Visa is now the owner of a $150,000 CryptoPunk, or a digital avatar that’s also a nonfungible token.

An NFT is a digital asset that represents objects such as art, music, gaming items and videos. NFTs are sold online and are encoded with blockchain technology. While Visa paid $150,000 for its own CryptoPunk, it has the option to resell the avatar for a profit — if it can find a buyer.

NFTs gained attention earlier in 2021 following a series of purchases tied to celebrities. The fast growth in NFT purchases that followed in the ensuing months has attracted Visa, Mastercard and Ripple, which have made separate forays into the NFT market. Visa’s CryptoPunk purchase happened around the same time as Mastercard’s entry into the market by auctioning off an NFT and Ripple’s announcement of a $250 million fund for NFT creators.

The card brands want to create NFT-related use cases for traditional card issuers, and are also seeking ways to enable their payment rails to support an NFT market that’s expanding too fast to ignore. Ripple is seeking venues for its distributed ledger technology.

Weekly NFT sales passed $1 billion in August, according to NonFungible.com, a site that tracks NFT transactions on the Ethereum blockchain, which has supported most NFT sales to date. While that volume had slowed to about $500 million per week by early October, it’s still a sign of strong demand.

A CryptoPunk avatar, similar to the one Visa purchased for $150,000, is a type of non-fungible token. The card brand and other payment companies are working to connect payment services to this growing market.

Bloomberg

And anyone who’s willing to pay that amount of money for a digital avatar needs a way to make the payment, according to Terry Angelos, a senior vice president and head of fintech at Visa.

“There’s a desire to own digital real estate, and that purchase can be funded by a traditional card,” Angelos said.

The process of purchasing an NFT can be similar to any other payment, and can fit into a broader financial services relationship. Angelos likened NFTs to a domain name, with the ownership of the digital asset potentially having the same power as owning a web address.

By processing the payment for an NFT purchase, it’s possible for Visa or one of its issuers to appeal to a new demographic, according to Angelos. Banks and fintechs could make NFTs and use those images to forge a direct relationship with consumers, but it’s more likely the financial services industry will play a more traditional role by providing trusted mainstream payment rails to purchase NFTs and store them.

“Today, NFTs are stored in crypto wallets, but it would make sense to store them in banking apps,” Angelos said. “You need a digital wallet and access to crypto to purchase NFTs. That’s a hard thing to do.”

Mastercard, which entered the NFT market in September, is betting on the potential of NFTs to become more valuable over time. Because each NFT is unique, it can gain value from its rarity.

NFTs, like bitcoin and other cryptocurrencies, can also be given out in lieu of reward points. Wyndham Hotels recently began giving out cryptocurrency as part of its incentive marketing, and the cryptocurrency exchange Gemini offers a Mastercard rewards card.

Mastercard in September launched an auction that offers a chance to win an NFT created as part of a partnership with Jose Mourinho, a famous European football coach. The NFT is an image of Mourinho’s signature on the panel of an animated football.

It’s a model Mastercard could build upon in the future.

“It’s a way for consumers to have more value,” said Raj Dhamodharan, executive vice president of digital assets and blockchain partnerships at Mastercard. “It’s a benefit and a reward.”

The underlying blockchain (or distributed ledger) technology is also part of the appeal. Blockchain was originally designed to support cryptocurrency transactions, but also gained favor as a means to streamline transaction processing by removing the need for third-party processors, and by adding smart contracts to automatically trigger payments under certain conditions. Blockchain is also used to perform authentication and to manage fraud risk.

Visa, which is making a major push into supporting payments for cryptocurrencies, stablecoins and other digital assets, is developing new concepts and partnerships that could support NFT buyers, sellers and creators. The card brand said it would have more deployments in the coming months, but did not provide further detail.

A blockchain or distributed ledger-supported NFT purchase could create a new use case for blockchain technology, according to Mastercard’s Dhamodharan.

“NFTs are on public blockchains most of the time,” Dhamodharan said. “It’s an early stage for NFTs right now, but there will eventually be other uses.”

At Ripple, the company’s $250 million fund will provide NFT creators with financial and technical support needed to build NFTs and other tokenization products on the XRP Ledger. The XRP Ledger works with other Ripple technology to speed cross-border payments. Ripple is also testing XRP’s potential to act as a bridge between central bank digital currencies and other digital assets.

Ripple did not make an executive available for an interview, but the company’s PR office said the NFT boom has created new revenue streams and business models, but has created barriers to entry such as poor payment processing.

“While NFTs have opened the door for a tokenized future, actually navigating these concepts is a different ballgame for many,” Monica Long, a general manager at Ripple, said in a press release.

Ripple is also developing longer-term use cases for NFTs and digital tokens, such as interactive experiences and fractional ownership.

“If the NFT is something of value, it can be borrowed against or used as a way to pay someone as part of a fraction of a collective,” said Kia Mosayeri, product manager at BitGo, a San Francisco-based digital currency payment processor. BitGo is in the process of being acquired by Galaxy Holdings, a New York-based cryptocurrency and blockchain technology company.

BitGo is pursuing new uses for distributed finance, and is also considering how digital assets such as NFTs can fit into a blockchain-enabled financial services bundle.

“As people move to the digital sphere they want to have things of value in that digital sphere. So there is a market there for financial services,” Mosayeri said.

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