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What is NFT? A Guide to NFT Investments

Nov 24, 2021

What is NFT?

NFT stands for ‘Non-Fungible Token’.

This BBC article defines NFT as:

“one-of-a-kind” assets in the digital world that can be bought and sold like any other piece of property, but which have no tangible form of their own. 

The NFT effectively is a certificate of ownership of the original piece of work. It is then this digital certificate of ownership which can be bought and sold.

This Forbes article offers a more simplified description of NFTS

‘Essentially, NFTs are like physical collector’s items, only digital.’

What can be NFT?

 If we think of the description of NFT as a digital asset, then really anything created digitally can be NFT

  • Art
  • GIFS
  • Videos
  • Music
  • Photography
  • Memes
  • Tweets

It is widely reported that Jack Dorsey the founder of Twitter sold his first Tweet as NFT for $2.9million

Where can you buy NFT?

If you want to invest in NFT then you will typically need to head to a NFT marketplace. Which marketplace you use will likely be determined by the NFT you want to buy. Be sure to do your research and ensure the one you choose is legitimate and that you read any associated terms and conditions linked to your purchase.

You can also buy NFTs as in game purchase in video games.

Or, if you have a lot of spare cash you could head to an auction house – Christies auction House sold Everydays: the First 5000 days by digital artist Beeple with a unique NFT for over $69million.

Why are NFTs different to cryptocurrencies?

Like cryptocurrencies such as Bitcoin, a record of who owns which NFTs is stored on the blockchain.

But there are differences. Cryptocurrency such as Bitcoin is ‘Fungible’ in that they can be traded or exchanged for one another because each will have the same value.

NFT’s on the other hand are ‘non fungible’ in that they cannot be exchanged or be equal to another NFT because each NFT is unique.

Protecting your NFT investment

If you invest in an NFT then you will want to be sure that your investment is protected.

If you owned a piece of physical fine art for example then you would have the necessary high net worth insurance in place to protect the art against theft, damage, fire and other perils. But can you do the same with an NFT?

We don’t currently believe that there is an insurance product in the UK which will provide cover for NFTs. There may be some limited cover available for digital assets but only for fungible assets such as Bitcoin. This may be because the concept of an NFT is still relatively new and the new risks that they present.

But one thing is for sure, as those with money to invest look to new technologies, as what is deemed a valuable asset changes and the demographic of those investing changes, the insurance industry will need to adapt to provide the security and protection that is required.  The insurance industry will need to follow and adapt to customer needs. At Anthony Jones, we stay in constant contact with insurers that we work with and continue to press hard for insurance solutions which meet customer needs.

In the meantime, in the absence of designated insurance coverage, if you invest in NFTs you will need to be aware of possible vulnerabilities linked to your asset, recognise your personal cyber risk, understand that cyber security will become a necessity and take best steps to minimise your cyber risk.

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