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In the constant search for innovations that can solicit the attention of the markets and, above all, of the impressive liquidity unable to obtain an attractive return, the NFT, Non-Fungible Tokens, have recently registered interest; a special type of “cryptographic token” that represents something unique; “non-fungible tokens” are therefore not interchangeable, but exchangeable at their specific price/value.

Although it belongs to the scope of virtual activities, this feature is the opposite to the peculiarity of cryptocurrencies and many other networks or utility tokens, which are, by their very nature, fungible and owe to this characteristic the interest they arouse. This consideration is important because it forces us to reevaluate the concept of intangible assets by broadening its context and requires a classification within it of the representativeness of what identifies the intangible underlying that justifies its virtual existence. The oxymoron now described is certainly the “son” of innovation and technological low inclination of many of us.

Overcoming this difficulty, the two fungibility solutions reproduce the full one of the currencies and the typical one of mass securities (the fractions of bond and equity issues) and the non-fungible nature of the same mass securities proposed by different issuers whose exchange is characterized by a reading of the intrinsic value.

This parallel seems useful and interesting since the unnatural conditions of traditional markets (real estate, equities and credit), the unusual structure of interest rates and the non-controllability of the factors that put the economic cycle (exogenous, sanitary and global) in crisis fuel interest in solutions completely outside (i.e. truly derailed). In view of this positive reading, there are the usual doubts about the potential “financial” bubble that could arise and the strong information misalignment that characterizes this as many other innovations recently proposed to the market. In addition, NFTs also appear to be a response to the (still partial) regulatory and institutionalization perspectives of cryptocurrencies (perhaps better framed as crypto assets).

Non-fungible tokens are used to create verifiable digital scarcity, digital ownership, and/or resource interoperability possibilities across multiple platforms. NFT are used in different specific applications that require unique digital objects such as crypto-art, digital collectables and – in a different context, left out here – online games.

As in other contexts, an interesting or now transversal innovation is the control of the resources contained in the token, which is managed by the user and not by the issuer or its parallel organization. This is the content of the peer-to-peer nature that obliges us to reconsider the role of intermediation as an expensive element and now potentially superseded in many relationships, with all the risks related, moreover, to the heavy misalignment that affects many of the potentially interested interlocutors to investment proposals. The intermediation retains its role if it offers a valuable service, not if it is only a reserve of operation, protected by the legislation and customs and generating a cost that conditions highly reducible final prices.

The area of investments related to art and in general to the creations of ingenuity, for example, was one of the first use cases for NFT, and blockchain in general, thanks to the ability of these tools to provide evidence of authenticity and ownership of digital art that, otherwise, would have faced the dreaded comparison with the potential of mass reproduction and unauthorized distribution of artistic goods through the Internet network to a population unable to assess authenticity and representation of value. Again, no disruptive news compared to the traditional certification offered on collectable goods by the best merchants and experienced experts; the innovative aspect is the increased security offered by the virtual attachment of the proof of authenticity compared to the paper existence of a separate document and, above all today, reproducible, forgeable and falsifiable.

The NFT is therefore a “container” available to hold an asset of any nature, physical or non-physical, which allows it to be protected, identified and made all this enforceable to third parties. These factors favour the determination of a value which, however, is not a certainty until the transaction between the two consenting parties is taken into account. In addition, too much cash in circulation seeks a suitable location, whatever it may be. Something, moreover, whose owner will never even touch and of which he has seen and will see only an image, and his certificate of ownership, represented by the double key of the blockchain address. It is always the same desire that the collector tries to satisfy, to possess something unique and unrepeatable.

The stage of innovation is still initial and, above all, conditioned by the current scenario. The resilience of the new offer will have to be checked when the conditions of traditional markets should return more relaxed. Furthermore, forms of regulation, protection against abuse of opportunities and correct identification of the best possible targets for the offer of these solutions will be inevitable. Anyway, if supply and demand meet themselves in the NFT platforms, it means that a market exists! Foolish or an anticipation of the future, as it happened in the past?


Async Art
Fair Warning
Nifty Gateway

Article edit by Giuseppe G. Santorsola
Full Professor of Asset Management
Corporate Finance and Corporate & Investment Banking
Parthenope University of Naples

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