‘Anyone can make an NFT’: How to avoid a bad investment

The world seems to be abuzz with these three letters now. But there are some dangers before you jump into investing in NFT.

Everyone’s talking about NFTs, but are they a good investment?

The world seems to be abuzz with three letters lately: NFT.

While a lot of us are still grappling with what NFTs actually are, the latest headlines have been focused on a website selling NFTs as music – which the musicians never gave permission for. So how is that even possible?

In case you missed it, the website HitPiece has been auctioning off songs by various artists, ranging from huge acts like Drake to small Aussie bands – and even bands long broken up, like The Beatles.

The problem with this is, last week literally hundreds of artists whose songs are being sold on the platform took to social media to reveal that they’d never given permission for their work to be used this way. Which begs the question, what exactly are you buying with an NFT, and do you actually have any right to it?

First things first, what is an NFT?

News.com.au spoke to Brenton Tong, the managing director of privately owned financial planning firm, Financial Spectrum, to break down the NFT craze.

“An NFT is a non-fungible token,” Mr Tong said. “Fungible means replicable, or replaceable. A $50 note, for example, is fungible – one $50 note is the same as another. A painting by van Gogh? That’s non-fungible, meaning there is only one and it can’t be replaced.”

Further, an NFT could be anything digital – “a one-off, secured and verified piece of data that you can own”, according to Mr Tong – and it lives on the blockchain, right beside cryptocurrency.

Anyone can create NFTs. So how can you avoid a bad investment?

What is the blockchain?

We all pretty much accept that banks hold all the data that will tell you if you have enough money to make a purchase. As Mr Tong said: “The bank owns the computer and controls both the access and the data.”

The blockchain does the opposite: It decentralises the ledger, giving access to each user. It does this by creating a long chain, or block, of every historic transaction – this is called “mining” – and that data is shared by thousands of computers around the world.

“It’s very secure and not owned by anyone,” Mr Tong said.

Can you really ever own data on the internet?

“It can be verified, which gives it the potential to have value,” Mr Tong said. “Anyone can download a copy of an image, however with an NFT you know that you have the only one of THAT particular piece of data. And if it’s an original, verified by the artist? Well, you’ve got a potential digital van Gogh.”

According to Mr Tong, the trick is making sure you have a verified NFT – not just some copy that you later find out is worth nothing.

“Disaster Girl, for example, was a viral meme. Her father took the shot when the house burned down and it went viral. Years later, the girl (Zoe Roth) later uploaded the original photo as an NFT and sold it for 180 ether, or close to half a million dollars,” Mr Tong said.

“Other things are not quite as black and white. Similar to artwork, there can be millions of copies of your NFT floating around, however you have the one verified NFT.”

An NFT is like an original piece of art – and can be highly valuable.

In that case, what is HitPiece doing?

The HitPiece website says it “lets fans collect NFTs of [their] favourite songs”. But it doesn’t have a blockchain wallet connection available so it’s unclear if what is for sale are actually NFTs.

“People still don’t know what HitPiece is doing,” Mr Tong said. “It appears that they are selling a link to the music, but even that is uncertain.”

According to Mr Tong, literally anyone can buy, sell and create NFTs.

“As word spreads about NFTs, more and more people are producing them,” he said. “Now, the original pioneers of NFTs are being drowned out by thousands of upstarts – some of which are great and original, but some of which will have no real future value.”

Can you own an NFT without the original creator’s permission?

“There have been numerous examples of copyrighted material finding its way to NFT auction sites that wasn’t either produced or permissioned by the original author,” Mr Tong said.

This means it can be quite easy to spend your money on a forgery.

“Similar to a painting, someone might try to pass off a forgery. So in theory, you legally own the forgery, but it may not be worth much.”

Obviously, this is bad for you, but it’s also getting into the murky territory of who should profit off a creation.

The most expensive NFT so far sold for $128 million in 2021.

So are NFTs worth the effort?

People have made a lot of money from NFTs – the most expensive one so far sold for $US91.8 million ($A128 million) in 2021 – but are they a smart investment?

“[NFTs] mirror art in many ways, but with more factors at play,” Mr Tong said. “At the moment, it’s a frenzy and a lot of people don’t really know what’s going on.

“Since the market is still very new, and it’s still quite small compared to regular investments, a few more or less buyers can make a massive difference. There are likely to be some very disappointed investors in the future when they find their NFTs just don’t have a strong secondary market of buyers to keep pushing up the prices.”

As always, Mr Tong suggests “research, research, research”. Where it can be pretty easy to spot a fake painting IRL, spotting a phony online takes a bit more effort.

“Only buy from reputable sources and seek verification,” Mr Tong said. “The old saying – if it’s too good to be true, it probably is – still applies, so if you’re buying an NFT from what appears to be a well-known artist, and it seems cheap and you think you’re going to make a quick profit – check again.”

Originally published as ‘Anyone can make an NFT’: How to avoid a bad investment