Are Digital Collectibles the Next Hot Investment?
The collectibles market is buzzing.
Back in mid-March, the well-known Christie’s auction house in London held its first digital-only art auction. You read that right, digital art. The artist known as Beeple, recognized for creating a new piece of digital art every day, was featured. His piece, “Everydays: The First 5000 Days,” was a collage of Beeple’s first 13 years of work, and it sold for a mind-boggling $69.35 million.
Digital art and collectibles like Beeple’s piece are called NFTs, or non-fungible tokens, and they have captured a lot of collectors’ attention recently. So, let’s consider what NFTs are and if they’re viable investment opportunities.
According to Merriam-Webster, the definition of “fungible” is an item that can be replaced by another item of equal part or quantity. As an example, you could trade a dollar bill for four quarters. An item that is “non-fungible” is unique and cannot be copied or substituted. The original Mona Lisa oil painting by Leonardo da Vinci is an example of a non-fungible item; there is only one.
Now, at this point, you’re probably wondering how digital art can be considered non-fungible. Anyone can search for Beeple’s “Everydays: The First 5000 Days” piece on Google and view the digital image. They could also screenshot it or download it and save the image—and millions of people have.
So, what exactly did the buyer of Beeple’s piece buy? A token for proof of ownership.
Non-fungible tokens, NFTs, are stored in a digital ledger called a blockchain. It’s similar to how cryptocurrency works, as the blockchain keeps a record of who owns what. In other words, there’s an original “tokenized” version of the digital artwork, and you can purchase a digital certificate of ownership. That’s what the collector paid $69.35 million for, digital proof of ownership for the original Beeple piece.
Here’s where the lines grow blurry. The owner of the NFT doesn’t actually possess the original digital file; they bought the token and proof of ownership. In contrast, if you were to buy da Vinci’s Mona Lisa, a 1943 Lincoln Head Copper Penny, the 1942 Captain America comic book, or a 1933 Babe Ruth baseball card, you would own and have the actual painting, penny, comic book, or baseball card in your possession.
So, if you’re confused about why folks would pay millions of dollars for a digital proof of ownership and not the actual piece of artwork, you’re not alone.
NFTs are viewed as a collectible item because they can be bought and sold just like an actual painting or coin. In other words, the way folks make money in the collectibles market is to buy an item and then sell that item at a higher price to another collector.
The problem with NFTs is that they are new investments—and how do you put a price tag on digital collectibles, especially when there’s nothing tangible to own? Interestingly, these question marks aren’t deterring digital collectors. NFTs are still growing in popularity, and some folks are willing to pay a hefty price.
Consider this: The first-ever tweet by Twitter’s founder Jack Dorsey was recently tokenized and sold for $2.5 million. The musician Grimes also earned $6 million by selling several pieces of her digital artwork. And Nyan Cat, a 10-year-old digital cat meme, even sold more than $550,000.
While it’s evident that some folks are making money in NFTs, how much a meme, digital artwork, or video is worth depends on how much someone else is willing to pay for it. “Beauty is in the eye of the beholder,” as they say. So, NFTs are a speculative investment at the moment, and time will tell if NFTs are merely a craze or if they’ll be a viable long-term investment opportunity.
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Reference Articles
https://www.bbc.com/news/technology-56371912
https://www.bbc.com/news/technology-56252738
https://www.theverge.com/22310188/nft-explainer-what-is-blockchain-crypto-art-faq