Non-fungible tokens (NFTs) are a hot topic right now. These crypto assets are essentially certificates of ownership, and they make it possible to buy and sell virtually any digital asset.
For instance, Twitter CEO Jack Dorsey recently sold his first tweet for $2.9 million, donating the proceeds to charity. The digital artist known as Beeple sold a collage of 5,000 futuristic images for $69 million. And Mark Cuban, owner of the Dallas Mavericks NBA team, recently said he might turn game tickets into NFTs. Even the girl from the internet-famous photograph who’s smirking while a building burns in the background — Zoë Roth, aka “Disaster Girl” — recently sold her viral meme as an NFT for $500,000.
Given their rising popularity, many investors are probably wondering: Is it possible to invest in NFTs? Marketplaces like OpenSea and Rarible sell them directly, but there are also indirect ways to invest in the trend. For instance, Cloudflare (NYSE:NET) recently launched support for NFTs. Here’s what investors should know.
Certificates of ownership
You’ve heard of Bitcoin, the first widely adopted cryptocurrency. But old-school forms of money are represented digitally, too. For example, USD Coin represents the U.S. dollar, and China recently launched the digital yuan. These currencies are fungible assets. Put another way, one bitcoin is interchangeable with any other bitcoin.
But non-fungible assets — items that aren’t easily interchangeable, like paintings, songs, or even tweets and NBA tickets — can be represented as digital tokens, too.
Unlike paper-based records, NFTs rely on blockchain technology. More specifically, they require blockchain protocols that support smart contracts (i.e. computer code that executes automatically). That’s why Ethereum is often used to “mint” NFTs.
If you’re unfamiliar with blockchain, the concept is straightforward: It’s a secure record-keeping system that powers crypto asset transactions. That means once a valid NFT is created, blockchain virtually eliminates the possibility of fraud and theft. And because NFTs rely on smart contracts, once a transaction occurs, the change in ownership is reflected automatically.
But NFTs also have other benefits. For instance, they allow artists to sell types of art that weren’t easy to sell before. Imagine trying to sell a Tweet, a GIF, or a meme. How would you verify that the seller actually owned the asset? You couldn’t, at least not in a timely manner. NFTs solve that problem.
Cloudflare is a cloud services provider. The company’s global network makes the internet faster, more reliable, and more secure for clients. For example, Cloudflare Stream accelerates the delivery of streaming video, creating a high-quality viewing experience for users like you and me. It also reduces hardware expenses for clients, since video content is stored in and delivered from Cloudflare’s data centers.
The company recently launched a service that allows creators to embed NFTs into their videos on Cloudflare Stream. This means that content owners can efficiently distribute their videos through the internet, while also asserting their ownership.
Notably, Stream does not create NFTs. That happens on platforms like OpenSea and Rarible, and then Cloudflare Stream allows the creator to tie that token to a video. Once done, the video displays a link to the NFT and contract.
That’s a big deal — this makes it possible to transfer ownership or sell the video. And because NFTs are built on Ethereum (or another blockchain that supports smart contracts), the creator can add computer code (even if they don’t know how to code) to ensure they receive royalty payments each time the video is resold.
That’s one reason Cuban wants to turn Dallas Mavericks tickets into NFTs. If they are resold, his team will still get a cut of the proceeds. In other words, NFTs allow creators to monetize assets in perpetuity. That’s an attractive value proposition for artists, and Cloudflare is supporting the movement.
A final word for investors
The ability to tie an NFT to a video is just one feature offered by Cloudflare Stream, and Stream is just one service offered by Cloudflare. This is by no means a significant contributor to revenue.
However, the company’s support of the NFT movement could bring new customers to its platform, and on a higher level, it signifies that Cloudflare can keep pace with relevant trends. So if you’re going to invest in Cloudflare, do it because you like the company as a whole, not just because it supports NFTs.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.