Analysis and News

The Market For Non-Fungible Tokens

BY ARMCORE VPI's Analyst: Govindra Raghubansi

Fungibility is the ability of a good or asset to be interchanged with other individual goods or assets of the same type. Anything which is 100% interchangeable with a similar thing is a fungible item.                                      If an item is truly scarce and unique, it would be a non-fungible item.         

A Non-Fungible item is usually an item that is collected or desirable because of its age, beauty, rarity, condition, utility, personal emotional connection, and/or other unique features. Art has always been a tool used to store wealth while being non-fungible.

Non-Fungible Tokens (NFTs) are a new type of collectibles such as stamps, tickets, coins, etc. with the only difference being that it is digital. NFTs are a certificate of authenticity created by the blockchain for digital assets such as artwork, music, or video.

It’s important to note that the concept of fungibility is subjective and relative. An item's value is determined by how fungible people believe it is. Only society determines whether an item is unique or replaceable.

 An NFT gold rush has ensued in the last year as crypto enthusiasts and speculators have ridden a major uptrend realising a 2100% increase in sales of 2.5 billion USD in the first half of 2021 compared to 13  million USD during the same period in 2020 (Reuters,2021). The rise in NFTS can be attributed to a lot of factors, however, the surging price of cryptocurrencies such as Bitcoin coupled with the effect of the pandemic leading to increased creation and consumption of online content has been the perfect storm.

Artists and other content creators alike have found a marketplace for their work in the platforms OpenSea, RARI, SuperRare among others. 

Tokens are created using blockchain technology with the Ethereum blockchain being the most popular. This ensures that there can only be one owner on the ledger at any given time and that this ownership cannot be disputed, changed or altered in any manner. As a result, NFTs are regarded as extremely secure, which has led to their widespread use and gained popularity.

Additionally, some Non-Fungible Tokens can be set to automatically disburse royalties to the original creator when used. The use of NFTs by established organisations such as the National Basketball Association (NBA) for collectible player cards and corporations such as VISA have also incited interest.

For digital content creators, NFTs ensure that work cannot be stolen, copied, or duplicated without their permission, which is a prevalent problem in the industry. For investors, it provides an emerging market for the storage of wealth in the form of digital art and speculation.


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