nfts [CapiPedia]

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======Non-Fungible Token (NFT)======
A Non-Fungible Token (NFT) is a unique digital certificate of ownership, recorded on a [[blockchain]], that represents a specific asset, which can be digital or physical. Think of it as a digital deed. The "non-fungible" part is key. An item is //fungible// if it's interchangeable with another identical item. For example, one US dollar is fungible because you can swap it for any other US dollar, and you still have one dollar. An item is //non-fungible// if it is unique and cannot be replaced with another. The original Mona Lisa painting is non-fungible; you can't swap it for another and have the same thing. NFTs apply this concept of uniqueness to the digital world. Using [[blockchain]] technology, most commonly [[Ethereum]], an NFT is "minted" to create an unchangeable public record that proves who owns the original version of a digital file, like an image, video, or piece of music.
===== How Do NFTs Work? =====
Imagine you've created a piece of digital art. To sell it as an NFT, you would "mint" it on a blockchain. This process creates a new, unique entry—a token—on that blockchain's public ledger. This token contains information like a description of the art, a link to where the actual file is stored, and your digital signature.
When someone buys your NFT, the transaction is recorded on the blockchain, and ownership of that specific token is transferred to their [[digital wallet]]. The art itself isn't stored //on// the blockchain, as that would be too cumbersome; the NFT is simply the verifiable proof of ownership that points to the art. One interesting feature is the use of [[smart contracts]], which are self-executing contracts with the terms of the agreement written directly into code. A smart contract can, for instance, be programmed to automatically pay the original artist a royalty percentage every time the NFT is resold in the future.
===== The Capipedia View - NFTs and Value Investing =====
From a [[value investing]] perspective, NFTs are less of an investment and more of a pure speculation. The philosophy pioneered by figures like [[Benjamin Graham]] and championed by [[Warren Buffett]] is based on buying assets for less than their calculated [[intrinsic value]]. An investment is expected to generate [[cash flow]] or have a fundamental, underlying worth. NFTs, in their current popular form, typically do neither.
==== The Great Disconnect: Price vs. Value ====
A true investment, like a share of a company, represents ownership in a productive business that generates profits. A piece of real estate can generate rental income. These cash flows allow an investor to calculate a sensible value for the asset.
NFTs, on the other hand, have a price determined almost exclusively by what someone else is willing to pay for them. Their market is often driven by hype, celebrity endorsements, and the hope of selling it to someone else for more money later on. This is a classic example of the //Greater Fool Theory//, where the only hope for a return is finding a "greater fool" to buy the asset from you at a higher price. This is the definition of speculation, not investment. As Graham famously stated, "An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative."
==== Is There Any "Value" in an NFT? ====
While the technology is intriguing, the value proposition for most NFTs is thin and subjective.
  * **Digital Art & Collectibles:** This is the most common use case. Owning the NFT for a digital image is akin to owning a signed print of a photograph—you don't own the copyright (usually), and anyone can still view or download a copy of the image. Its value is tied entirely to social consensus and bragging rights, much like the traditional fine art market, which is notoriously fickle and opaque.
  * **Utility and Access:** Some NFT projects grant holders access to exclusive online communities, in-game items, or special events. In this case, the NFT acts more like a very expensive, tradable membership card or ticket. The "value" here is in the perceived benefit of the access, which can disappear overnight if the project's community or creators lose interest.
  * **Intellectual Property:** In theory, an NFT could represent ownership of [[intellectual property]] rights. However, the legal framework for this is still extremely undeveloped and varies wildly by jurisdiction. For now, this remains a theoretical and complex application rather than a practical reality for the average investor.
==== Risks for the Prudent Investor ====
Before considering putting any money into NFTs, be acutely aware of the risks:
  * **Extreme Volatility:** Prices can swing by hundreds or thousands of percent in days, driven by social media trends rather than fundamentals.
  * **Zero Intrinsic Value:** Most NFTs are non-productive assets. They don't generate income, so there is no floor to their value. If demand vanishes, the value can go to zero.
  * **Illiquidity:** Unlike a stock, which can be sold instantly on an exchange, selling an NFT requires finding a specific buyer. In a down market, you may not find a buyer at any price.
  * **Fraud and Security:** The space is rife with scams, "rug pulls" (where developers abandon a project and run away with investors' funds), and the technical risk of losing your assets if your digital wallet is hacked or you lose your password.
===== Our Final Word =====
While the blockchain technology that underpins NFTs is innovative, NFTs as a mainstream asset class are the Wild West of finance. They are, by almost any measure, speculative instruments, not sound investments.
For the ordinary investor, our advice is simple: treat NFTs like a trip to Las Vegas. It might be entertaining, but you should only play with money you are fully prepared—and can afford—to lose. You are not buying a piece of a business; you are buying a digital token whose value is entirely dependent on the whims of a highly speculative market. Caveat emptor—let the buyer beware.