According to nonfungible.com, the total USD spent on completed sales of NFT peaked in May 2021 at USD 322 million. Fuelled by hyped-up sales like NBA top shots, where you get to own key game moments like Lebron James dunking to memes like the popular Charlie bite my finger video.
The real catalyst that fuelled the boom was Mike Winkelmann aka Beeple whose NFT collage, “Everydays: The First 5000 Days” was sold via at Christie’s auction house for more than 69 million dollars. To put that in perspective, the most expensive physical art print that Beeple sold was only $100!
Another NFT craze that boggles the mind is the sale of virtual real estate. You can own plots of land that reflect a real-world location, such as the Colosseum in Rome or a make-believe digital location. A recent transaction of 66,304 virtual sq/m in Decentraland sold for more than USD 900 000!
It’s difficult to imagine what the future value of virtual real estate would be, but this could be part of being the first adopters of the metaverse. The metaverse is a convergence of virtual worlds consisting of digital spaces and experiences that make up a shared digital reality.
Think of it as a game of Sims, but with real people and a real economy. Would you prefer to hang out in the virtual world?
You must be wondering what exactly are NFTs? Is it a bubble waiting to pop? Hearing this term NFT is alien to many people.
We explain in detail below. Read on to find out!
What are NFTs? Non-fungible + Token
The simplest way to explain it would be to break down the phrase into its two distinct parts: Non-fungible & token.
What does non-fungible mean?
Fungible means that many of the same objects hold the same value. An example would be our everyday currency. A 100 dollar note fresh out of the mint, holds the same value as a crumpled and torn 100 dollars note. This 100-dollar note can be easily exchanged for 10 x ten-dollar notes.
Non-fungible is the exact opposite of fungible, which means an object is unique and one of a kind. Think of a trading card game like Pokémon. Each card has attributes such as name, skills, and element type. These unique attributes make each card different thus the value of each card differs.
What does token mean?
Tokens are a digital representation of assets.
They reside on a blockchain which is essentially a public ledger.
Multiple computers spread around the globe help to validate and maintain the blockchain. When person A wants to send 10 Bitcoin (BTC) to person B, a transaction is made. Multiple computers search the history entire ledger to ensure that both A’s and B’s wallets exist and that A’s wallet has 10 BTC to send to B. Once these are validated, the transaction can take place. Thereafter, these records are unable to be changed on the blockchain and they will be there for anyone to see.
Traditionally, we trust banks to validate and be accountable for maintaining most of these transactions.
Non-fungible token
Hence, non-fungible tokens are digital representations of unique one-of-a-kind assets that cannot be replicated.
The token itself has no value; it draws its value from the asset that it represents. An NFT can be anything that you can think of drawings, animation, music, videos even virtual in-game items!
Some notable NFTs are the 1st tweet by Jack Dorsey, 50-second video by Grimes, and uniquely generated characters – Cryptopunks
What makes NFT attractive to creators?
To artists, NFT is game-changing as the technology allows artists to monetize their work and add scarcity to easily available and copiable digital art.
When collectors are aware that an authentic version exists, they place a higher value on the authentic version. This is akin to an identical replica of an expensive watch like a Rolex. They might be the same, but the authentic Rolex is the one with greater value.
Creating NFTs provides more mediums and channels for artists to grow their community and fanbase as it also offers a way for their fans to support them.
Artists are not just limited to physical mediums of art but can now monetize any medium from videos to animations. Buying an NFT creates a connection between the artists and their supporters who appreciate the effort and creativity that goes into creating the art.
One of the unique features of NFTs is the ability for the artist to receive royalties through its token. This program enables artists to continue to collect fees on subsequent sales, thus owning a passive income from their original works. They stand to get paid if their NFT continues to exchange hands and sold.
Why are people collecting NFTs?
If you had a time machine to go back in time to purchase paintings made by Van Gogh, Andy Warhol, and other great artists, would you?
Looking back, it is easy to see who you should have supported but, if you were in that period of time, it would be extremely difficult to filter out who would become famous, among the numerous artists. However, those with vision, strong beliefs, and guts to get in early will reap the biggest rewards.
This is the same for NFT collectors, where the pioneers set the foundations of what it means to collect assets of the future.
NFTs being built on the blockchain allows fractionization of the assets. This means that instead of having one owner, many people can own a portion of a single art piece. This allows the masses to each own a small piece of their favorite work and allows collectors to diversity their art investments. In reverse, this allows crowdfunding to happen, where supports can pool together resources to support a future/ongoing work while owning a piece of it.
The process of collecting NFTs is exactly like how one would collect physical art. Putting aside monetary returns, there is no right or wrong NFT to collect. What matters is your unique taste, you get to decide the artist to support and invest in pieces that you are proud to own.
Once multiple pieces are owned, online showrooms can be created to be viewed and shared 24/7 from anywhere on the globe. With digital artwork, they can be changed from the size of a postcard to even 3 stories high, the possibilities for displaying them are endless and up to your imagination.
Are NFTs here to stay or has the bubble popped?
Certificates that signify ownership of objects such as sale deeds, stock ownership, luxury goods have been around for a long time. Blockchain and NFTs are simply the next step in the evolution of ownership, involving not just physical objects but anything you can dream of.
The NFT scene may be quiet now compared to the previous months, and many are saying that it would crash and disappear. However, we should not be worried about an NFT market crash.
Looking back at the Internet/bitcoin bubble – yes, they have experienced crashes but the internet and Bitcoin did not fade away. Instead, they bounced back up, with an increase in adoption each time. The key reason is that technology that enables the industry is always being worked on by talented developers, allowing the technology to constantly evolve and improve.
NFTs are still in their nascent stage with ongoing innovations to the technology that would surely elevate the entire NFT market. Perhaps the best thing we can do is not be a spectator but participate in this exciting new technology.
(As of Jan 2023, NFTs are now also on Bitcoin, in the form of Ordinal NFTs.)
Disclaimer:
This is not financial advice. Any action you take is solely your own responsibility. Cryptocurrencies are extremely volatile, only invest with what you can afford to lose.