Why Is Everyone Talking About NFTS?

James O’malley breaks down the hot topic of non-fungible tokens

When I was at school, every few years there was a new collectable trend that was the talk of the playground. Whether it was Pogs, Beanie Babies or Pokémon cards, the outcome was always the same: after a flurry of interest, and prices going crazy, they ended up stuffed into the back of the cupboard.

So it’s fascinating to see the same thing happening today—online—as the world is going crazy for NFTS.

NFTS are “non-fungible tokens”, and are designed to make collectables work on the internet. Built on top of the same technology that makes cryptocurrencies like Bitcoin work, if you own an NFT, it’s possible to use complex maths to prove that it belongs to you, and only to you. This means that even if files can be copied or shared, ultimately there is proof of who it really belongs to.

NFTS can, in theory, be created from any sort of a digital file, such as a

126 song or a photograph. You could even turn an Excel spreadsheet into an

NFT if you wanted to. But it’s in digital art where the idea has really taken off, as the internet has been swamped with thousands of NFT works, including the ubiquitous cartoon “Bored Ape” images that people are trading like rare Pokémon cards.

What’s striking is just how quickly NFTS have taken off after being promoted by celebrities ranging from Paris Hilton to William Shatner, and the money involved is eye-watering. Last year, an artist known as “Beeple” auctioned an NFT of one of his works for $69m through auction house Christies. Buying and selling NFTS, it appears, like trading real art, can make you rich.

However, this is only one side of the story. Before you go out and start investing, be warned: many people think that NFTS are, like many other get-rich-quick schemes, a scam.

Though NFTS are new, there are already many examples of unscrupulous sellers seemingly inflating prices artificially, before selling for high profit to an outsider for a sum that doesn’t reflect the token’s true value.

And there are examples of NFT investors being “rugged”, where the seller promises that funds raised during an NFT sale will be used to, for example, create a video game— only for the seller to then pull out the proverbial rug from under the buyers, and run away with the money.

There is also the cryptoequivalent of credit card fraud, where unsuspecting victims have been persuaded to hand over the keys to their virtual wallets, and have had them emptied, their digital tokens stolen. This perhaps highlights the major risk factor with NFTS: they are completely unregulated and exist outside of government control. So if someone steals your valuable tokens, there’s no bank you can appeal to or any legal process to get your stuff back.

Even without the scams, there is still good reason to be sceptical about NFTS. For example, though the point of an NFT is to enable you to claim exclusive ownership of digital goods, it may turn out that… you don’t really actually own anything. If the sceptics are right, owning an NFT is less like owning a Da Vinci or a Vermeer, and more like buying Mayfair and Park

Lane in Monopoly, and then using the game cards to claim you own the real streets.

This is because of two reasons: firstly, there’s the fact that many NFTS don’t actually contain the digital file that you’re said to own. Instead, the NFT will just have a link to an image or video file somewhere else on the internet, which means that if the server holding that song or pictures is taken offline, all you really own is a meaningless string of letters.

And secondly, the concept of “ownership” is surprisingly hard to define. Though the exact legal terms may vary when you buy a token, for the most part owning an NFT doesn’t grant you any legal rights: if you own an NFT of a painting, you don’t necessarily have the rights to print it, hang it in a gallery, or license reproductions. And if you own an

NFT of a song, you have no rights to play it on the radio or collect royalty fees when it is played in public.

So there are good reasons to be sceptical of the NFT hype. Though

I’m not qualified to give you financial advice, I can tell you that I will not be buying NFTS for myself, at least until the technology has matured. I think if you want to support a favourite artist who is flogging them, it could be worth it as a well meaning gesture. But as an investment tool? Save your money and avoid the risk of having an attic full of virtual Beanie Babies that nobody wants to buy.

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