Non-fungible tokens, or NFTs, are as popular as they’ve ever been. Digital artwork is selling for millions, and an entire cottage industry has emerged around this trend. Now, institutional investors and major corporations are getting involved.
NFTs look like they’re here to stay. And if digital art is being bought and sold on blockchains, it could have a major impact on the Ethereum network. Here’s what investors need to know about this emerging sector and the opportunities it presents.
NFT boom Before we dive in, here’s a quick refresher: NFTs are pieces of digital art that live on blockchain networks. Just like Bitcoin, these pieces of art are limited in supply and can be traded on an open exchange.
The most valuable NFT ever sold was designer Mike “Beeple” Winkelmann’s “Everydays — The First 5000 Days.” The image is a collection of 5,000 digital images Beeple has created over the course of his career. Earlier this year, it sold for a jaw-dropping US$69 million (CA$87 million) at a Christie’s auction.
Beeple’s record-breaking NFT sale captured mainstream attention. Since then, several corporations and celebrities have adopted the technology. A one-of-a-kind Cristiano Ronaldo NFT sold for US$290,000 (CA$365,000), while the World Wrestling Entertainment has developed several NFTs for its athletes.
This month, payment processor Visa (NYSE:V) got involved and bought a “CryptoPunk” (another NFT) for US$150,000 (CA$189,000.)
What’s the point? All this may sound like rich people burning cash on useless pieces of art, but there’s more to the story. Corporations and startups have recognized NFTs as a tool to build community. In other words, these are effective marketing and monetization tools.
For example, NBA Top Shots — which allowed fans to buy exclusive video highlights — generated US$700 million (CA$884 million) in revenue. Startups like Axie Infinity are using NFTs to make their online games more sticky, as users get locked into their marketplaces.
Companies have launched limited-edition artwork to gain media attention while content creators are trying to use NFTs to create membership ecosystems. The industry is collectively worth several billions of dollars and is rapidly expanding.
Does this boost Ethereum? NFTs could be the first mainstream application of the Ethereum network. No other app or tool on the network has been this popular. In fact, some NFT platforms have been so popular that they’ve congested the global Ethereum network.
As these platforms become more popular, Ether usage and fees escalate. In other words, Ethereum should become more valuable. At the moment, the digital asset is trading just 25% below its record high. The NFT momentum could push it beyond that level soon.
Investors may want to consider Purpose Ether ETF (TSX:ETHH) for exposure. Exchange-traded fund ETHH tracks the performance of Ethereum but has several advantages. You don’t need to learn how to store and manage Ether yourself, and ETFs qualify for your Tax-Free Savings Account (TFSA), so you can mitigate taxes on capital gains.
Bottom line The NFT boom could boost Ethereum’s value. Investors should consider an Ether ETF for their growth portfolio.
The post How Does the NFT Boom Benefit Ethereum? appeared first on The Motley Fool Canada.
Fool contributor Vishesh Raisinghani has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Visa.