This article first appeared in The Edge Malaysia Weekly on January 17, 2022 - January 23, 2022

NON-fungible tokens (NFTs) have become one of the most popular segments on the blockchain ecosystem. Prominent consumer names such as Nike, Adidas and Pepsi have climbed aboard the NFT hype train, as well as celebrities and personalities who use the platform to promote their collections.

NFTs are tokens that can be used to represent ownership of items, which is recorded on a blockchain. They are currently mostly used to represent digital art, music and other memorabilia, allowing holders to trade these tokens on a market. These NFTs are supposedly valued based on the reputability of the artist, although there are concerns over rife market manipulation and money laundering using these assets.

The hype around NFTs took off last year, with market tracker DappRadar’s data showing that NFT sales hit US$24.9 billion (RM104.4 billion) that year, a jump of 262 times from US$94.9 million recorded in 2020.

Even local graffiti artist Katun has turned to this platform to sell two of his digital artworks for about RM1.6 million within 24 hours. Contemporary artist Red Hong Yi also sold her “Doge to The Moon” NFT in an online auction for RM325,000.

Recently, Malaysia-born, Taiwan-based singer and rapper Namewee pocketed RM3.5 million from the release of his songs in NFT form, which were sold out in three hours. Even Muar member of parliament Syed Saddiq Syed Abdul Rahman has unveiled a collection of NFTs in collaboration with NFT4HOPE, in a bid to raise funds for flood victims.

Incorporated in April 2021, Pentas is an NFT marketplace set up by a group of Malaysians. It went on mainnet staging on Aug 21 the same year. Up until the first week of 2022, close to RM5 million worth of digital assets were transacted on the platform.

Mohamed DW, the co-founder of Pentas, says the NFT market has seen a huge leap compared with 2020.

“Since inception, we have recorded more than 70,000 unique visitors with more than two million page views. On average, 400 to 450 digital assets are minted daily on Pentas,” he tells The Edge, noting that at least 600 visitors are recorded every half an hour.

Despite being a Malaysian platform, he shares that Pentas also attracts global users, who account for 30% of its total traffic, with those in the US being the highest. He believes NFTs are not just restricted to digital art or creation, but both the blockchain and NFT ecosystem are much bigger than that.

“This is only the beginning of what we term ‘revolutionary’. Pentas is focused on creating value and we aspire to be the top branding for NFT and blockchain solutions in Southeast Asia and Asia-Pacific. So, even if the hype of ‘digital art’ slows down, it will not stop us from expanding.”

Nonetheless, there have been accusations of price manipulation in NFT trading, whereby two parties trade with each other to inflate the NFT value, or create the illusion that it is liquid.

Luno Malaysia country manager Aaron Tang advises investors to assess their risk tolerance as NFTs are still relatively new.

“Understanding the technology behind them, the blockchain, and how this aspect of the cryptocurrency world works is essential.”

He says it is too early to gauge if the popularity of NFTs will continue in the future as it will be dependent on their future usage.

“With the many benefits that NFTs provide, we believe they can make a positive impact on modern finance.”

Having said that, a critical factor to consider is liquidity, or how quickly one can convert their NFTs into cash, according to Tang.

“Established digital assets such as Bitcoin and Ethereum are highly liquid, while NFTs are unique by design and hence much less liquid. For example, it is much easier to convert Bitcoin than an NFT into ringgit, as the latter might appeal to only a small number of people.”

In addition, price volatility is also seen as a barrier to NFT investments. Despite stories of investors making huge and quick returns on NFTs, many have suffered losses because of low demand and prices after investing in NFT projects looking for quick profits.

“By better understanding cryptocurrencies and blockchain technology, you will have the necessary knowledge to decide whether NFTs are worthwhile investment opportunities,” he adds.

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