My response is the same I heard from an old colleague at dinner on Monday night. I gave him a potted history of our introduction to investing in crypto-currencies. He replied “I don’t invest in anything I do not understand”. His opinion of crypto currencies is that they are all a ponzi scheme that will all become worthless in a short space of time. 100% diametrically opposed to my own view, and this is from an intelligent sage of 76 years as a professional engineer, a competent manager and leader and a successful investor.
I am not quick to write off NFTs as a “fad” - only to continuously go through the thought experiments of “what if”. Like most young people, I used to collect bubble gum cards when I were a young boy, and other artefacts as I got older, and for most people that doesn’t seem to stop. Most of us think we will be happier collecting more “worthless” artefacts referred to as currency. We are familiar with fiat currency in our wallet as pieces of paper (now pieces of plastic, as if that is supposed to imply that they will last longer or are somehow worth more?).
I do have one example of a NFT that I think I understand and that is the unstoppable domains. I have thought seriously about buying 10 or 100 of them. But I bought a private car number plate 15 years ago that I am glad I bought, but I doubt the value to anyone else is any different than the currency value I paid for it so long ago.
In summary, I concentrate on conventional crypto currencies - investing, trading and now limited mining (or farming as my choice of Chia is referred to), and I try not to distract myself thinking too much about NFTs.
I do think it is here to say, and we are witnessing the tip of the iceberg. I think it will start to attract my attention when someone figures out a practical use for it, and I give a theoretical example below.
Example of NFT that would attract me.
Real property NFTs have become ubiquitous. Rents in the UK have become unsustainable for the majority of citizens under current Assured Shorthold Tenancy leases. The government approves a European style alternative to the AST with a twist. The alternative is similar to a commercial rent agreement where the repairing and insuring aspects are paid by the tenant not the landlord. The period of rental can be agreed between landlord and tenant up to the lifetime of the tenant, provided the tenant does not breach the terms of the lease. The tenant pays a reduced rent but is responsible for the maintenance and building insurance. An independent (government-appointed) body assesses on a periodic basis the fitness of the property. So what has this got to do with NFTs?
The landlord creates an NFT where the underlying asset is the real property. He splits it up into one million tokens of face value £1 each and issues 51% of them for sale. They sell out at face value. Now the rent (net of maintenance and insurance cost) is a cash flow that is distributed equally to each NFT token holder. The landlord has substituted a flow of income from rent for a capital sum of half the value of the property, and can reinvest that capital sum whilst still participating in 49% of the NFT value and receiving half the rent he used to. The tenant has a “life tenancy” subject to maintaining the property to government-approved standards. The investment community gets to participate in residential property investment with as little as one pound.
Pick holes in that one, please.