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Non-fungible tokens (NFTs) first blew up a while ago and like many things online, the trend has reached Malaysia’s shores too.

Globally, supporters see NFTs as the next big thing in art collection, and some of the most famous NFTs are digital artworks.

Cool, but what are NFTs?

Before we proceed, it must be said that being a relatively new concept, NFTs are still subject to much discussion, and oftentimes, they cannot be fully understood in one sitting. It will take time, research, and looking up other perspectives to form your own understanding of NFTs and their uses.

That being said, there is an easy way to begin understanding them.

Fungible items are assets that can be readily interchanged. For example, every RM10 note in your wallet has the exact same value, so it doesn’t matter which RM10 note you use to pay for your lunch. Cryptocurrency is also fungible, as one Bitcoin has the same exact value as another Bitcoin.

However, if something is non-fungible, you can’t readily interchange it with something else because it has unique properties.

So, think of NFTs as a unique digital signature that you can attach to assets. These assets can be in the form of a digital art piece, a video clip, a snippet of a song, or even a Tweet, which are then bought with cryptocurrency or through fiat money (government-issued currency like our Ringgit).

While those are digital examples, NFTs can also be used to represent physical objects like trading cards, which are popular amongst sports and comic fans.

Overall, NFTs can essentially be seen as deeds or titles that prove you have ownership over a certain asset. Supporters argue that NFTs are then more reliable than on-paper deeds because they’re stored on a blockchain.

Wait, what’s a blockchain again?

A blockchain is a digital distributed, decentralised, public ledger that exists across a network. The goal of blockchain is to allow digital information to be recorded and distributed, but not edited.

Visualise each piece of new information being compressed into a block. This block then gets attached to the end of the previous block, and all these blocks are connected via a chain. It’s how the data is recorded and kept in a way that’s traceable.

Furthermore, a blockchain allows data to be spread out among several different network nodes in different locations.

Therefore, if one copy of the data is tampered with, the other copies will show the original records to help pinpoint the node with incorrect information, and a clear and transparent order of events can be given.

This security is why blockchain technology has found its way into various industries including insurance, finance, real estate, voting, and more.

Okay, back to NFTs. What exactly gives these things value?

To put it briefly, it works like all other commodities, whereby there must be demand for it to have value.

One factor that drives an NFT’s value is scarcity. People love having bragging rights, so being able to own a one-of-a-kind NFT satisfies this feeling.

Another factor is an NFT’s utility, whether in the physical or digital world. NFTs aren’t just collectibles, as they can also be used in games or for future opportunities as part of a “club”, for example.

In games, their use is immediate, such as providing characters, power-ups, and more. Meanwhile, some NFTs can be “tickets” or “memberships” to exclusive events, benefits, etc., with one example of this use shown by the Bored Ape Yacht Club which sells merch, organises social events, and even a yacht party for members.

The provider of the object that the NFT is tethered to also matters. For example, people will be more likely to place more value on a Marvel-made NFT of an MCU character than on an NFT of that character drawn by a non-Marvel affiliated artist. It’s similar behaviour to why people prefer to buy from popular brands.

So technically, anything can be an NFT, but it may not necessarily be a valuable one that people will buy.

Tell me the pros and cons of NFTs.

As time goes on and we learn more about NFTs, it’s likely that their pros and cons will change. For now, however, these can be simplified too.

The pros:

  • For artists, NFTs can be a way to earn more income. NFT’s current popularity provides opportunity for exposure, and artists making NFTs are able to access a market beyond art dealers and other elite groups.
  • For owners, NFTs are a digital signature of ownership that cannot be overridden. Even if an artist produces two artworks that are identical in nature, both digital assets will have a special “serial number” attached to it to prove ownership of each one. Therefore, the NFT you own is still unique in its own right.

The cons:

  • For artists, the “gas fees”, which are the costs of transactions made on the platform the NFT is hosted on, can be costly. This is because the fees fluctuate based on supply and demand, and if an NFT is sold for just slightly higher or equal to the price of the gas fee, the artist may earn little or even incur losses.
  • For owners, ownership of an NFT does not mean you own the copyright of the asset. This means you can’t control its distribution or duplication.

These are just a few of the main pros and cons, with another debate surrounding NFTs being their impact on the environment. Blockchain technology in general has a high energy cost and carbon footprint due to the supercomputers needed for “minting” (turning a digital file into an asset on the blockchain) an NFT.

However, there has been recent news of a Canadian tech company claiming that it has developed a self-sustainable system whereby oil waste is turned into environmentally-friendly energy that powers crypto mining (the creation of blockchain blocks).

It’s still early days, but it just goes to show that what we know of NFTs today may very well be different by tomorrow.

How are NFTs doing in Malaysia?

Well, based on the news, pretty good, it seems. Not only do we have individual artists like Red Hong Yi, Katun, Namewee, and more, making thousands to millions of Ringgit by selling NFTs, but we’ve also seen large companies get in on the hype, like Kadokawa Gempak Starz with its NFT card pack sales.

Red Hong Yi’s “Doge to the Moon” which sold for over RM325K, and Katun’s “Garden of Bloom”, which was part of a sale totalling RM1.6 million / Image Credit: Red Hong Yi / Katun

We also have Malaysia based NFT marketplaces like Pentas and TRART to facilitate the transaction of NFTs. Safe to say, it’s a growing trend in Malaysia too, and the possibilities of its growth seem endless.

However, anyone looking to get into creating or buying NFTs should definitely carry out their own research to understand as much as possible before making an investment.

This is important to protect oneself against risks because NFTs are not yet regulated in Malaysia. Laws are slow to catch up with trends, with the US just recently announcing that it will now regulate the purchase, sale, and creation of NFTs.

Will this be the trajectory we see in Malaysia as well?

If NFTs are eventually regarded as securities (a tradable financial asset), they will come under the purview and jurisdiction of the authorities who regulate securities, such as the Securities Commission Malaysia (SC). Until then, it seems like a relatively open market.

  • Read more of what we’ve written on NFTs, blockchain, and crypto here.

Featured Image Credit: Katun / Red Hong Yi

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