NFT: Illusion or reality? | Investment Network

NFT: Illusion or reality? | Investment Network

Numismatics is the “field of knowledge” that studies metal coins, medals, and banknotes (paper money). I believe that some knowledge in this area aside from economics has made me reflect on the concept of fungibility. In formal terms, “movable property that can be replaced by other of the same kind, quality and quantity is fungible” [i].

So irreplaceable (or non-fungible) goods are the opposite, i.e. they are not easily replaceable or unique, such as art, rare items, breeding horses, etc.

In this way, money (or money) is considered a preeminent fungible asset. In other words, if you go to a bakery and trade a hundred-dollar bill for two fifty-dollar bills, you still have the same money as the bakery owner, right?

unnecessary. If you exchange 100 reais at the bakery for two $50 bills from the First Royal Family ( layout previous notes), without the words “Praise God”, you could “lose” a lot of money on the transaction. In fact, for example, the one-hundred reais banknotes of the First Family signed by former finance minister Rubens Ricupero, if they are in excellent condition.

This simple example shows us that the idea of ​​fungibility is not as simple as it seems. In fact, non-fungible assets are those assets that are considered unique, or cannot be easily replaced by other assets of the same type. Going back to the previous example, we can consider a 100 reais note without the words “God Be Praise” and signed by Ricupero to be a non-fungible asset because it cannot be easily replaced. On the other hand, money is considered a fungible asset for the vast majority of people, especially those not interested in numismatics. At this point, we have observed that the way people value non-fungible assets can vary widely.

The debate over the formation of “unique” (or non-fungible) asset prices is not new. A striking example is an iconic scene in the film Wall Street (1986), in which Gordon Gecko (played by actor Michael Douglas) gives a brief speech in front of a painting by Joan Miro (“payment method”), which I present here as a free translation: “Look at this painting…I bought it ten years ago for $60,000. I could sell it today for $600,000. Illusion becomes reality. The more real it becomes, the more real it becomes. They desperately want it.Capitalism in its purest form [ii].

Non-fungible assets have been hotly debated in the media recently, mainly due to their electronic versions, NFTs (non-fungible token, or non-fungible tokens). However, in order to better understand NFTs, we still need to clearly understand”Token“.

the word”token” is widely used in English and can have many meanings:

a) In general, “something that one person gives to another to express their feelings or intentions [iii]”, such as a talisman or talisman;

b) In the calculation, “security token“: a device (usually a hardware or cryptographic program) used to authenticate the operation;

c) Economics”Token“: Similar to chips and phone chips used in casinos, or “coin”: A currency with specific and limited circulation (e.g. community coins).

In the case of NFTs, the concept of a token is associated with an (electronic) element that represents ownership of something.Therefore, an NFT or non-fungible token can be defined as an electronic data unit, stored in a blockchaincan be bought and sold [iv].

If the debate over price formation for non-fungible assets in physical form (such as art) has brought a high degree of complexity and subjectivity, then when we add the technical element (via blockchain) adds complexity and uncertainty.

NFTs use technology to digitally protect electronically registered property rights blockchainusually also electronic assets (such as digital artwork).

Generally speaking, the first NFT to be generated is considered to be Quantum created by Kevin McCoy and Anil in May 2014. [v]. One of the most famous NFTs and sold at a pretty high price is the first tweet Posted by Twitter founder Jack Dorsey, who turned a five-word picture (the first tweet) into a digital file, recorded in blockchaincreated an NFT that sold for $2.9 million.

what does that mean?

It doesn’t make much sense to me. It just means two people come to an agreement that the seller thinks it is worthwhile to sell the asset at that price (Dorsey) and the buyer thinks it would be fun to buy at that price. This is actually a matter of opinion. Everyone has their own opinion.

I think one of the points of confusion is the relationship between value and price. In a previous article published by Investing.com (), I discussed the possibility of an asset’s price being far removed from its “value.”

In the case of a highly liquid market such as stocks, many economic agents are involved in negotiating and evaluating assets, which leads us to believe that prices often have important economic significance in such situations. Nonetheless, we have observed high volatility in share prices, which in my view suggests that it is difficult to come to a consensus on what a company is really worth.

In illiquid markets, the situation is much more serious. Prices tend to be more volatile and trades are rarely made. Therefore, a single transaction that occurs at a specific price does not make much economic sense.

However, due to the magnifying power of social networks, a single transaction, especially if it is carried out by a celebrity (many may remember the NFT acquired by the player Neymar) tends to attract considerable attention and take the debate to a different corner. world.In addition to this, there is an aura of mystery and technology associated with NFTs, and blockchain.

In fact, great interest and large sums of money in investments related to technological innovation are common in economic history. What’s the point of investing in a company that makes syrup when I can invest in a company developing technology that can change the world?

For inexperienced investors, however, this is a dangerous path. As long as investors have a solid understanding of the subject, they can invest their money in advanced technology areas and areas with new concepts. “Investing has to be rational; if you can’t understand it, don’t do it”.This famous quote comes from the famous investor Warren Buffett [vi].

If you are interested in NFTs and investing in new concepts and technologies, invest in knowledge, learning, and information before investing so you don’t risk buying “the cat is poking” and believing that the illusion has become a reality .

*Guilherme Ricardo dos Santos Souza e Silva Economist, PhD in Economic Development and Professor at the Federal University of Paraná.
Instagram: guilherme.economista
Email: gui.ric@outlook.com

[i] Brazilian Civil Code, Article 85, 2002.
[ii] Wall Street: Power and Greed. 1986 film directed by Oliver Stone (NASDAQ: ).
[iii] Cambridge Dictionary: “Tokens”. https://dictionary.cambridge.org/
[iv] Free translation based on: Wilson, Kathleen Bridget; Kager, Adam; Hardy Gardry (Oct 2021). “Finding Non-Fungible Tokens in the Digital Economy: Stakeholders and Ecosystems, Risks and Opportunities”. business vision.
[v] Sarah Cascone (May 7, 2021). “Sotheby’s is selling its first-ever NFT – $100 bid”. Artnet News.
[vi] Lowe, Janet. Warren Buffett: Lessons from the Greatest Investor. Rio de Janeiro: Elsevier, 2008.

Leave a Comment

Your email address will not be published.