Non-fungible tokens or NFTs have taken the financial world by storm. Essentially, an NFT is a piece of code (written on a blockchain). This code is associated with something — usually digital or collectible. It could be a photo, music, artwork, a screenshot of Facebook page or even a tweet. As this something is digital, it is easily reproducible.

Imagine somebody creating a digital art work or music or something else. It is then associated with an NFT. A dog is being bathed by a Hollywood heroine . Or this is the first Facebook posting by Zuckerberg who founded Facebook. The next step is to sell the NFT, mostly in cryptocurrency, which too is recorded on a blockchain. NFT and crypto transaction blockchains are not necessarily the same.

The NFT associated with blockchain entry is unique. It can be sold. Every time it is sold, there will be a blockchain entry of the transaction.

People are ready to pay huge sums currently for the rights of owing blockchain entries. An NFT is thus basically worth whatever people are willing to pay. Will an NFT appreciate in value? Or is it just a passing fade?

Is NFT a work of art? If it is, it differs from physical paintings of M.F. Husain. Digital art is easily reproducible. Is it a financial derivative, an option? An option has an underlying asset, say shares, with agreed valuation. An NFTs underlying is indistinguishable from any digital copy.

We are reminded of Tulip mania in the 17th century. People bought tulip bulbs in anticipation of price rise. They paid extravagant prices in anticipation and appeared foolish. They feared that a greater fool may come along and pay even a higher price. It is pure speculation.