Why are digital doodles, memes, gifs, and toilet paper being sold like priceless works by Van Gogh or Monet for millions of dollars?
Just as we used to collect cabbage patch dolls or pokemon cards in the past, we can now dive into the market of non-fungible tokens (NFTs) online. The new and seemingly magical world that blockchain has brought us allows buyers to expand their digital wallet with a certificate of authenticity for a digital asset.
What is an NFT?
NFTs are a tokenized version of assets (such as a tweet, art, music, etc.) that can be traded on blockchain, a public digital ledger technology behind cryptocurrencies, (such as Ethereum, Bitcoin, and Dogecoin). These digital assets become an NFT when those who want to sell their work register to the marketplace and emboss digital tokens by uploading and validating their information to the blockchain. They then list their pieces for auction on NFT marketplaces similar to eBay. Each NFT has a unique code as proof of ownership when purchased.
Now that you have the general idea of what an NFT is, you may have more questions than answers. Don’t worry, we’ve got you covered.
What is the Difference Between Cryptocurrency and NFTs?
You may notice that those investing in cryptocurrency have most likely also taken an interest in NFTs. Although they are built using similar programming and seem to attract the same audience, NFTs and cryptocurrency are not the same.
The biggest difference is their level of fungibility. Cryptocurrency, as well as the paper dollar, are fungible. This means one Bitcoin can be exchanged for another Bitcoin just as the dollar bill can be exchanged for another.
Unlike cryptocurrency, an NFT cannot be traded and resold into the market. The underlying asset is unique with a digital signature so each NFT is different and therefore cannot be exchanged with another for some set value. Instead, NFTs are often viewed more like an investment in art that hopefully accrues value over time.
It is worth noting that although Ethereum is a popular cryptocurrency, it is also a type of blockchain technology. The cryptocurrency trades their coins which use their blockchain technology, however, you cannot purchase the blockchain itself. Ethereum’s blockchain supports NFTs that store additional information, making the technology separate from the Ethereum coins.
Why are NFTs so Popular?
It may come as a surprise, but NFTs were originally created back in 2015. NFTs have recently caught national attention as well as became a trending topic after a single collectible in the Cryptopunk series sold for over $1 million in February.
What was the collectable piece that was worth so much money? Pixel art.
While the majority of the population was shocked that a piece of digital art could be worth so much money, other artists hopped on the bandwagon to try to make million dollar pieces of their own.
Consequently, there has been an explosion in the digital art market with non-fungible tokens. NFTs have continued to make headlines for changing hands at mind-blowing prices. In an unusual case of digital art, a physical painting created by the humanoid robot known as Sophia has sold for around $700,000 as an NFT.
The NFT market is not only attractive to those wanting to purchase, but also to the artists themselves. Many digital artists envision a future in which NFT transforms their creative process and how the world defines “valuable art”. This online market helps artists find interested buyers without the need to market themselves in a gallery
What is the Future of NFTs?
Realistically, a fall in NFT prices is inevitable, as a huge influx of new NFTs enter the markets created by people hoping to capitalize on the current trend.
More and more celebrities are starting to sell their own NFTs. Artists such as Grimes (Claire Elise Boucher) as well as Twitter founder and CEO Jack Dorsey, have seen sales in the millions, while other creators have not been so lucky. Some people fear that as more celebrities and influencers enter the market, the average local artist’s work will become far less valued.
Even if digital art NFTs begin a downward trend, this does not mean the end of the NFT marketplace. Everyday we seem to see a new player in the market expanding the definition of what an NFT is and what it can become.
NFTs have recently entered the gaming market and are beginning to shake up the industry. Traditionally, you buy items to use in the game, once you are done, they have no value to you. Instead, the digital assets for sale in a game belong to the creators of the game, and the players who buy these items will sell them once they quit. This changes the traditional method entirely. Now, in-game purchases will be viewed as investments rather than simply spending a couple of dollars.
As the market for NFTs grows, we will see trends rise and fall. Digital art is largely undervalued because it is readily available. However, some say the advancement and popularity of NFTs are moving us toward a Blockchain revolution that will transform consumer capitalism as we know it.
Which NFTs Should You Invest in?
If you are looking to invest in NFTs, there is a lot to learn. An NFT is worth as much as someone is willing to pay for it. There are not many guidelines or rules to follow when tracking which meme or tweet is a good investment. Due to uncertainty and how new NFTs are, it is hard to guess how much your unique piece of digital art will be worth as time goes on.
Those who enjoy more risky investments may want to jump at the opportunity NFTs could bring, where some more reserved investors might want to be conservative with their money. We are not financial advisors and do not offer financial advice, please consult your financial advisor for investment advice based on your financial situation.
What Else is Blockchain Technology Capable of?
In its Trend Insight Report, Gartner notes in Blockchain-Based Transformation that most business leaders are looking to blockchain primarily for improvement in current processes and records management; however, now digital assets and decentralization may benefit as well.
These benefits, Gartner predicts, are a long way from being realized. The report predicts a mere 10% of enterprises will realize any monumental transformation from blockchain technology up to 2022; by 2026 though, value is predicted to exceed $360 billion before surging by 2030 to an estimated $3.1 trillion in additional value from blockchain. That’s nothing to shake a digital stick at!
If you’re ready to understand how your business can leverage blockchain to disrupt your industry, we’re happy to help.
Sources:
- https://news.artnet.com/market/nft-market-1957770
- https://www.marketwatch.com/story/prices-for-nfts-have-plunged-but-that-doesnt-mean-they-will-disappear-11619465199
- https://www.fayobserver.com/story/news/2021/04/01/nfts-give-nc-artists-new-ways-profit-and-present-digital-artwork/4809789001/
- https://time.com/5947720/nft-art/.
- https://www.businessinsider.com/is-nft-market-bubble-crypto-art-sales-popular-prices-plunge-2021-4
- https://www.technologyreview.com/2021/03/25/1021215/nft-artists-scams-profit-environment-blockchain/
- https://abcnews.go.com/News/nft-art-boom-digital-artworks-worth-virtual-paper/story?id=77236867
- https://www.theverge.com/22310188/nft-explainer-what-is-blockchain-crypto-art-faq
- https://www.creativebloq.com/features/what-are-nfts
- https://www.forbes.com/sites/kenrapoza/2021/05/02/nfts-are-increasingly-taking-us-into-a-world-of-make-believe/
