NFTs Explained

The digital age has led to the emergence of cryptocurrency, providing an alternate capital unmoderated by banks. Recent times have seen the rising popularity of a specialized cryptocurrency known as non-fungible tokens (NFTs), set to reimagine the world of fine art and beyond.

It is part of society’s ongoing shift toward a metaverse — the collective sphere of virtual shared space where individuals seamlessly combine the internet and mixed realities with the physical world. Some companies have turned to NFTs as a form of promotion, attracting the modern digital crowd.

What Is NFT?

NFT is a cryptocurrency that contains unique information, providing owners with exclusive rights to a specific digital asset. These assets may include music file demos, gifs, video game add-ons, and digital artwork. NFTs run on the same proof-of-work protocol as standard cryptocurrencies, specifically verifying ownership in the Ethereum blockchain.

Unlike standard or fungible tokens (i.e., standard cryptocurrency coins), NFTs are non-exchangeable, with unique codes and values.

Copying or downloading a digital file does not equate to owning an NFT since it does not provide users with the unique information linked to the blockchain. Similarly, for video game add-ons, gaming companies conventionally owned the rights to every in-game asset, but NFTs would give players full ownership of their items.

Visual art has become the most popular NFT, with artists digitizing and selling the rights to their art pieces on online auctions and NFT marketplaces. One notable example involves the artist Bleeple aka Mike Winkelmann, who sold a mosaic piece titled “The first 5000 days” for a whopping $69.3 million at a Christie’s event.

How Do You Trade NFTs?

NFT trading usually occurs in digital art marketplaces, where users will need to set up and deposit funds into a cryptocurrency wallet. Every transaction on an NFT marketplace involves the Ethereum blockchain (although other NFT cryptocurrencies have emerged in recent years). The digital ledger (blockchain) authenticates every transfer of NFT ownership, and while the protocol makes it easy to add new entries, it is onerous to edit previous logs.

Companies in the decentralized finance (Defi) sector have begun using NFTs for various financial purposes. For example, Teller Finance, an online decentralized lending program, has applied NFTs in generating initial liquidity offerings (ILOs). ILOs are an alternative fundraising method used by modern startups and project managers to replace the conventional ICO (initial coin offering) pathway.

Additionally, the NFT community has also established a protocol for the trading of NFT index funds. The NFTX platform enables users to mint and trade NFTX tokens. Specifically, traders may liquidate otherwise illiquid NFT assets.

NFTX offers a systematic process where users link their cryptocurrency wallets and create an online NFTX vault to deposit their NFTs to mint fungible token (ERC20 tokens) to represent or redeem an asset within the vault.

NFT Investment Opportunities

Some brands have caught on with the NFT trend, providing long-time customers with novel offerings. NFTs help brands connect with their target audience in newfound ways, offering exclusive and limited-time items across the internet.

Nike’s Cryptokick

International footwear giant Nike (NYSE: NKE) aims to release NFTs that enable investors to mint, own, and sell patents for their sneakers. Purchasers of the Cryptokick NFT will acquire a physical pair of footwear along with a digital counterpart in their cyber locker. Nike’s foray into NFTs is the latest lineup in digital fashion trends dominating popular culture in recent times.

In 2018, the media spotted entrepreneur Elon Musk wearing a pair of avant-garde sneakers created by virtual fashion platform RTFKT, resembling the Tesla Cybertruck and dubbed the Cybersneaker.

The Cybersneaker NFT sold for 30 ETH (ethers; Ethereum currency), or over $11,000. A higher bidder had rescinded his offer of over $24,000 when he realized that Musk had not worn the virtually superimposed design. More recently, RTFKT sold 608 digitized NFT sneakers in minutes for an estimated $3 million.

With its renowned reputation, Nike could see similar if not more significant success in the NFT market as RTFKT for their upcoming digital launches. Investors can look forward to exhibiting their NFTs in an online footwear forum or as video game cosmetics. Cryptokick could propel the world of digital fashion and makes Nike stock an interesting watch across upcoming months.

Yum Brands – Taco Bell

Yum Brands’s (NYSE: YUM) Taco bell released digital NFTs of their popular food products called NFTacoBells. Specifically, the fast-food franchise sold a series of taco-related gifs on the NFT website, Rarible. Twenty-five meme-worthy gifs (five copies of five versions) tokens sold out within 25 minutes.

While the company started bids for its gifs at $1 per token, the NFTs reached prices of over $3,000 per piece. Taco Bell supplemented each token with a “real-world” perk in the form of $500 electronic Taco Bell gift cards.

The milestone launch makes Taco Bell the first fast-food joint to enter the NFT market. A brand representative had hinted at the possibility of a second NFT drop in the future. Investors may consider watching Yum Brands stocks as online communities generate more interest for the NFT market, and Taco Bell caters to that ongoing demand. Venture capitalist David Pakman shared, “In the long run, I expect that there will be way more supply of NFTs than there is demand for them, and the cream will rise to the top.”

Warner Music Group 

Warner Music Group (NASDAQ: WMG) offers digitized music in the form of NFTs, which includes records of live performances by globally renowned artists. Specifically, WMG has recently invested in an NFT pioneer, Dapper Labs, which created Cryptokitties (a blockchain-based cat-collecting game) in 2017, during the infant stages of NFTs.

The collaboration, alongside English rock band Muse, aims to offer music fans unique crypto-collectibles of their favorite singers in newfound ways. According to Shara Senderoff, the president of a music investment firm, these limited and exclusive transactions will make loyal fans feel unique and rewarded for their dedication.

Additionally, WMG has entered a partnership with technology company Genies, aiming to create artist avatars and exclusive digital wearable fashion. The process enables the creation and distribution of virtual beings/performers for fans across immersive platforms. WMG’s move marks the first major record label within the NFT scene, which may signal significant investment opportunities.

As NFTs continue to shape the demand for digital assets, more companies will likely join the fray with their distribution of unique items. The metaverse grows decreasingly hypothetical, and novel opportunities abound with the transition. Now might be the ideal time to invest in NFTs or companies that leverage the inevitable synthesis between digital and physical realities.