Sure, the COVID-19 vaccine rollout has gone better than expected, a massive stimulus bill has just been passed, and the US may be getting a much-needed infrastructure upgrade in the near future.
But one of the biggest news stories of the past month was the unprecedented purchase of digital artist Beeple’s “Everydays: The First 5000 Days” NFT through Christie’s Auction House for more than $69 million. (Before October, the artist had never sold a piece for more than $100.) Sounds bizarre, doesn’t it?
Even Vignesh Sundaresan, the buyer of the piece, founder of the Metapurse NFT project, and a big spender in space (obviously), recently told Bloomberg, “It’s crazier than investing in crypto.”
It seems that the cryptocurrency entrepreneur is right. According to Nonfungible.com, average prices for NFTs fell nearly 70% from a February high to early April.
Ever since this whirlwind conversation – and huge payouts – about NFTs started, many everyday people and investors have wondered what the heck this is all about. Wonder no more. Here’s a Pyjama People guide to NFTs.
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What is an NFT?
NFT stands for non-fungible token, which is essentially a unique “thing” that cannot be copied, counterfeited, or replaced with anything else.
Why not? Every purchase of that thing – the digital token – is recorded in a decentralized ledger like Blockchain, the data-tracking technology for Bitcoin, so that all transactions are visible to the public.
“Say you buy a Louis Vuitton bag and want to know if it’s authentic, if it has a unique identifier on it, like bag 586 Sara bought in 2010, now she hands it over to Janine and puts it on a spreadsheet everyone could see,” explains Janine Yorio, co-head of real estate at Republic Real Estate, which makes it non-fungible (not replaceable).
With NFTs, people transfer all kinds of digital objects: drawings, art, music, $25,000 GIFs. “When you use NFT technology, you give artists and creators a way to track their intellectual property,” says Yorio. “It’s all happening with the help of blockchain.”
Think of it as the equivalent of a virtual title for a car or house that is tracked when handed over to each new owner. In many cases, there is only one true version of the token, such as that vintage car being sold or, say, the Mona Lisa. But NFTs don’t just refer to one final version of something. It can also be a trading card or a hand-signed limited edition Andy Warhol, where there are 50 or 500 numbered copies of the same object.
Digital real estate can also fall under the NFT category. In fact, Yorio heads the Republic Realm fund, a digital real estate NFT fund (more on that later).
Currently, most NFTs are part of the Ethereum blockchain. Like Bitcoin, Ethereum is a cryptocurrency, but the blocks contain additional information that supports these NFTs. Other blockchains can manage their own NFTs and some have already started.
Why is everyone talking about NFTs now?
NFTs have been around since 2015. However, these tokens really started to gain traction in early 2021 – after almost a year of participating in most social interactions online rather than IRL – with the growing adoption of cryptocurrency, bringing a sense of accessibility. of the r/WallStreetBets Gamesstop debacle and advancements in blockchain technology and growing marketplaces for selling tokens.
Dapper Labs really kicked off the trend with CryptoKitties, a game that allows players to buy, breed, and sell virtual cats, and NBA’s Top Shop, a blockchain-based trading card system with highlights and digital artwork.
The latter, released last fall, started selling for $9 a pack. As with old-fashioned baseball cards, the price rose as the secondary market for these digital cards developed – they can now be sold for $200,000 each. “That opened up this space and led to what we’ve seen in recent months,” Yorio says. “It’s about scarcity.”
Anything digital can be sold as NFT. The New York Times sold a column token for more than half a million dollars. Twitter founder Jack Dorsey traded the rights to his first tweet for nearly $3 million. And 89-year-old William Shatner started selling his own NFT trading cards with images from his personal life and career starting in the 1930s. The 10,000 “packs” (five for $5 and 25 for $25) of approximately 125,000 digital Shatner cards sold out in nine minutes.
One of the rarest cards in the collection, a headshot of Shatner taken in the aughts, recently resold for a whopping $6,800 – a decent ROI. “It’s a phenomenon of rare things being offered on the Internet,” Shatner recently told Pyjama People.
