What The Heck is an NFT? Why Should I Care?

Understand the newest and biggest wave to hit the Crypto industry

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Dear TTM research readers,

In the last couple of weeks, the NFT market has taken the Crypto world by storm. So in today’s newsletter, I’m going to be explaining what NFTs are, the attention NFTs have been getting, and some valuable tips to keep in mind if you plan on buying any NFTs.

Let’s get into it.

What are NFTs?

NFT stand for Non-Fungible Token. To best understand what this means, let’s define what fungible means.

Fungible is the property of a good or a commodity whose individual units are essentially interchangeable and each of whose parts is indistinguishable from another part.

To best understand what fungible means, let's go over a simple example. Let's say you have a $10 bill, and I have a $10 bill. Two $10 bills have the exact same features and value. So if you and I exchanged the two $10 bills, nothing changes. They are both the same, my $10 bill is no different from yours, therefore being fungible.

Non-Fungible assets are assets like diamonds, land, or baseball cards. Each asset has unique qualities that add or subtract value. Individual diamonds are never the same, they have different cuts, sizes, colour, & grade. Therefore diamonds are considered non-fungible.

Now that we understand the difference between Non-fungible and fungible, let's talk about NFTs.

NFTs are digital certificates that prove ownership of an item on the blockchain. Since the blockchain is an open ledger, anyone can prove original ownership of any digital item. For example, you can own a piece of art represented by an NFT. As long as you own that NFT, it is proof that you are an owner of that piece of art.

Below, I have a picture of a Crypto Punk that was last sold for 146 ETH (~ $467k). Unfortunately, if you asked me to prove ownership of the picture, I couldn’t because I don’t own the NFT representing that picture. Therefore, whoever owns the NFT representing this image is the original owner. When we check on the blockchain who the original owner of this NFT is, we find that ApeShop is the original owner (link).

Apart from proof of original ownership, NFTs also benefit both creators & artists. Because everything is stored on the blockchain, if I, a creator, decide to sell a piece of art for $100, I can set a predetermined share of royalties (usually 10 percent) from sales on the secondary market.

So, I launch my artwork, and someone buys it for $100. Congrats to me; I just made $100. Now, if my artwork resells for $500 on the secondary market, I get paid 10% of the sold amount. Royalties are automatically sent to me, the creator, because of the blockchain.

So creators can make passive income, even after they have sold their art because of how NFTs work.

So in summary, An NFT is a digital asset that represents items like art, music, in-game items and videos.

Are NFTs valuable? Let's argue both sides.

The argument that jpegs aren't valuable because anyone can take a screenshot is a terrible argument. There are thousands of fake Mona Lisa paintings. Do fake copies have the same value? No, of course not.

Value is derived from originality, age, story, meaning, quality of art, culture, & many more factors.

In NFT land, projects like Crypto Punks are valuable because of the age and story.

Now, as pro-NFTs as I am, let's be honest, some NFT art projects are utter garbage.

EtherRock, an NFT art collection of pixelated rocks, recently sold for one of their jpegs for $2.8 million.

Projects like this are clearly a sign of the mania phase the NFT market is in. I wouldn't touch a project like this with a 100-foot pole.

Conclusion

At this current stage, 99% of people buying NFTs are simply doing it for the sake of flipping for a profit. Only a few actually care about the art. But, again, the same can be said for paintings as well. Most people who buy paintings usually end up selling it for a profit.

Proper Use Cases for NFTs

There are some use cases in where NFTs are entirely revolutionary, they are:

  • Gaming

  • Art

  • Music

  • Experiences

Let’s take a look at each use case and see what’s currently going on.

Different Kind of NFTs

Gaming

  • Decentraland

Decentraland is a decentralized 3D virtual reality platform powered by the Ethereum blockchain.

In this virtual world, you can buy and sell virtual land with real money. For example, you can see below that someone purchased a plot of land, in the Decentraland virtual world, for roughly $4,500.

I’ve played Decentraland a few times before. I went to the virtual casino, and it was entertaining seeing people gambling with real money in a virtual world. People were networking and having fun as if it were real life.

Decentraland is just the beginning.

Imagine owning your house in Grand Theft Auto that you can sell, rent or trade. Imagine selling your guns on Call of Duty to another player for a profit.

NFTs allow for an economy to exist in a virtual world.

People can make money playing video games by being part of the in-game economy.

CRAZY!

  • Axie Infinity

Axie Infinity is a Pokémon-inspired universe where anyone can earn tokens through skilled gameplay and contributions to the ecosystem. Players can battle, collect, raise, and build a land-based kingdom for their pets.

Just like Decentraland, in Axie Infinity, you can purchase plots of land. The cheapest plot of land is currently going for $12,000 as of the writing of this article (source).

You can also purchase pets that you can buy, sell, and trade for the sole purpose of battling other players. You can even breed pets, and with the new offspring, you can buy, sell, and trade.

How have games like this been doing financially?

