Whizz kid: 13-year-old high schooler builds NFT portfolio worth $219,600
Bala Sharma is like many 13-year-olds. He likes reading, cricket and hanging out with his mates.
But unlike most kids his age, Sharma has an investment portfolio of NFTs, or non-fungible tokens, worth about $219,600.
NFTs are a type of computer code used to prove ownership of a digital item such as pictures, videos, or audio files.
Something non-fungible is unique and irreplaceable, like a signed album or an original artwork.
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While on the internet theft is rife, NFTs have proof of ownership built into the code that makes them appear on a screen.
Sharma has a collection of 15 NFTs worth a combined total of 36 ethereum, a type of cryptocurrency where a single coin is valued at $6100. Which makes Sharma’s overall investment worth about $219,600.
Most of Sharma’s NFTs are crude drawings of cartoon dolphins and beetles.
Sharma, a year nine student at Auckland Grammar, initially invested $6000 he borrowed from his older brother Roney and his father Sandeep Sharma, an Uber driver.
He has already cashed out $10,000 of ethereum.
Sharma is not alone in riding the wave of hype surrounding NFTs.
In March, Christie’s auction house sold an NFT for $95.7m. In the same month the musician Grimes sold a collection of NFTs for $8m in 20 minutes.
The buyers of NFTs do not actually have anything physical to show for their money.
They have bought only a line of computer code that proves they own a digital piece of art.
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Two examples of NFTs of the type owned by Sharma. Each one of these ‘determined dolphin’ drawings are worth $150,000.
There is nothing stopping anyone searching for the art, copying the image, and taking it for themselves. But because a copy does not include the unique code it has no value.
Even Anil Dash, one of the creators of NFTs, questioned the logic behind the popularity, “If you liked an [NFT] artwork, would you pay more for it just because someone included its name in a spreadsheet? I probably wouldn’t,” he said in April.
Darcy Ungaro, financial adviser and cryptocurrency expert, says people assume NFTs are the same thing as bitcoin, but they are much more speculative.
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Darcy Ungaro says that he thinks a major market correction is heading for the NFT space that could leave many investors badly burned.
“We aren’t dealing with a currency here like bitcoin, this is not homogeneous. Because of that you can’t say that NFTs are in a bull run. You can say that some of them are, but I think there is going to be a correction when the hype falls away very soon,” Ungaro says.
Because NFT prices are hugely inflated when that correction comes some people will get badly burned, Ungaro says.
“There are going to be a lot of people that get fully wrecked by this. We are seeing people getting in too late, and they are spending huge amounts of money on the most popular NFTs after a massive pump. We saw the same thing in 2017 with bitcoin,” he says.
But unlike bitcoin, which has been designed to be a liquid digital currency, the non-fungible nature of NFTs means there could be absolutely no market for them when the price drops, he says.
“If you get left holding something that is already at its peak, there is not just a possibility that you will lose a little bit of money, there is a high possibility that you will lose all of it.”
Charles Ninow, head of art at Webb’s auction house, says NFTs are on his radar.
Peter Meecham
Charles Ninow, head of art at Webb’s auction house said while the prices of NFTs are currently grabbing headlines almost 99 per cent of them are worth next to nothing.
“The price we are seeing for NFTs is phenomenal and has definitely made a lot of people turn around and take notice. But for me it goes deeper than that. I find them a reflection of our times. They are telling of where culture is now and where it is going,” Ninow says.
But beneath the excitement, Ninow says that 99 per cent of NFTs are inherently worthless.
“It is a very, very risky space. If you invest in NFTs, unless you are investing in a blue chip, there is a 99 per cent chance you will lose your money. There are thousands of these things being created every second of every day. Some of them will become iconic, some of them will not,” Ninow says.
Alex Sims, associate law professor at Auckland University specialising in blockchain technologies says the use of NFT technology goes beyond the world of art.
Sims points to global ports stopping thieves by using NFTs to prove ownership of shipping containers, and the Australian wine company Penfold’s selling NFTs to customers that can be traded for wine at a later date.
Chris Skelton/Stuff
University of Auckland associate professor of commercial law Alex Sims says even if there is a market crack in the price of NFTs the broader applications of the technology is here to stay.
“The technology is extremely multipurpose. But using it within the world of art, is highly, highly speculative. I think a lot of people will get their little fingers burnt,” Sims says.
But for the artists who are creating NFTs, the technology is a breakthrough way for them to secure payment. There is the ability to build a ‘smart contract’ into the NFT that means every time the item is bought or sold the artist is able to receive commission, she says.
Because of these broader applications, even if a market correction brings prices crashing down, the technology is here to stay, Sims says.
“It’s not going away any time soon. It is allowing creators to do things they have never done before. They are creating 3-D, multi-layered things that are completely unlike anything we have ever seen. And at last the people who are making these things are able to get paid some money,” Sims says.