Are NFTs Securities?
We have heard that some digital assets or NFTs are selling for millions of dollars, but are NFTs securities?
Digital art, game items, sports collectibles sold as NFTs for hundreds of thousands and even millions have hit the news lately.
People are paying a tremendous amount of money for owning the property rights of a picture, song, or a video that anyone can see and make a copy of.
That’s a copy that’s no different than the authentic original itself.
So let’s explore these new kind of asset and answer the question, “Are NFTs securities?”
What is an NFT?
Living in constant technological advancement and mass digitalization, keeping up with and understanding new evolving trends appear crucial for the way we communicate, learn and earn.
With COVID taking the world by storm for the past year, people have become even more dependent on the internet and their devices(smartphones, tablets, and computers) to socialize and make a living.
Meanwhile, a new digital asset category has been gaining speed around the corner for a few years to burst during the pandemic.
Non-fungible tokens or NFTs are a relatively new subclass of digital assets.
First introduced on the Ethereum blockchain platform in 2017, their growth and expansion were put on hold by the 2018 downfall of cryptocurrencies.
But maybe now, the right time has come for NFTs to become the next digital phenomenon.
To start understanding what this abbreviation stands for, one should first be clear on what’s a fungible token.
Cryptocurrencies like Bitcoin or Ethereum are fungible,.
This means that every token has the same value and is interchangeable with others of the same type.
You exchange one coin for another, you end up having the same thing.
Further simplified, let’s step out of the digital world into real money,.
If one borrows a ten-dollar bill– now, as long as the loan’s value is returned, the lender doesn’t care if the borrower gives back the same physical bill or another one, or even two five-dollar bills.
In contrast, NFT is a digital asset with a unique value; it can be anything in the digital world, such as game items, music, drawings, etc.
Its fundamental quality is uniqueness, much like an antique valued for its rarity.
A song, for example, is available on a particular platform to listen to and download by many users.
But the author might choose to sell the authentic original as NFT.
It would have a unique value, like an original painting by Picasso.
It might have many copies, but the original is only one, and its value is unique.
NFTs can serve different purposes to collectors, game enthusiasts, and investors.
One can buy a certain NFT hoping to speculate the market and wait to sell it later with a profit.
This would be a new kind of investment bringing great earning opportunities and many risks.
NFTs As an Alternative to Standard Investment Practices
It is common knowledge that greater risk potentially can bring greater earnings.
With the invasion of cryptocurrencies, we have witnessed many people and companies risk buying Bitcoin without really understanding its nature and the technology behind it.
The same is already happening with NFTs.
What is a Security?
Nowadays, not only financial institutions and professionals but also ordinary people take the chance to invest their money in securities.
They go into a conventional type of investment that is fungible, one share of a stock that is interchangeable for another.
Used by many companies to raise capital, there are two main types of securities.
An equity security is an asset of a company in the form of shares.
A debt security is an asset that determines loans between the lender and the borrower.
Other types combine features and characteristics of these two and are defined as hybrids.
You may read this for an in-depth explanation of securities.,
Many trading platforms offer their services as the middle man in buying and selling market shares.
In the current pandemic, millions of people are forced to stay at home without the chance to work their regular jobs.
Many join these platforms searching for income or just spending time learning something useful rather than watching movies or scrolling social media.
Are NFTs Securities? Why are they?
A comparison between NFTs and such traditional investments like securities become more and more relevant.
Understanding their similarities and differences can help people make an educated choice for profitable speculations.
Overall, the primary purpose of both types of assets is to earn, buy something, and wait for its price to rise to be sold with a profit.
Another similarity that is not so apparent is using both for gaining capital by corporations and firms.
At the same time, securities companies can sell shares.
With NFTs, they can sell digital assets’ ownership rights (for example, a game company selling avatars or virtual land to players).
This is pretty much all that’s common between these two types of investments, and indeed NFTs cannot be categorized as a subclass or some kind of a hybrid security.
Why are They Not?
The fundamental difference between NFTs and securities lies in their nature and the property of fungibility.
Compare buying company shares that are indistinguishable and bring the same monetary value against buying digital assets.
These are assets with unique attributes and relative value might be worthy beyond imagination for collectors and worthless for others.
Explained with tangible assets, a hundred-dollar bill or a kilogram of gold will both have the same value for anybody that possesses them.
However, a piece of art like a painting or an antique can only be valuable for someone with knowledge and passion about the object.
A poor, uneducated man wouldn’t know what a Stradivarius violin is worth.
What Does This Mean For You Buying NFTs?
Being an early bird and investing in NFTs might bring enormous profits to those who choose wisely and have a bit of luck,.
This is much like those who took the chance and bought Bitcoin when it emerged ten years ago.
Having broad knowledge and insight on digital artwork will surely bring an advantage to those taking the leap.
Unique Assets Appreciate in Value
Distinguishing and investing in unique assets that would increase in value and become more desirable in the future would be crucial in this new niche.
These are sites where buyers can browse and purchase countless original art pieces.
In most cases, you have to buy some cryptocurrency first and then take part in the bidding process for a specific asset.
One should proceed with caution, though, as fakes of famous artists have already been detected.
Emotional Satisfaction in Owning Unique Art
Another aspect of NFTs, beyond material benefits, is the emotional satisfaction digital art can bring.
Imagine buying the ownership of the rights(authentic original copy) of your all-time favorite song, which reminds you of the first date with your beloved person.
Or a piece of virtual land in a game space, where you’ve spent plenty of time playing with your children.
Such assets can be priceless to the one emotionally connected to them.
Money-making Opportunity for the Gaming Industry
Game enthusiasts will also benefit from this new technology, as NFT technology brings excellent potential to the gaming industry.
Millions of dollars are spent by gamers to enhance their in-game characters and acquire virtual artifacts.
Once a player gets bored with the game, all this money is lost.
NFTs are set to bring a change by letting players sell what they’ve paid for and earn real money while playing.
Games like Axie Infinity give players from third-world countries the opportunity to make a living.
They could earn the average wage in their states.
What Does This Mean For You Making NFTs?
On the other hand, if you are looking to sell NFTs, the process is pretty straightforward.
Once you have done the hard job of creating a unique and desirable piece of art or somehow acquired one, the rest is easy.
You just have to register in a marketplace and upload the file, go through a process called “minting.”
Note that you’ll usually have to answer a few questions about the asset.
After this, the bidding can start.
One of the reasons why digital artists see great potential in NFTs is the feature that can be activated upon creating, ensuring that you’ll receive a percentage on the deal every time an asset is resold.
This way, if your piece of art becomes very popular and expensive, you’ll still benefit.
We have answered the question, “Are NFTs securities?”
Are you ready to buy or sell NFTs?
At this early stage of NFTs, the only sure thing is that they’re gaining momentum, with millions of dollars in transactions.
Many specialists in the digital world claim that tokenization will soon go beyond memes, songs, videos.
Moreover, it will cover all kinds of intellectual and physical properties.
Indeed, there is a chance that NFTs can be a passing trend or a speculative balloon, but the opportunities at the moment are too attractive for one to stay away.
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