If you’ve been keeping up with tech news over the last year or so, chances are you’ve heard or read about NFTs before. The growing interest in these digital tokens has been the subject of countless headlines this past year and everyone from cryptocurrency enthusiasts, art collectors, investors and the plain curious are getting on board the hype train.
Just to give you a quick perspective, an NFT of the first text message ever sent, which simply reads “Merry Christmas”, recently sold for a whopping US$121,000 at a Paris auction. And that’s just the tip of the iceberg when it comes to the sale of these high-value commodities.
In case you’re wondering what an NFT even is and why everyone is suddenly going crazy about them, we’ve got you covered with some of the basics that you need to know.
What is an NFT?
NFT stands for non-fungible token. When you say something is non-fungible, it means that that thing is one-of-a-kind – that it doesn’t have an exact equivalent. An NFT is a unique and irreplaceable digital asset that can be bought or sold using blockchain technology. And because trading happens on a blockchain network, NFTs come with a digital public record of transactions, allowing them to be verified.
This is, of course, the textbook definition of what they are. If you look at it, NFTs are essentially pieces of digital art, be it an image, a short clip, a GIF, a song or even an item in a game. Any digital file can practically be stored as an NFT. So does this mean your own drawing, for example, can be an NFT? Yes, it technically can. Whether it will sell, however, is another story.
You’re probably now thinking that if an NFT is just a digital image, say, a JPEG file, what’s stopping you from making your own copies and selling them. Well, NFTs don’t exactly have copies because each one is verified as the original by their digital records.
Perhaps to explain it better, it’s best to view NFTs the same way you would real-world works of art. Take Da Vinci’s Mona Lisa as an example. Multiple impressions of that painting have been made throughout history, but regardless of how close they look to the original, they’re still copies. And there will always be only one true original. The same goes for NFTs.
Why the sudden craze?
Everyone has their own reasons for why they’re getting into the NFT craze. Some are in it to scratch a collector itch while others treat it as an investment. What seems to be the trend is that as more people get into NFT collecting and trading, demand increases, which then ups the prices.
Some of the most valuable NFTs ever sold are from American digital artist Beeple. A collage of his works was sold for US$69.3 million at a Christie's auction in March, setting the record for the most expensive NFT ever sold. Other valuable NFTs include pieces from Bored Ape Yacht Club, Hashmasks and CryptoPunk, to name a few.
And because NFTs are one-of-a-kind, you can’t put an exact value on them. They can’t be exchanged the same way you would a S$10 bill for another S$10 bill. More often than not, the value of NFTs is determined by market sentiment. If a lot of people want to have it, the value will obviously increase.
Are NFTs legal?
Yes, they are technically legal. There are no specific laws or regulations against creating, owning and trading NFTs in the country, falling under somewhat of a grey zone. And while the Payment Services Act was adopted last year to regulate cryptocurrency services, it doesn't cover NFTs.
So even without getting to the nitty-gritty legalities, you can rest assured that, as of right now, you won't be breaking any laws if you get into NFTs in Singapore. In fact, NFT adoption is on the rise in the country. According to Techwire Asia, 6.8% of Singapore users have NFTs and up to 11% plan to own them in the future. What's more, two in five Singaporean internet users know what NFTs are.
How do I buy or sell NFTs?
If you want to buy an NFT, there are three things that you’ll first have to decide on: what platform you’ll buy it on, what digital wallet you’ll need to store it and what currency you’ll use to pay.
You’ll first need to have an Ethereum-compatible crypto wallet. You can open one using platforms like Coinbase, Metamask or Rainbow. After that, you have to purchase some Ehereum (ETH), which is one of the most commonly used cryptocurrencies used for NFT transactions. Coinbase, for example, lets you exchange Singapore currency for ETH. Other popular exchanges include Kraken, Gemini and Binance.US.
Then, start browsing the different marketplaces and find the NFT that you want. Some of the most popular ones include OpenSea, Mintable and Rarible, among a number of others. There are several niche ones also that you might want to check out. Be warned though that some marketplaces charge extra fees to process transactions.
In Singapore, the transfer of NFTs should reportedly be performed with a written contract, where there are legal protections for the buyer and seller. Then again, it may prove difficult to file a lawsuit against the person you're dealing with if he or she doesn't live in Singapore.
However, if the transaction goes smoothly, you'll be able to now view and display your new NFT from your crypto wallet.
If you want to later sell your NFT, you can similarly go to the aforementioned marketplaces and follow the instructions of how you can upload the digital file.
What are other uses of NFTs?
While NFT can still be considered an emerging tech, a lot of people have already found other use cases for them outside of collectable art.
A Europe-based property startup, for instance, are paving the way for trustless property titles by connecting real-world plots of land to NFTs. Property transfer is usually a costly and labour-intensive process, where a lot of paperwork has to be processed. By taking advantage of NFTs, this process can be streamlined, making for a quicker and more straightforward transaction.
NFT has also found its way into video games, with several developers already incorporating the tech to give players unique in-game items. For example, the popular play-to-earn game Axie Infinity lets you breed and battle a team of digital pets, which are NFTs. By minting your pets as NFTs, the game establishes that they are non-duplicable.
In the metaverse future, NFTs could be used to create scarcity in the digital space, where assets, whatever they may be, are owned by someone and have value. Decentraland, a virtual reality game, is already giving us a taste of this vision by having you buy, sell or rent digital plots of land using cryptocurrency. The closer a plot is to a popular area, the more expensive it is. You can also buy clothing items and other cosmetics for your avatar.
These examples suggest that there’s a very realistic future where NFTs could have important applications and use cases in different industries and spaces. And right now, we’re probably barely scratching the surface of its potential.
Is the NFT craze just a bubble that will eventually burst?
You’ll probably get different answers depending on who you talk to. And at this point, it remains to be seen how the market fares over time. So unless we have a way of seeing the future, we can’t answer this question for sure.
What we can say is that don’t be fooled by the allure of easy and instant financial returns. While it is possible to make lucrative amounts of money trading NFTs, as with every investment, there are always risks. Don’t get us wrong here, we’re not discouraging you from taking your chances. We just don’t want to get your hopes up that you’ll make millions of dollars quickly.
The NFT market is quite volatile, with the value of assets being largely dependent on what the community is willing to pay for them. And because NFTs are relatively new, there has yet to be a precedent of how they should be regulated.