NFT trend shows burst, but could have staying power

Posted 4/5/21

Imagine snagging a rare Honus Wagner baseball card. Or, adding a valuable Michael Jordan rookie card to your collection. Fast forward to 2021 - where nonfungible tokens or NFTs are creating quite a …

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NFT trend shows burst, but could have staying power

Posted

Imagine snagging a rare Honus Wagner baseball card.

Or, adding a valuable Michael Jordan rookie card to your collection.

Fast forward to 2021 — where nonfungible tokens or NFTs are creating quite a buzz in the collecting landscape of art and wealth alike.

Some NFTs — a digital item such as a image, sound file or text — have sold for millions in recent months.

Last month, digital artist Mike Winkelmann, also known as Beeple, sold his artwork at auction for $69.3 million. He sold his work — one jpeg image comprised of 5,000 different images — he started in 2007.

NFTs are a unique type of digital asset where the holder can prove absolute ownership without having to worry about the item getting lost or stolen as a tangible collectible.

The digital asset is protected by blockchain, an encrypted ledger system that makes it secure from corruption.

Dragan Boscovic, who heads blockchain research at Arizona State University, said blockchain undoubtedly proves the ownership of a digital asset and helps verify decentralized cryptocurrency purchases.

“It’s always important to prove the ID, to verify the ownership and to verify the transactions,” Mr. Boscovic said.

Mr. Boscovic, who has been at ASU since 2016, has worked at companies such as Motorola Inc. and Google LLC to help  the technology industry move from an analog model to one of digital mobility.

The ASU innovator has worked in France, China and in the United Kingdom and in Chicago. He joined Stanford University as a technology researcher in 2013.

He developed an interest for blockchain while at Stanford. A large semiconductor company needed to design a way to protect the identity of its devices. He used the existing network of Bitcoin to help with supply chain management.

Mr. Boscovic calls himself one of the pioneers in the digital realm who found new ways to advance technology such as helping create a faster wireless mobile telecommunications network.

Now, licensed NFTs are showing up on websites owned by reputable organizations such as the the NBA. The website, called nbatopshot.com, allows collectors to purchase digital trading cards - usually in the form of a highlight - for as little as $9.

Last month, NBA owner Mark Cuban launched Lazy.com, a website that allows users to display NFT galleries.

Mr. Boscovic said in the future, NFTs and blockchain likely will end up on the useful end of the spectrum rather than impractical tools.

He said it gives collectors a way to to show off their unique digital asset rather than some who say NFTs can be frivolous.

“It’s the same argument that you don’t need a Ferrari to move from (point) A to (point) B,” Mr. Boscovic said.

David McCarville, a local attorney with Phoenix law firm Fennemore Craig, also teaches about the different asset types at Arizona State. At the law firm, he helps clients with services such as estate planning and trusts.

According to its website, the group at Fennemore believe they will use blockchain every day for business transactions.
“We envision a day where many types of legal matters will be accomplished through the secure power of blockchain, including property records, court filings, transfer of funds to clients and many types of contracts,” the website said.

Mr. McCarville said NFTs simply represent another collectible.

Collectors don’t have to worry about insurance policies and damage from fire or water. The blockchain is a secure ledger to store files. If there is an attempted breach, Mr. McCarville said, it’s easy to spot.

“If someone tries to break in, the data changes,” Mr. McCarville said. “It’s immediately obvious.”

The local attorney said NFTs are creating opportunity businesses didn’t have before. For instance, it was reported the Oakland Athletics are now accepting Bitcoin for admission to its luxury suites.

Dash, a Phoenix company, helps its clients make digital cryptocurrency transactions without the involvement of a central bank.

Mr. McCarville said exposure of NFTs from Beeple helped to expand the client base of Christie’s Auctions and Private Sales.

“There were a number of bidders who weren’t previously known,” Mr. McCarville said.

Mr. Boscovic said he believes cryptocurrency is a few years away from being in the mainstream.

Ironically, he said regulations from the banking system and Federal Reserve have to take place before the method will be widely accepted.

One of the main perks of cryptocurrency is the fact that it’s not currently regulated by the federal government.

“That is coming,” said Mr. Boscovic said. “It might be a year or two away. I am a firm believer that it’s not to become mainstream before the national bank or the federal reserve adopt the digital currency.”

Mr. McCarville contends the regulations are already there, including through the Internal Revenue Service, which is looking at ways to identify cryptocurrency transactions for taxable moves.

He recommend those buyers should keep records of their purchases, as they would be subject to potential capital gains tax on the next sale. NFT sales are watched over by several federal agencies, but buyers should be aware of potential tax and regulatory issues with their purchases and sales.

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