12th March 2021
Powering Creativity: Non-Fungible Tokens
This week in the return of Fintech Fridays, we’ll be delving into the world of NFTs, a type of cryptocurrency that has become a star of early 2021. Ever since Bitcoin became all the more mainstream, blockchain technology has seen tremendous investment and growth. More recently, the public spotlight has been set on these NFTs, or Non-Fungible Tokens, which many believe could be the next big thing to come out of blockchain infrastructure.
An NFT is a special type of cryptocurrency coin that allows buyers to purchase and claim ownership of any digital goods. NFTs act as a representation of value for a range of digital content, such as art, GIFs, games, or even memes, which are authenticated by the blockchain system. What this means is that whilst the product the NFT represents can still be replicated, the NFT cannot, and hence any replicas made cannot be sold as originals. As blockchain is a transparent and trustless system, everyone in the market is able to see the history of an NFT, from how much it sold for, to who prior buyers are, through specific identification codes and metadata.
Axie Infinity, a decentralised Pokemon-esque blockchain game, is one of the first applications to use NFTs in gameplay, allowing players to collect and use cryptographically unique characters to battle other players or build your own pet universe
However, like all digital files, these items can be shared and viewed by anyone. The only thing that the buyer truly owns when they purchase a NFT is the claim of ownership of the item, not the underlying asset or the exclusive use and control of the digital art. The non-fungible meaning comes from the token not being easily exchanged over for a specific value, as the asset itself will shift in value to the demand seeked by the market of the claim of ownership.
NFTs are revolutionising the digital art market
Why is the quality of NFTs being non-fungible so important? To illustrate this, we need to think about why art has value. For example, an original painting by Da Vinci would be worth millions, not just because of the painting itself, but because of the fact that it was painted by Da Vinci himself. However, when it comes to physical art, a major issue has always been trying to authenticate artwork to ensure that it is in fact original work and not forged.
Similarly with digital art and content, creators have always had to deal with the issue of their content being stolen, replicated or unfairly distributed. NFT’s solve this issue by offering a way to authenticate digital content to determine their originality.
This benefits both buyers and sellers of digital art. Buyers need not worry about the authenticity of their purchase. Sellers, or artists, can’t have their work stolen anymore. It’s arguably a win-win situation.
But there is still one looming question: why pay copious amounts of money for original art when you can just get an exact copy? There are a number of factors that come into play here:
NFT’s could work just like any other speculative asset which means if you buy an original piece of art you could wait for it to go up in value, sell and make a profit.
Anyone can own a copy but only one person can own the original NFT product. Therefore, buying NFT’s can be a form of fine art collecting.
NFT’s may come with usage rights.
Buyers may want to financially support artists they like.
Today, digital artist by the name of Beeple sold a piece titled ‘Everydays - The First 5000 Days’; a collage of 5000 individual art images created every day for the last 13 years - for $70 million USD
NFT’s have essentially paved the way for artists and content creators to better monetise their original work by ascribing ownership and turning public art into private property. They have now become a $US250 million market and with the recent increase in popularity, it could very well become the new normal in the digital art landscape down the line.
Crypto Close-Up: Chiliz (CHZ)
With the recent surge in popularity for NFT’s, a few cryptocurrencies involved in the creation and trading of NFT’s have seen rocketing prices. Chiliz (CHZ) saw an astronomical increase in it’s token price - over 200% within the past week - bringing Chiliz’s market cap to around $2 billion USD as of the time of writing.
What is Chiliz?
Chiliz is a cryptocurrency and fintech platform. Chiliz tokens can be purchased on exchanges such as Binance, which can be traded on Socios.com, a specialised platform for hard-core fans, investors, or speculators to exchange Chiliz coins for a finite amount of Fan Tokens sold by some of the biggest sports and eSports clubs in the world. Many popular Fan Tokens on sale are from international football leagues and clubs, such as FC Barcelona, AC Milan and Paris Saint-Germain. As for e-sports, some popular Fan Tokens on sale include OG, Alliance and Natus Vincere (NAVI).
With newly acquired Fan Tokens, you can now have a say by vote on which song is to be played at half-time, which motivational quotes should be integrated in the team dressing room, or which player you would like to see take part in a special Q&A, etc. On top of that, fans that interact on the polls stand a chance to win exclusive merchandise, VIP invites, and cashbacks on merchandise sold via the app.
Chiliz main goal is to enable the sports and entertainment industry to engage and monetize their global audiences. Having successfully generated over US$30M in revenue in 2020 between the 23 major sporting organisations and Socios.com, many more major clubs are set to launch Fan Tokens including UFC which has an ongoing partnership with Socios since May 2020.
The verdict on Chiliz
Chiliz coin prices have soared to record highs as the company announced a series of partnerships, including investing up to US$50M towards expansion plans into the US. On top of that, Chiliz CEO Alexandre Dreyfus also mentioned that the company is in talks with Formula One teams for a potential partnership agreement.
Although Fan Tokens are not categorised as NFT’s, Chiliz has recently announced a partnership with Enjin (a token and platform that facilitates the minting and exchange of NFTs) to launch blockchain collectibles for major sporting organisations currently partnered with Chiliz and Socios.
Investing/speculating in Fan Tokens has its risks, given the Fan Tokens fluctuate in value to Chiliz, while Chiliz fluctuate in value to the dollar. The project has been for just over a year, floating below $0.10 until this month. Now at an ATH of over $US0.40, there is a huge influx of hype surrounding its future. However, once this hype dies out, a major correction is no doubt on its horizon. Expect high volatility in Fan Tokens and Chiliz as with a lot of cryptocurrencies out there.
The views expressed within this article are those of the authors and do not represent the views of the Finance Student's Association. All images and references in this article are for fair and educational purposes only. The content in this article is not intended as legal, financial or investment advice and should not be construed or relied on as such.