What Are Non-Fungible Tokens (NFTs)?
Imagine I asked you to buy a digital copy of a painting I created and then burned. Perhaps you would be interested in my singing abilities and would buy a sound clip that I would record and put up for sale for a few hundred dollars. If you purchased any of these through an NFT exchange, you are now an NFT Investor.
NFT, or Non-Fungible Token, is something that I expect accountants to jump on and understand without being asked. You see, I really believe accounting and finance professionals have a deep understanding of financial data, taxes, audit and money matters, and there is nobody who can understand this better than them (well, you). Let’s dig further.
The current trend of NFT-based assets is interesting, and I say that because it’s very confusing. By default, I believe that confusing things are interesting, but maybe that’s just me. NFTs are based on blockchain technology and are connected to the physical world through blockchains. Blockchain is the technology that provides a new way of storing information, creating distributed databases that are immutable, permanent and incorruptible. Having said that, if you put inaccurate data into blockchain, it will always stay that way, so let’s not confuse accuracy with a permanent record. The digital universe has moved ahead and while we are still trying to understand the cloud, analytics and other basic ideas within the industry, the rise of NFTs also signifies the emergence of blockchain as a value creator.
Today, NFT-based art is fast gaining popularity. Here’s how it works.
NFT marketplaces offer the ability to create a non-fungible, tokenized version of anything. A photo of something is a good example. You could create a painting or take a picture or maybe have a digital piece of art (that was created digitally in the first place). This art can then be sold on the NFT marketplaces as a unique item. Every time you sell a piece of your art, it will be paired up with and tagged with a unique entry on a blockchain, generating a unique digital string that can never be duplicated. This unique string can then be traded for cryptocurrency, and NFTs are born.
You may be wondering: How does that make sense? Well, in the digital universe, it does.
Consider the example of a video game. Have you played one recently? If not, I suggest you actually play one; maybe ask your kids, grandkids, nieces or nephews to let you use one of theirs and show you how to play. Today’s video games are sophisticated, with extremely complex levels, in-game points, purchases, exclusive goodies waiting to be unlocked, and more. You also have one-off powers and objects that are sometimes unlocked or given as a reward. In this virtual world, you can even buy some of these goodies with a real-world credit card or points of some kind.
Stay with me now and take this a level ahead. Imagine that in this game universe, a game manufacturer now offers a highly limited power or weapon as an NFT, something that has proof that you are the unique owner and that can be traded in the future with other players. It has value and, as a medium of exchange or as an asset, can be held, sold or traded. This could be an NFT.
Today, NFT art is being sold in a similar way. And yes, the market is extremely hyped, but the reality is that there are a lot of buyers who have the extra money to invest.
Here is a list of 10 most expensive NFT artworks sold in recent times that I found interesting.
Professionally speaking, my guidance on NFTs is to study the market and understand how digital technology is growing and impacting multiple things, such as virtual reality, cryptocurrency, artificial intelligence and more.
I also highly recommend accounting industry professionals be aggressive and position themselves as NFT Industry Specialists to gain an edge when attracting new customers and building trust with existing ones. As an accounting professional, your expertise is not just crunching numbers but helping clients understand the disruption in various industries when it comes to numbers. Traditional accounting roles will be taken over by technologies such as AI in the next decade or so, and you will need to start working on acquiring new skills right now to be future ready. Why not start today with NFTs?