NFT surge: future of technology, an investment fad, or both?

Billions of dollars are being spent monthly on non-fungible tokens as more celebrities embrace them. But what exactly are they?

Celebrities, artists and even Formula One racing teams are rushing into the red-hot market for non-fungible tokens, which have exploded in popularity this year amid billions of dollars of NFT trades.

But just like their cryptocurrency cousins such as bitcoin and Ethereum, the world of NFTs often defies logic and traditional investment rules.

NFTs are unique digital tokens representing ownership of an asset, and are commonly used for selling digital art, videos, music, online game items and avatars. They are bought and sold using cryptocurrency, primarily Ethereum.

In Australia, Penfolds recently launched a $180,000 NFT linked to a rare barrel of wine that will eventually become 300 bottles for its owner, while online horseracing game Zed Run has sold thousands of digital horse NFTs that players train and race virtually.

Globally, musicians including Katy Perry, Snoop Dogg, Eminem, Shakira and Shawn Mendes are reportedly launching NFTs, and Formula One world champion Lewis Hamilton is also doing NFT deals.

Singer Katy Perry will be auctioning off NFTs as part of her Las Vegas residency this month. Picture: Pascal Le Segretain/Getty Images

Crypto Gaming United co-founder Sergei Sergienko said market tracker data found NFT sales volumes surged eight-fold in the September quarter to $US10.7 billion ($15bn).

Mr Sergienko said Australian NFTs were gaining momentum. “Australians are big connoisseurs of art, music and sports, all of which the NFT market truly seeks to revolutionise,” he said.

The “non-fungible” part of NFT means unique, but many creators produce multiple versions of their digital tokens, similar to artwork prints.

Aston Martin is creating NFT videos of its Formula One drivers and pit stops, while NBA Top Shots has sold hundreds of millions of dollars of digital video highlights on NFTs.

“While it could be like a Mona Lisa, where there’s only one definitive actual version, it could also be like a trading card, where there are multiple numbered copies of the same artwork,” Mr Sergienko said.

A digital art NFT by American artist Beeple sold for $US69.3 million at a Christie’s auction in March 2021.

Supporters say NFTs are the future of collectibles, art and gaming, while critics call them a scam.

But given someone just spent almost $1 million buying a NFT yacht for an online video game, and Collins Dictionary has just made “NFT” its word of the year, they’re unlikely to disappear.

NFTs use same blockchain technology that powers cryptocurrencies and can be created, bought and sold online through platforms including OpenSea, Crypto.com. and Binance.

Crypto.com chief operating officer Eric Anziani said its research had found interest in NFTs was highest among 35-to-44 year olds.

Mr Anziani said creating NFTs was an easy process, and those wanting to buy and sell them should choose a reputable and secure platform.

“Do your own research and understand the utility or use case of the NFT for you,” he said.

Dentist Dr Jacques Theron has recently invested in NFTs. Picture: Alex Coppel.

Dentist Jacques Theron said he missed investing in the start of the internet, but recently bought NFTs because he “realised that blockchain is the new internet”.

Dr Theron invested in three “CryptoPug” NFTs, digital images of dogs, and said “I think I’m going to hold onto them”.

“When anything creates excitement and is fun, that’s how we learn.”

CreationWealth senior financial adviser Andrew Zbik said clients had started asking about NFTs.

“As with anything you invest in, ask what does it actually do,” he said.

“What is saleable and what will people want to buy in the future?”

One of Dr Jacques Theron’s crypto pugs.

UNDERSTANDING NFTS

• Non-fungible tokens are digital assets that represent objects such as art, music, videos, memes and in-game items.

• NFTs are usually bought with cryptocurrencies and exist on the same blockchain digital ledger technology as cryptos.

• They can be created (minted), bought and sold using online NFT marketplaces where sellers often set sky-high prices.

• Each NFT is unique and can’t be interchanged for another, although many editions of the same digital image or video can be produced.

• Some NFTs deliver owners extra benefits such as discounts and event invitations.