By Nina Jashi, Equity Analyst at UCD I&E Student Managed Fund and BSc Honours Economics and Finance Student at University College Dublin
NFT’s have come to dominate this month’s topic of discussion with shocking headlines that have us thinking how and if we should get involved in such an up-and-coming, speculative market.
So, what is it exactly?
An NFT is a non-fungible token. Wikipedia defines it as a “digital file whose unique identity and ownership are verified on a blockchain”. One can buy this non-mutually interchangeable certificate of ownership for any asset. Assets that have been strongly associated with the digital token include digital artwork, videos, gifs and, funny enough, tweets.
One might buy an NFT for reasons other than financial gain. While ownership of the token may bring you royalties upon future resell and license for distribution, an NFT is a sentimental and clout-achieving asset. For some, NFT is as much of a collectable item as antiquities or baseball cards; for others, it is a way to feel closer to the NFT creator. For me, buying Grimes’ puzzling and unique digital artwork titled “WarNymph” would be a pretty special way to gain connection to my favourite childhood artist and the billionaire Musk family. Brand loyalty can also be attributed to the frenzy and excitement that has spurred amongst Nike fans over Nike’s NFT of Nike swoosh gifs, and similarly, for Taco Bell regulars over taco-related gifs. Jack Dorsey fans have also managed to raise a bid of $2.5 million for his first ever tweet which reads: “just setting up my twttr”. If the tweet still remains up for all 192 million Twitter users to see, how else can one explain the need to buy it other than a personal affinity for the CEO? 
The most cited use of NFT’s seems to be its service in the art world. Just a few days ago, an artist called Beeple sold her digital mosaic for a staggering $69 million and has opened up a can of worms within the industry that has caused worry and opportunity amongst artists. NFT’s provide proof of authenticity for artists as an NFT code is signed by the creator, making an art piece verifiable in a different and more logical way compared to physical art. Naturally, some chaos has ensued for artists that share and promote their art online, who have been forced to set their accounts to private as a safety measure against people stealing their art.
With that, we see the security threats posed by NFT’s. Copyright concerns have ensued with the threat of people creating tokens for someone else’s assets. A larger worry is the environmental concerns over NFT transactions. Utilising the Proof-of-Work trait of blockchains, carbon emission concerns are mighty for the token.
Computational engineer Memo Akten calculates and points out that the average crypto-art transaction has a footprint of around 340 kWh and 211 kg of CO2 which is “equivalent to a EU resident’s total electric power consumption for more than a month, with emissions equivalent to driving for 1,000 km or flying for 2 hours.” To this environmental damage revelation, some artists such as Joanie Lemercier have called off their NFT art auctions. Consequently, a hunt for more sustainable ways of transaction protocol has arisen.
Despite NFT apprehension, the assets grew from $40.9 million in 2018 to more than $338 million in 2020, according to Nonfungible.com. It has also started to revolutionise gaming, where NFT’s can be used as in-game assets, such as skins and swords, which can be bought and sold without the game developers’ permission. Chairman of Aminoca Brands, Yat Siu, feels every game company will be forced to participate in NFTs as the market for it amongst gamers grows.
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UCD I&E Student Managed Fund
The UCD Student Managed Fund (SMF) is a non-remunerated organisation which carries out a function similar to that of professionals in the fund and asset management industry but on a smaller scale and under the guidance of industry experts.