20 to 30 years, which is a risk that NFT investors may have to accept.
Investment Outlook for Malaysians
NFTs offer a unique way to diversify one’s investment portfolio. For example, you can invest in NFTs that represent digital assets like crypto-collectables such as pets and avatars or in-game items such as weapons.
Although NFTs has the potential to change how we interact with digital art, gaming, and other online content, they are also investments that come with their own set of risks. NFT prices are particularly volatile because they are frequently bought and traded with cryptocurrency. Because of this volatility, predicting the future value of an NFT can be difficult. Unlike stocks or bonds, NFTs do not generate revenue and rely only on asset appreciation to generate a profit.
Furthermore, while the market for NFTs has been growing in recent years, it is still modest in comparison to other investments. This means that there could be difficulty finding a buyer if one needs to sell their NFT quickly. Anyone interested in investing in NFTs must therefore be aware of the risks involved. As to whether NFTs are a viable long-term investment, it still remains to be seen.
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