'Just the beginning': The bizarre $325m NFT craze sweeping Australia

There's a new craze sweeping the world and it's quickly becoming synonymous with a new generation of investors who emerged when much of the world was stuck at home during the coronavirus pandemic.

That's right: non-fungible tokens, or better known as NFTs.

NFTs (pronounced "nifty") offer a way to buy, sell and track pieces of digital artwork online.

The technology essentially offers collectors proof that they "own" a digital artwork by logging that ownership on the blockchain, a decentralised online database that underpins cryptocurrencies such as Bitcoin.

For creators it's an opportunity to monetise digital art of all kinds and automatically take a designated percentage of any future sales when it trades hands.

For collectors the technology provides bragging rights to ultimate ownership, even if the work can be endlessly copied.

And for some, it's closer to a get-rich-quick scheme as traders seek to get in on the ground level before selling to the next highest bidder.

NFT sales at 'a whole new level'

“Not many people know but NFTs have actually been around for a while in the crypto space,” says Lachlan Feeney, founder and CEO of Queensland-based blockchain solutions provider, Labrys.

He points to the 'CryptoKitties' craze in 2017 when people massively bid up the price of virtual cats users would collect, breed and sell as perhaps the first popular iteration of NFTs.

“They were selling for hundreds of thousands of dollars," he told Yahoo Finance Australia.

But as the technology has improved and gone increasingly mainstream, "things have taken themselves to a whole new level in the past few months.

“We’re now seeing artworks going for tens of millions of dollars," he said.

“We’re starting to see the mainstream adoption of the technology which is actually really exciting for us."

Valuations are hard to pin down, but the blockchain-backed NFT market was said to be worth more than $325m in a February report – a number surely on the rise.

Last week, a digital artwork (seen here on Instagram) sold for $89 million while in February a 10-second clip (readily available for free online) made headlines when it was sold for $8.5 million.

NBA TopShots take NFTs mainstream

While markets for virtual artworks and video clips are popping up all over the place, one of the most popular forms of NFTs is backed by the NBA, known as TopShot moments. It involves the trading of short clips – or GIFs – of players like a modern day version of a basketball card.

Canberra man Joel Richardson, 36, purchased his first TopShot along with a group of mates earlier this month after hearing about it from friends.

"Being backed by the NBA and the players association, it gets me and the guys I invested with interested," he told Yahoo Finance Australia.

After signing up and making an initial small purchase, buyers wait in a queue online in an attempt to buy packs with the promise of getting their hands on a rare and more valuable item.

The group paid about $260 for a pack "which we opened together on a Zoom call," Mr Richardson said.

"The first five moments were pretty disappointing and then we got a Michael Porter Junior moment ... and we were pretty excited about that because what that is worth now is a lot more than what we paid for the seven moments."

That one TopShot moment, he estimates, is currently worth more than $2,000 (although some users have complained about lengthy delays when it comes to cashing out).

While exclusivity and a sense of scarcity play a role, it's the sense of ownership that drives the perception of value for Mr Richardson, despite not initially being sold on the idea of digital artwork.

"I had no idea about the concept beforehand," he said. "I think that's a cool concept that you can own a moment in the NBA and you can invest in it, trade it, and see the selling history – where it's come from, how much was paid for it," he said.

Either way, he and his buddies aren't selling just yet.

"We think this is just the start. We think the possibilities of what they're going to be worth down the track is more than what they're going to be worth now."

Potential applications likened to early days of the internet

Among the leading proponents of the technology is Billionaire NBA team owner and entrepreneur Mark Cuban who thinks all forms of art, including songs and podcasts, will soon be distributed and sold on the tech that underpins NFTs.

"You’ll mint them and you’ll put them on the blockchain and you’ll make them available to anybody either for free or to buy them depending on how they want to use it ... And people will use some sort of token in order to buy that," he told the Jolly Swagman podcast last month.

"All the things we’re talking about from the early days of the internet, I’m seeing the exact same things happening with blockchain and all the different applications built around blockchain."

For Australians working in the space like Mr Feeney, the opportunities seem endless. His company is working on a new project to build an NFT-style platform for screenwriters to make it easier for them to share and get paid for the TV and movie scripts they produce.

“The idea is that at the moment if you're a scriptwriter it’s a difficult place to be. You spend all this time and if it eventually gets picked up you can hardly get a fraction of what the movie generates sometimes," he said.

"What we're helping to work on is an NFT platform where you can basically mint movie scripts and people will be able to buy them up."

Theoretically, if one makes it to Hollywood, it could mean big bucks for the original creator.

Elon Musk touts NFT song

Like cryptocurrencies, the transparency and decentralised nature of the technology is the key to its success.

“With the NFTs everyone can see the source code behind it, everyone can see who the payments are going to,” Mr Feeney said.

While that makes it harder to perpetrate fraud, there are bad actors in the emerging NFT markets. However Mr Feeney says the community is usually pretty good at drawing attention to them.

Tech titans are getting involved with Twitter CEO Jack Dorsey selling his first ever tweet as an NFT for a few million dollars while Tesla CEO Elon Musk claimed to be selling a song about NFTs as an NFT. If that sounds crazy, it's because it absolutely is.

Buyer beware.

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