Home 2021 NFTs: Their Value, How They Work, Their Effect of Fintech

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NFTs (Non-fungible tokens) are units of data associated with unique digital files, most commonly cryptographic assets on a blockchain. These files can be anything, but they lately the ink is about pieces of art, music or recordings of live performances“– Paul Ebeling

An NFT is worth what someone is willing to pay for it, which can be a lot if the NFT is made by a famous artist and the buyer is a wealthy collector.

The value issue is that perceptions of what the buyer is paying for are not framed in legal terms easily. NFT marketplaces do not always accurately describe the value proposition of the goods they are selling. The the value of any NFT is speculative. Its value is determined by what someone else is willing to pay for it and that is it.

These NFTs are traded on what are online digital art markets, with records of ownership, bidding, and transfers stored on the blockchain. Blockchain is the digital ledger technology that supports cryptocurrencies, smart contracts, and other cutting-edge applications.

What has made NFTs notable is the high values that some early tokens have sold for. In March, a digital trading card of Tom Brady sold for more than $1.3-M in Ethereum. Christie’s sold an NFT of a digital painting for more than $69.3-M last month.

Unlike tokens and coins, which are fungible, NFTs cannot be exchanged for one another. They all have their own values and code that makes them unique from each other and identifiable.

NFTs have already had a major impact on the crypto space.

Soon they will have an impact on fintech, both inside and outside crypto. NFTs may become Key to the future of DeFi (decentralized finance). These are fintech projects that use cryptocurrency or the blockchain to disrupt existing financial intermediaries.

Teller Finance, the developer of an algorithmic credit risk protocol, has started using collectible NFTs to generate initial liquidity for the protocol. Holders of these Teller NFTs also gain access to some “immediate APY benefits” as well as a number of longer-term benefits that the company plans in the future.

For fintech companies that want to invest in the crypto space or launch DeFi services of their own, NFTs may provide an alternative to other crypto fundraising techniques, like coin IPOs.

Innovation abounds

Other new NFT-related DeFi projects show how fintech may evolve as the crypto space continues to grow and attract new investors in the same way that blockchain stocks and funds have emerged in response to the growing value of the crypto space, we are also seeing an emergence of NFT-related funds.

Every NFT is unique and non-fungible, and its ownership is stored on the blockchain. The blockchain is, by its nature, very hard to edit, while new entries can be added, old ones are almost impossible to change.

This means that ownership is easy to track and that crypto assets like NFTs should be even safer than traditional assets.

NFTs have an owner, but ownership is not measured with something like an ID. Instead, ownership is attached to 2 bits of code: your private and public keys, both associated with an Ethereum “wallet.” Lose control of this wallet due to a hack, and your NFTs are no longer yours!

NFTs will continue making headlines

There is a lot of money already invested in the tokens, and the market is likely to grow significantly going forward.

The rise of NFTs may have major implications for fintech. The combination of NFTs and DeFi is where the innovation for fintech will come, at least in the near term.

New DeFi services are using NFTs to generate liquidity. Some DeFi startups and community projects are offering new services based on NFT trading. As more digital assets become NFTs this could create entire new asset classes which may change the way consumers invest.

While there remain concerns around the security and environmental impact of NFTs, these tokens are on pace to increase the impact that the crypto space is having on the financial sector and fintech now and in the future.

Stay tuned…

Have a healthy, happy holiday weekend, Keep the Faith!

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