IN the last year we have heard the term NFT talked about across various sectors, mainly in the art and music industries. Let us delve in.

NFT, short for non-fungible tokens, are digital representations of virtual or physical items that exist on the blockchain and have unique properties that cannot be traded for another; these are digital representations of virtual or physical items that exist on the blockchain. NFTs have a digital signature, which prove ownership and validity. An NFT is made possible by blockchain technology.

In order to fully understand NFTs, we must first understand blockchain technology. The blockchain is a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system. It is essentially a digital ledger of transactions that are duplicated and distributed across a network of computers. The difference between the blockchain and another record of ownership, like a bank ledger, is that no one owns the blockchain. It’s decentralised and no one has authority to alter, change, or destroy it.

NFTs emerged in 2017 when American studio Larva Labs developed CryptoPunks, a series of 10,000 unique collectible characters with proof of ownership stored on the Ethereum Blockchain. The project was inspired by the modern CryptoArt. The CryptoPunks are one of the earliest examples of NFTs. The highest legitimate sale for a CryptoPunk was US$11.7 million.

Since 2017, several NFTs have been created, some by well-known personalities. The value of an NFT is usually created by the community that engages around it. The more engaging the project, the higher the likelihood of success. Community here refers to people in your circle and the type of people that support your mission. This community is typically found on Twitter — your followers. Let’s take an artist that has a vast number of followers, you can gauge the outcome or success of an NFT based on the size of its creator’s following. The greater the following, the higher the probability the NFT will be successful.

A few examples of items that can become NFTs are artwork, music, real estate, GIFs, and video snippets (for example, National Basketball Association top shots). Essentially, anything with a digital footprint is NFT eligible.

Examples of actual NFTs are:

• Twitter CEO Jack Dorsey’s first tweet: “Just setting up my twitter.” in May 2006; this digital footprint was turned into an NFT and sold for US$2.9 million for charity.

• Digital artist Beeple created an NFT consisting of a collage of digital art, this was sold for US$69 million.

• Reggae-dancehall recording artiste Bay-C from T.O.K group sold the first reggae NFT for 0.1 Ethereum (ETH), which was equivalent to US$220. Other international recording artistes such as Akon, Snoop Dogg, Gorillaz, Calvin Harris, and Shontelle sold NFTs.

• Golden State Warriors star Steph Curry personally released a collection of 2,974 NFTs, each sold for US$333. Curry’s collection features digital replicas of his shoe line, Genesis Curry Flows, showcasing the exact pairs he wore for his incredible on-court features.

Still not clear what a non-fungible token is? Try substituting the word fungible with replaceable. It will now read as a non-replaceable token, which means the item cannot be replaced; it is original or authentic.

To illustrate, the $100 bill in your pocket can be replaced with two $50 bills or a combination of other notes. Your $100 bill is therefore fungible. Another example is the famous Mona Lisa painting for which there is only one verifiably original painting. Imagine having the original digital painting, aided by blockchain technology to establish its authenticity. While there are several images of the Mona Lisa painting on the Internet, these have no value as they are just copies. The Mona Lisa NFT would have a unique digital identifier linked to the physical painting that cannot be copied, substituted, or subdivided recorded on the blockchain, and that is used to certify its authenticity and ownership. This Mona Lisa NFT is non-fungible. To verify if someone owns an NFT, you simply cross-check the meta information with publicly accessible blockchain records.

NFTs draw value from their inherent characteristics. Over time, the value accrues depending on the utility, community strength of the underlying project, and ownership history. NFTs are more than just owning a piece of art, they come with being part of a community where a culture has been created, and the culture creates a following. This encourages exclusivity, which comes with perks in owning the NFT. For example, the Bored Ape Yacht Club NFTs give you VIP access to exclusive parties in the real world.

NFTs can be traded in a similar manner to traditional assets, like stocks and bonds. The NFT’s price appreciates in the secondary market based on its utility, scarcity, and strength of the community. There are a variety of marketplaces that support NFT trading, top of which include OpenSea, Rarible, SuperRare, and Foundation.

Companies are also getting into the NFT space. Well-known brands, such as Nike, have made a foothold in the burgeoning NFT market by acquiring RTFKT, a creator-led organisation, specialising in digital fashion, which will be minting digital sneakers for the metaverse. Other well-known brands that have jumped on the NFT bandwagon are Adidas, Lamborghini, Coca-Cola, Louis Vuitton, Samsung, Pepsi, and McDonald’s.

The line between the real world and the virtual space will become even more blurred as the virtual space continues to evolve and grow. Use cases for virtual products will become clearer and more useful to both virtual consumers, producers, and investors. To be ready to leverage existing and future opportunities to make money and build brands in the multiverse, you need to create virtual versions of your products and investors need to understand how to invest in digital assets. Look into whether NFTs are the way to go for you. They can maintain and enforce scarcity, exclusivity, and grow your income.

Denise Marshall-Miller is senior manager, bond, equity, and digital asset trading, VM Wealth Management. Denise has over 16 years’ experience in the investment industry. A seasoned investment professional who is passionate about wealth creation, she exhibits a proven track record in revenue performance.