According to token terminal, Axie Infinity has done $356 million in protocol revenue in the last 30 days. (source)

When every gaming studio hears about that kind of success, what do you think they're going to be doing?

Games are already starting to have their own mini economies. Remember, all the in-game items you win or buy on Call of Duty or Fortnite, you actually don’t own. If you did, you would be able to sell it. NFTs allow In-game items to be bought or sold, creating a more fun and maybe profitable gaming experience.

Art

The most popular art collections right now are Crypto Punks, Bored Ape Yacht, and Pudgy Penguins.

Out of all three, the most famous right now are Crypto Punks. Punks are more of a cultural status symbol. It’s like owning a Lamborghini or a Rolex. People with Punks instantly get a spike in followers because they are the cool kids.

I mean, who in their right mind would purchase a pixelated character for six figures? The cool kids, that’s who.

Crypto Punks is one of the first NFT projects ever. Its age and story give it iconic value. Plus, in my humble opinion, some of them look freaking cool. So let’s look at some data and learn more about Crypto Punks.

Currently, the cheapest punk goes for $450,000. So screw getting a mortgage, and it’s time to own a historical jpeg.

The data below shows us that the total Ethereum spent on Crypto Punks is 427,038. Based on Ethereum’s price today, that is $1,386,707,686.26.

You can also see that in the last few weeks, the volume of ETH moving into Crypto Punks is hitting all-time highs.

We are witnessing Crypto adoption like never before, and it’s coming in the form of digital art & games. NFTs are here to stay, but not all projects are good. The majority of NFT projects are a quick cash grab.

Music

Tory Lanez has taken advantage of the NFT hype and recently released the first-ever NFT album. He sold a million copies, each for $1. Now each album is flipping for thousands of dollars on the secondary market. Which by the way, he gets a royalty off every sale made in the secondary market.

Experiences

Gary Vee recently announced his VeeCon conference a few months ago.

According to VeeCon’s website:

VeeCon is a multi-day superconference where only VeeFriends token holders will experience an extraordinary lineup of content including iconic keynote speeches; aggressive amount of innovative and educational talks, panels and Q&A sessions; and many collaborative experiences including competitions, gatherings, and team sessions. In addition, there will be a bevy of entertainment.

You can only get access to that conference if you’re a proud owner of a VeeFriends NFT. Each NFT comes with its own perks and privileges. These NFTs are being resold every day on the secondary market.

You can see that NFTs have multiple use cases with real-world application and utility and not just $2 million dollar jpegs. So now that we have that covered, let’s talk about the recent attention, NFTs have been getting.

Attention on NFTs

  • Visa

Visa announced on August 24th that they purchased a Crypto Punk NFT. You can see the exact Crypto Punk they bought by clicking here.

Cuy Sheffield, The Head of Crypto at Visa shared when asked why Visa bought their first NFT, he said

We think NFTs will play an important role in the future of retail, social media, entertainment, and commerce. To help our clients and partners participate, we need a firsthand understanding of the infrastructure requirements for a global brand to purchase, store, and leverage an NFT. Having worked with Anchorage Digital to complete this process, we’re better positioned to help our partners navigate the process. (source)

Simply put, Visa sees billions in transaction volume moving, and they want a piece of that pie. Remember, corporations will always chase the bag.

  • KSI

KSI, a very popular YouTuber & Rapper, is now a degenerate NFT & Crypto Investor.

You know the market is taking off when the mandem are buying NFTs.

  • Stephen Curry

NFT Twitter woke up to Stephen Curry’s Twitter profile picture changed to a Bored Ape Yacht NFT. Which by the way, the floor price is roughly $75,000.

Making money with NFTs

So what are some tips that you can keep in mind when looking to buy NFTs

  • Buy at mint

This is the lowest price you can buy any NFT. You want to get in on an NFT project on the ground floor. It’s almost never worth it buying it in the secondary market.

  • It’s not like a coin with volume

Remember, there is a chance the NFT you purchase will flop. If it flops and no one is buying, you’re stuck. You’ll just be holding the NFT. Unlike a token that has liquidity, you can’t take a 60% loss. If the NFT project is dead and no one is willing to buy it off of you. You just lost everything.

  • Don’t blindly follow influencers

Some influencers don’t have your best interest at heart. If an NFT project has already been minted, be very careful buying on the secondary market based on their recommendation. They may just be using you as liquidity. Always DYOR and have your own conviction.


Conclusion

I never thought jpegs would bring outsiders into Crypto, but hey, I’m not complaining.

When it comes to NFTs, my thesis is: buy at mint and don’t get too greedy. If you’re not rolling in dollars, it’s important to understand that you could be left holding a worthless jpegs if no one decides to buy it from you.

If you’re rich and you’re bored, go ahead and knock yourself out. If you’re on a tight budget, be careful what you invest in. Mint always, and once an influencer is tweeting about it, it’s probably too late.


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Not financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Do your own research.