

First, you’re an investor who learns there’s a market for something called unique digital assets, and you hear returns can be big.
Next, you spend $14 on a few short video clips captured as digital collector’s items from NBA Top Shot, a seller of these digital collectibles.
Less than two weeks later, you sell those five digital moments, including a 3-point shot by Los Angeles Lakers superstar LeBron James, for a cool $2,404. You’re up $2,390.
This isn’t a hypothetical. An investor, who trades under the screen name SIO, spoke to Arkansas Business about the seemingly fanciful but bottom-line lucrative trading of nonfungible tokens, or NFTs. He asked that his real name be kept confidential because he works in the financial industry in Arkansas and company rules restrict him from commenting on money matters.
That kind of profit reflects the lure of NFTs, unique digital snippets that have been compared to original works of art. Of course, as in any market, prices fall as well as rise.
“We know that an original painting is a unique object that will be worth different things to different people, depending on the sentiment that it provokes,” said Noelle Acheson, managing director of research for CoinDesk of New York, a publication about digital currencies that has been around since 2013. CoinDesk has been covering NFTs aggressively.
“NFT is like art in that respect,” Acheson said. “It’s a one-off … and the programmability of the technology of blockchain enables creators to program its uniqueness.”
Blockchain, a digital ledger of transactions, records NFTs and all other transactions with an immutable cryptographic signature. That makes the digital assets impossible to copy, experts say. Anything digital, from art to music to videos, can be captured as an NFT, and sales have been soaring.
In March, the auction house Christie’s sold a digital collage called “Everydays: The First 5000 Days” for $69.3 million, a record for an NFT.
“We can safely say that the first Quarter of 2021 has nothing to do with anything we’ve witnessed so far in the NFT industry,” said a first-quarter report from NonFungible Corp. of Concession, Nova Scotia, Canada.
The first quarter saw more than $2 billion traded in NFTs, “more than 20 times the volume traded over the previous three months, or 131 times the volume of the first Quarter of 2020,” the report said. “Interestingly, the volume of active buyers, sellers and wallets has also increased, but less dramatically.”
Not everyone is rushing to invest in NFTs, however.
Duncan Baird, the executive director of the Arkansas Public Employees Retirement System, said the system is not considering putting money into NFTs. “We are invested in traditional asset classes, so stocks, bonds, real estate,” he said.
But he said that APERS keeps an eye on changes in the investment world. NFTs are “something that’s not on our radar, at this point, I guess it’s safe to say,” he said.
Still, while collecting and investing in NFTs are in the early stages, the NFTs are expected to become more common.
“We are so used to having things that are digital, it doesn’t surprise me that it is just gradually becoming a thing that people are more and more comfortable with,” said Carol Goforth, the Clayton N. Little Professor of Law at the University of Arkansas School of Law in Fayetteville. She has taught about the regulation of cryptocurrency.
Goforth said she was surprised by recent NFT trading activity and the amount some people will pay. But she said she’s also surprised by the trading activity in baseball cards, rare stamps and some modern art. “I just don’t get it,” Goforth said.
Beyond the Physical World
One of the benefits of owning a piece of digital art is it can be programmed to do more than just hang on a wall, “which opens up some fascinating use cases that have not been possible in the physical world,” said Acheson, of CoinDesk.
For example, the virtual art piece called the “Replicator” by Mad Dog Jones is a digital image of a photocopier in a downtown Los Angeles office building.
The virtual photocopier is programmed to make copies and the copies can then be sold, Acheson said. “So you’re earning a return on your original investments,” she said. “But here’s the fun thing: Every now and then it jams and just stops making copies.”
Last month, the auction house Phillips of New York sold “Replicator” for $4.1 million.
Acheson said professional investors are putting their money into NFTs, just as they would in the art market. “I’m going to buy this $69 million piece of art because I think I can sell it in 10 years for 10 times that,” she said.
Investors Losing Money
Acheson said she’s concerned that some people will lose money on NFT collectables because of the early hype.
“Let’s hope that people understand some of the risks,” she said. “If not, better education is needed.”
SIO, the Little Rock investor, said he expects that there will always be a market for the most collectable NBA Top Shot moments, but the value for some items will fall. Superstars such as LeBron James and the Golden State Warriors’ Steph Curry will always have value, he said. “The ‘filler’ moments will almost certainly trend down, but that is just supply and demand,” he said. “Remember, most trading cards back in the day ended up in the trash can. It will be no different with these, in my opinion.”
Bryan Routledge, associate professor of finance at Tepper School of Business at Carnegie Mellon University in Pittsburgh, said he’s concerned about whether the digital file format the art is on will be compatible with computer equipment in 10 years.
But he thinks there will still be a market for NFTs. NFTs “seem to have some legs in the sense that there are lots of various other platforms out there that are vying for attention,” he said.
Nevertheless, Goforth, the law professor, said she’s worried that someone who is buying the virtual art doesn’t understand what they’re getting and what they can do with the art.
She said she isn’t sure that buyers will read the disclaimers about what it is they’re buying.
Buyers might think they have access to the asset, but then the creator of the item takes down the website it’s on. “And there goes the asset that I just paid however much for,” Goforth said.
Or the virtual item might not be unique, and other people might have the same thing, but there might be one digit off in the computer code for it.
“It’s a lot like getting a print rather than the original as an art painting,” Goforth said. “And the buyer might not understand that when it’s all digital.”