Most of the talk of NFTs has focused on their ability to become a new form of art collecting, especially since the esteemed auction house Christie’s began offering the all-digital works last month. This is why someone paid nearly $390,000 for this 56-second music video from musician Grimes and someone else bought this video from Beeple for $6.6 million, both of which are free to watch on the web.
Where is the value in NFTs?
It’s hard to understand why something that can be viewed for zero dollars fetches such a high price tag. The technology used and the reasons why individual buyers spend so much on these tokens are both new and somewhat complex. However, the underlying elements that fuel the NFT market have been around for centuries: fandom, creator royalties, and, as Yorio said earlier, scarcity.
The current craze has many wondering if these tokens will keep their value or if their value will disappear like Franklin Mint coins, postage stamps or most Beanie Babies. There is some evidence that the fad may soon fade. But “that goes for any collectible,” says Yorio. “You could say the same of a Ferrari or Andy Warhol. Collectibles ebb and flow in popularity – it’s about a confluence of several things that we probably don’t know where we are today.”
How does this relate to real estate?
While much of the conversation around NFTs has centered on the tokens as an evolution of fine art collecting, there is a segment of investors looking to buy some of these digital worlds. Yorio’s fund brings together pools of investors to buy plots of virtual land in various metaverses.
The concept is a mix of capitalism meets science fiction and regular old real estate. A bit like live video games – some of which have dabbled in adding new virtual experiences to their core games – these virtual worlds are essentially a shared space on the internet where people come together to play, work and socialize through custom avatars as a virtual representation of himself.
The whole thing is hard to understand for anyone who isn’t into sci-fi. The best example of a metaverse is the virtual world illustrated in the novel and movie Ready Player One, where the main character flees the real world for a virtual world. Another way to think about it is an evolved version of the video game The Sims.
Right now, only a handful of metaverses exist, and they are increasingly providing users with digital experiences closer to real-life events, fueled in part by the pandemic’s stay-at-homes.
In April 2020, the online game Fortnite hosted a virtual concert by rapper Travis Scott that brought in over 12.3 million simultaneous viewers. More recently, Domino’s has made it possible to buy pizza from a virtual store in the metaverse Decentraland and have it delivered to a real address.
Since the NFT boom hit, parcel values in Decentraland have skyrocketed. The digital world gives users the space to create an avatar, communicate with each other and participate in everything from concerts and art shows to building a home or business on their own piece of virtual land. When the virtual community launched in 2017, developers were selling them for around $20 per pack. Now those same packs can be sold for anywhere from $6,000 to over $10,000.
Like the numbered Andy Warhol prints or limited edition Shatner cards, there is a finite supply of these lots for sale. But unlike those collectibles that would most likely be locked up in someone’s home or scooped up on the web, companies are starting to see potential in their ability to sell to consumers through these shared spaces.
As the number of users in these metaverses has grown, brands are increasingly interested in connecting with those users in these virtual worlds where they have spent their time. “It’s not necessarily advertising, like stationary billboards,” Yorio says. “It’s more events in virtual worlds where things happen. You might have a DJ and chance to win free swag or a famous person comes in with their avatar: it’s an interactive way for a product or company to connect with users in an immersive virtual environment.
Hundreds of millions of users hang out in metaverses every day, but there is still a large chunk of the world’s population who have no idea that these worlds even exist. However, as these spaces continue to grow, selling real products to people in those worlds will become a very cost-effective way to market things, Yorio says, which is why packs are sold at such astronomical prices. “Digital real estate prices are still nearly four times higher in four months,” she says. “Real estate in the real world usually (never) does.”
Will virtual packages continue to appreciate at the same rate? It is difficult to estimate. However, people like Yorio are very intrigued by the prospect. “For 25 years, people have been playing in virtual worlds like Sims,” she says. “This is just adding crypto to something that is widely used and already much loved: I believe it is an interesting asset class to consider.”
As with all investments, entering NFTs requires a fair amount of research, starting with trying to understand the market by tracking historical trades on different asset classes. OpenSea, the largest NFT marketplace in the world, is a great place to research and buy all kinds of NFTs, ranging from art and trading cards to virtual worlds like Decentraland and digital sports memorabilia. And it is important to act in your field. So if real-world real estate or, say, William Shatner, is your forte, that might be the best place to start.
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