What the Hell Is an 'NFT'?

By Enrique Abeyta

Friday, September 10, 2021
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Until recently, nobody had really heard the term 'NFT'...

However, if you watch CNBC, follow any financial media, or use any form of social media, you've likely heard it a lot recently.

The idea of an NFT – or "non-fungible token" – is polarizing, garnering attention from both skeptics and fans and almost always generating opinion... but what exactly is it?

"Non-fungible" is used in economics to describe something that is unique and can't be replaced by something else.

For example, a $20 bill is fungible. Trade one for another, and you'll have exactly the same thing.

A bitcoin is also fungible. If you sell one bitcoin and replace it with another, you'll still have one bitcoin, identical to the previous one.

A one-of-a-kind sports trading card, however, is non-fungible. If you traded it for a different card, you'd have something completely different.

Think about what happens when you own a baseball card...

You essentially own a piece of cardboard with a picture and text printed on it.

That piece of cardboard is unique, as you physically own that single card... and it's limited in the sense that only so many cards of certain players exist.

When you own this card, though, you don't own the rights to use the image on the card – the picture of the player. Nor do you own the rights to use the team logo, the player's name, or basically any of the information on the card.

If you took that information and tried to print your own card or put it on the Internet for commercial purposes, you'd face legal consequences.

People ascribe value to the card, however, because it's unique... and due to its limited nature, they believe it should have value.

Now just replace the idea of a physical card with a digital card of your favorite baseball player.

NFTs are tokens that we can use to represent ownership of unique items...

They let us "tokenize" not just things like collectibles and art, but also video clips, memorabilia, and even real estate.

What's really important to know is that NFTs can only have one official owner at a time and they're secured by the ethereum blockchain – no one can modify the record of ownership or copy/paste a new NFT into existence.

An NFT relies on the idea that you can create a unique identifier but then attach it to something one-of-a-kind...

So far, the most common things NFTs are attached to are pieces of digital art or digital "sports cards" like NBA Top Shot.

As with a physical sports card, the digital asset is unique (the NFT is one-of-a-kind), and it's also limited in how many are produced.

In the case of sports NFTs, you don't own the rights to the video, the team logo, or the player likeness. But you want to own it because it is unique.

You might not ascribe value to any of these... but enough people do that the value becomes reality.

Cynics often bring up the idea that NFTs are "dumb," usually alongside a picture of them screenshotting an NFT artwork. "Look, now I have that image for free!" they say pompously.

Well, yes... But does Googling an image of the Mona Lisa make you the proud new owner of a multimillion-dollar piece of art history?

Ultimately, owning the real thing is as valuable as the market makes it...

So, if you don't think things like trading cards, fine art, or antiques have any value, then you likely don't think NFTs have any value either. However, if you believe in the value of any of these markets, you'll understand why NFTs will continue to have value and likely grow massively.

This is why NFTs are set to be the next big thing for collectors.

And while you can certainly collect anything you want as a hobby, this is also a massive money-making opportunity.

We're in the early stages of the NFT market, making this an opportunity for folks to score first editions of collector's items in the digital world.

Of course, not every NFT is destined to make money for buyers – in fact, most of the NFT projects you see today are probably going to lose value as this market shakes out.

However, the digital world and the real world are converging. The COVID-19 pandemic moved millions of people online... and we're now spending dramatically more time in the digital world.

This may recede somewhat with the re-opening of the economy. But just think about how much time young people spend playing video games... and my bet is that our digital time goes up from here, not down.

When you live a great deal of your life in a digital world, digital assets have value.

That means we're likely to see massive opportunity emerge from these areas...

In the first quarter of 2021 alone, the NFT market grew by 1,785%. According to some analysts, this could double again from here as soon as next month.

At the current rate, NFTs are growing faster than highly touted technologies like the Internet of Things, cloud computing, and even 5G.

Insane growth like this naturally means big opportunities for investors. Of course, if you want to trade NFTs themselves, you can buy one of them, hold on to it, and try to sell it later for more than you paid for it... and you might have some success doing so.

But there's a much easier way to get in on the action – with three specific investment opportunities that will give you a chance to benefit from every specific NFT bought and sold.

In a brand-new presentation, I share all the details – including one of my favorite "one-click" investments to get in on the action, absolutely free. Watch it here.

Regards,

Enrique Abeyta
September 10, 2021

Whitney Tilson
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About Whitney Tilson

Prior to creating Empire Financial Research, Whitney Tilson founded and ran Kase Capital Management, which managed three value-oriented hedge funds and two mutual funds. Starting out of his bedroom with only $1 million, Tilson grew assets under management to more than $200 million.

Tilson graduated magna cum laude from Harvard College with a bachelor’s degree in government in 1989. After college, he helped Wendy Kopp launch Teach for America and then spent two years as a consultant at the Boston Consulting Group. He earned his MBA from Harvard Business School in 1994, where he graduated in the top 5% of his class and was named a Baker Scholar.

Click here for the full bio.