At Omnium Employee Benefits we have recently been receiving increasing numbers of enquiries from clients and their employees regarding online investing, including cryptocurrencies and non-fungible tokens (NFT).

These cryptoassets appear to be here to stay, increasingly featuring at sporting venues and via social media and are clearly becoming an important issue for the ‘new generation’ of savers. But, what are they and what are the potential pitfalls of ‘virtual finance’?

Look for the word ‘fungible’ in most dictionaries and you are unlikely to find it. The meaning of ‘fungible’ is simple; it means ‘replaceable’ and, to date, has been confined to the world of economics. Quite why anyone decided to use this expression instead of 'irreplaceable asset' is unclear.

For example, if someone asks you to change a £20 note for two £10 notes or similar, this is a fungible exchange – something of a value can be exchanged for something else of the same value easily.

Thus, if something is non-fungible, this is not possible - it has unique properties so it cannot be exchanged.

A digital non-fungible token is effectively a certificate of ownership for a physical or virtual asset.

While physical assets can be protected by physical security, digital NFTs are tokens, i.e. a digital certificate of ownership that can be bought and sold. This certificate is stored on a blockchain, which is a shared ledger. They can also contain smart contracts that can give the owner a form of commission.

Earlier this year, an animated NFT of a cat (what else?) sold for more than $500,000.

Some cynics have compared NFTs to the magic beans in the fable, Jack and the Beanstalk. The obvious problem is there is no real guide as to the ‘true’ value of a NFT.

However, Chancellor Rishi Sunak, recently commissioned the Royal Mint to create a government-backed NFT. As a result of the government’s interest in virtual finance, more regulation, and, hopefully as a result, increased investor security, seems like it will be forthcoming.

The Chancellor’s announcement came at the recent Innovate Finance Global Summit, where Economic Secretary to the Treasury John Glen also put forward proposals for a raft of regulatory measures for cryptoassets.