Iffy about NFTs - Non-Fungible Tokens?

NFTs - Non-Fungible Tokens.
Changing the economy. Simplified.

As much discussion around NFTs has increased in recent days and weeks. I thought it best to move this topic ahead of schedule. I will break away from the hype or FOMO (known in crypto lingo as Fear Of Missing Out) and focus on some of the advantages the NFT and token-economics markets provide. I am not an accountant, financial specialist or advisor. This article is my opinion and it advised that you apply caution with any monetary transaction and do your own due diligence. 

What are Non Fungible Tokens (NFTs)? I will attempt to simplify explanation and on why NFTs (a blockchain product) are gaining steam for the non coders/programmers such as myself. If more info on the subject check out Blockgeeks’ article.

Fungibles are items that provide equal value. Ex. I can have a $5.00 dollar bill and exchange it for 5 x $1.00 dollars,  20x $0.25 cents or another $5.00.  Each divisible amount still values $5.00 because a dollar is a dollar. No matter how you slice it. 

Non-fungible are items where the value and description of any item are different. Each item is unique and can not be ‘EQUALLY’ exchanged. Example, I can not equally (emphasis equally) exchange a loaf of bread for a can of tuna.

Now before you say ‘well yes you can it’s called bartering’, I will re-affirm the word equal. You can make an exchange but it often requires both sides to agree upon the value-bargain of that exchange or swap. Maybe it is a loaf of bread for the can of tuna plus X. No matter what, the loaf of bread will NEVER equal a can of tuna. 

In terms of Fungible Tokens and Non-Fungible Tokens, Bitcoin is Fungible token, 1 Bitcoin is equal to  2x .5 Bitcoin (like traditional money mentioned above). Non fungible tokens are each distinctively different due to the hard coding embedded in the token, even though they may look alike.
Take a look a CryptoKitties. No two kittens created on the blockchain are the same.
In real life think of this example of a Granny Smith apple. On the surface they may look exactly the same, and carry very similar genetic coding, but weight is different, colour etc. Or another very common example of general knowledge are - fingerprints, snowflakes, even grains of sand. Imagine if they were to be coded on a blockchain.

Let me step back a bit and explain there are at a minimum two major types of NFTs, Collectible tokens and Security tokens. The former mainly serves the collectible sector think CryptoKitties and the latter Security Tokens primarily for supply chains such as IBM. Both can offer transparency, authentication, governance, and ownership to name a few.

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Investment and Speculation: Where the lines blur or do they?

Again this is not financial advice. Within the digital collectibles market, there are three top subcategories, Artwork, Virtual Land and Game items. Many wonder why anyone would think to put money in a non tangible item. I explained the theory in my previous article here.​ The question now is are these even worthy to be seen as an investment or are they an investment on pure speculation. 

Example: Artwork has for many years been part of a value investment mainly for the wealthy. A hidden portfolio of wealth rarely seen by the mass population, or only seen via a trip to the museum or online content. Someone performs an appraisal of a piece of work and someone else agrees to purchase for X value. Often leaving the creator with the least amount of the pie.

In the current digital space, artists (talent) are available and accessible to everyone, around the world. Everyone can purchase a piece of artwork that appeals to them. Each uniquely defined by code. And the artist can gain popularity and direct revenue.

Ina  very basic outlook, if I took any from category - Art, Virtual Land, Gaming as a project, and speculated on its growth how would it be different from what is already happening in the real world? 
In the beginning companies like IBM, Telsa, Apple, Google, GE, Amazon, eBay, all had ‘investors’ inject money speculating on the profitable gain some time in the future.
The funny difference in the current speculation argument from those who are quick to dismiss the value of NFTs claim these companies had a ‘working’ business plan/model or historical successes but are also quick to forget it was still speculation -  nothing was proven. Even though the number one rule is not to invest solely on historical data to predict future gains.They invested because they either liked the project (intrinsic) and/or were convinced it had future monetary value (extrinsic). 

The second argument is that NFTs have no utility value (extrinsic value) in the real world. Again a short sightedness. And the pandemic is proving that is incorrect. More and more NFTs are used and created to secure real world assets such as supply chain, look at Coca-Cola, medical records, Real Estate etc.

You can also refer to these links from cointelegraph about Art Industry shift and Investment Companies re-evaluation of NFTs.
Bright future for Artist
Christies
Morgan Creek Execs

The true big difference here is the ‘regulation’ of the emerging blockchain technology and its sub categories. Security Tokens often would require that all investments be registered. Not the case for Utility tokens. This is the big grey, confusing, debatable area. Do NFTs pass or are under what is known as Howey’s Test? Want to know more about Howey’s Test? Check this article. This is an area many regulators around the globe are scrambling to categorize without crippling the economy - where NFTs have provided a positive economic impact so far. 

Final thoughts. Why are NFTs becoming very popular? They can provide actual ownership, provenance and transparency but they also provide the opportunity for Consumer to become a Prosumer. An active participant and ‘direct’ supporter of projects that one likes and desires. A direct investor without the layers upon layers of bureaucracy with extremely low risk or manipulation. The other advantage to be part of projects with teams that share your values, and integrity. Reputation is value. I am not speaking about perfection but accountability and responsibility vs the lip service often written from many corporations where actions are less than admirable - see recent JP Morgan article.

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Final Example to ponder.
A profound cover artwork for the comic book #Spawn made by Canadian artist #Todd McFanlane. It is a cover illustrating tribute to the late Chadwick Boseman.
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Which one are you? 
A) Not interested. Don’t like comics,
B) Interested only for possible monetary value, I don’t care about comics.
C) Love comics don’t care about monetary value o
D) Love comics and monetary value.

Some will see value others will not. Some will see its significant global and community importance others will not.

And if there were NFTs of similar design or theme, the response/reaction would be no different, because we see value from a personal and collective manner.

There is no right or wrong answer. We operate on both intrinsic and extrinsic values to some degree on areas of interest. That should be what we must understand at the core.

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