The excitement around Cryptocurrency, especially Bitcoin, has reached an all-time high, partly owing to the latter’s surge in price in late 2020. However, the mass perception about Blockchain tech and Cryptocurrencies is on the rise overall. The numerous benefits of these digital currencies have been realized by the MNCs and banks as well. However, things do not remain static in the realm of Cryptocurrency. The new kid on the block is NFT- which denotes non-fungible tokens.
So, what is NFT?
NFT can be defined as a unique entry on a Blockchain- the much talked about decentralized digital ledger technology powering popular crypto coins like ethereum and Bitcoin. The USP of NFT is that it is non-fungible. The NFTs are unique as opposed to Bitcoins, which are indistinguishable from one another. And they are stored on Blockchain. It makes the NFTs unquestionably authentic. It also makes the NFTs piracy-proof. NFTs are developed as part of the Ethereum Blockchain. However, the NFTs store additional data, and that is what makes them different from regular ETH coins. Over time, the other blockchains can develop their versions of NFTs.
While buying an NFT, you get access to the asset and become its actual owner. These assets can comprise many things. The examples are trading cards and works of digital art. They are kept in formats like PDF, JPEG, etc. Some NFTS are actually digital documents of object ownership. Only three years back, the NFT market was worth $42 million. By the end of 2020, it became $338 million in value. This is according to the data obtained from Nonfungible.com.
The beginning and blossoming of NFTs
The journey of NFTs started somewhere in 2017. Two of the early and popular NFTs were CryptoKitties and CryptoPunks. These were basically images of fancifully drawn felines and human and animal characters in animated form. At the early stage, they were distributed free of cost. Now, the CryptoKitties may be sold for $100,000 while the price of CryptoPunks may reach over $1 million. It was the unveiling of CryptoKitties in 2017 that started the craze for the NFTs.
Why are NFTs in demand?
Obviously, there are reasons behind the soaring popularity and price of the NFTs. The buyers get a certificate of ownership for these digital objects. Over the web, copying and forging things is easy, but without a solid ownership record like an NFT, the copied product becomes useless.
Even from the seller’s perspective, the NFTs are profitable. You sell the NFTs and keep earning in the future as well. NFTs can be created in a way that the original creator gets money every time the token is sold. This can be up to 10% of the token’s sale price. This can be appealing to artists and celebs who want access to recurring revenue streams for their assets and works. Logan Paul, a YouTube star, sold NFT worth $5 million- which was just a Pokémon trainer cartoon image styled on him!
With time, more artists and celebs are waking up to the huge potential of NFTs. A London-based artist, Robert Alice, says NFTs are poised to offer the artists enormous control over their creations. He managed to sell an NFT four months ago through Christie’s, and it fetched him $131,250. NFTs can be especially useful to the social media stars and icons, which can sell their work to their fans directly. Noted actor William Shatner sold a few memorabilia from his acting career through virtual trading cards. He sold Star Trek memorabilia easily. In latest development, Jack Dorsey, the CEO of Twitter, sold a tweet as an NFT!
How prudent is it to buy NFTs and trade too?
While the curiosity around NFTs is rising and many celebs are either buying or selling them, experts advise practicing caution for mainstream investors. The reality is investing in alternative markets involves a certain amount of risk. The annualized return from the Contemporary Art market and Stocks market hovers between 7% and 10%, on average. The NFT market, on the other hand, is somewhat speculative in nature. It is possible that it will undergo wild price swings. In fact, the mainstream cryptocurrencies had to cope with similar developments earlier. Bitcoin has been making headlines for price surge since late 2020, but a year ago, it traded for approx.$10000.
The crypto industry experts admit that investment in NFTs carries a certain amount of risk now. The market is quite nascent.
What are the benefits of owning and selling NFTs?
Basically, two types of people deal with NFTs. The artists can sell products and artwork through this digital method, and they can sell things that are hard to sell otherwise. They also get a royalty of sorts each time the NFTs created by them get sold. This also makes their creations popular.
The buyers of NFTs also have reasons to get these digital assets. First of all, they can support the artists they like financially. They also get basic usage rights through NFTs. For some, it is about the bragging rights of digital art with Blockchain entry.
What are the latest developments in the NFT sector?
NFTs are quite new, and so plenty of developments are taking place. Attempts have been made to link NFTs with tangible, real-world objects. This has been done for the purpose of verification. Nike has patented an NFT based sneakers’ authenticity verification system called CryptoKicks. However, the majority of NFTs still deal with digital art. A number of NFT marketplaces have come up and the popular ones are Grimes’ choice, Rarible and OpenSea.
Where does it all lead to?
NFTs, for all the hype around them, have subjective value, and their value depends on the perception and belief of the users. Comparative analogies can be drawn with limited-edition sneakers, rare paintings, and vintage car models, etc. Unlike tangible, unique assets, NFTs can’t be stolen, lost, damaged. The early adopters include internet celebrities, technology icons, and artists seeking to cash in their assets. However, for the general users interested in crypto-investments, it is better to adopt a “wait and watch” policy.
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