What Ethereum Investors Should Know About NFTs and These Cartoon Cats

Image to accompany article about what Ethereum investors should know about NFTs NextAdvisor/Stoner Cats

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“Stoner Cats” is a cute and funny adult cartoon about cats that get up to all kinds of misadventures. It’s voiced by big-time celebrities like Mila Kunis and Chris Rock, but you can’t find Stoner Cats on any cable network or streaming platform. 

To watch it, you have to buy one of the show’s NFTs, or non-fungible tokens, using a cryptocurrency called Ethereum. The initial run of “Stoner Cats” NFTs — collectible, unique images of cats in the digital animation style of the series — has already sold out, at .35 ETH apiece, or just over $1,000 (depending on the price of Ethereum). That’s a lot of money to watch an animated series about cats.  

“Stoner Cats” turned to NFTs as a way to crowdfund production after facing difficulty getting the show cleared through traditional Hollywood routes, says Lisa Sterbakov, production director at Orchard Farm Productions, the company behind the series. Production partner Mila Kunis had the idea to tap into the crypto-adjacent NFT phenomenon that popped up earlier this year, she says.

NFTs — which have drawn attention from mainstream companies ranging from American Express to Gucci — are most commonly built on the Ethereum blockchain. For investors betting on a long-term increase in the value of Ethereum, more people buying ether for NFTs has potential to be a very good thing.

What Are NFTs? 

First, let’s break down the term ”non-fungible.”  

Fungibility has to do with whether or not something is interchangeable. Think about cash — like a dollar bill, says Dr. Merav Ozair, a fintech professor at Rutgers Business School and a leading expert on blockchain technology. If you go to the store, the cashier is not going to care which of your dollar bills you use to pay — they are interchangeable, and therefore fungible.

Even cryptocurrency can be fungible. It’s generally not a good idea to make purchases with Bitcoin, but if you do use it to transact with a merchant, it doesn’t matter which particular portion of your Bitcoin holdings you spend.  

If something like cash is fungible, then non-fungible is simply “everything that is unique,” says Ozair. “It could be a video, a photo, something from the physical world like real estate.” 

But what about a “non-fungible token?” 

A token is a digital representation of an asset created on a blockchain. Tokenizing something means “it has a code and the code will say exactly when it was created and what features it has,” says Ozair. “And because the blockchain is transparent and traceable and trackable, everyone can see what happens to the token.” 

So a non-fungible token is a digital representation of a unique asset that exists on a blockchain, and it cannot be interchanged with another entity. Because NFTs exist digitally, you can make NFTs for digital assets like photographs, video clips, and even tweets. 

Why Are NFTs So Expensive?

When it comes to NFT prices, “Stoner Cats’” NFTs may be considered a steal: some NFTs are selling for millions of dollars. Jack Dorsey, CEO of Twitter, sold his first tweet as an NFT for $2.9 million in March, for example. But can’t anyone still go to Jack Dorsey’s Twitter account, scroll all the way to the bottom, and see that tweet for themselves?

Yes, anyone can view the tweet, but now only one person owns that tweet. To NFT collectors, it’s a distinction that matters.

“Anyone can see the Mona Lisa. You can even take a picture of the Mona Lisa, blow it up to a great quality and hang it on your wall, as an almost-exact replica,” says Ozair. “But the photo is not the original. Only the museum can say ‘This is the original one,’ and they have documentation and experts to verify that it is.” 

So you could find Jack Dorsey’s first tweet right now, take a screenshot, and save it to your desktop. And you can hang a hyper-realistic poster of the Mona Lisa on your wall. But you cannot make any ownership claims over them in the way the NFT owner or museum can. 

“The power of NFTs is authentication,” says Ozair. “You can authenticate that this one is the original one.” Just like authentication is what sets the priceless Mona Lisa original apart from a $20 poster, it can also increase the value of original digital assets to certain buyers.

What Should Investors Know About Buying NFTs?

Buying an NFT is like buying a collectors item or a piece of artwork. The NFT just verifies that whatever you purchase is authentic. 

“As a hobby, this can be fun and interesting,” says Theresa Morrison, a CFP with the Beckett Collective. “A select few NFTs will rise to the collectible status as society attaches and reaffirms the item’s value.”

And that’s the gamble: “Good luck picking ‘the one,’” she says. 

But for investors interested in Ethereum and cryptocurrency more generally, NFTs could have another effect. They’re typically created on the Ethereum blockchain — which is the second largest cryptocurrency by volume. Because NFTs are trading on the platform, and you have to buy them with ether (Ethereum’s native coin), more interest and activity in NFTs could mean more people are likely to buy into the Ethereum network — a good thing for investors, says Michael Angelucci, a CFP and financial advisor at Level Financial Advisors in Buffalo, New York.

“It’s the demand for the coin driving the price up,” Angelucci says.

People who bought a “Stoner Cats” NFT were able to use it as a key to access the show, and their limited run of NFTs made it possible to “reverse finance content,” says Maaria Bajwa, principal at SoundVentures, the venture capital and private equity firm that assisted the project. “We used NFTs as a new mechanism for both content creation and content distribution.” 

For crypto investments, experts recommend sticking with the two largest cryptocurrencies, Bitcoin and Ethereum. And this type of innovation is an example of why investing experts say Ethereum, unlike Bitcoin, has more inherent utility — which in turn spells potential for it to continue increasing in value as a foundation for more such innovation. 

If NFT technology interests you, that might be a reason to add Ethereum to your crypto portfolio, instead of buying up NFTs as a store of value.

At best, NFTs are a “very aggressive and highly concentrated position,” Morrison says. “If it wins the payoff is big, however not many people will celebrate.”

Most long-term investors will be better served by allocating only a small portion of their portfolio (less than 5%, and never at the expense of meeting other financial goals) to cryptocurrency rather than to an NFT, says Morrison. “Buy an NFT for fun, because you like it. Buy Ethereum, Bitcoin for investment.”