People spent more than $1 billion on digital assets in the last month, according to CryptoSlam data.
Crypto art has been around for more than a decade, but to many people outside the crypto community, these digital assets, known as non-fungible tokens or NFTs, appear to have appeared out of nowhere.
So, what drives people to join the NFT craze, where they can invest hundreds to millions of dollars in some cases? Cryptocurrency investors believe it is the result of a combination of factors, including the pandemic and the rise in bitcoin prices.
With flashy sales in recent months, crypto artists have drawn more attention to NFT marketplaces than ever before.
What is a non-fungible token?
A fungible asset in economics is something with easily interchangeable units, such as money.
When it comes to money, you can exchange a £10 note for two £5 notes and the value will remain the same.
This is impossible if something is non-fungible; it has unique properties that prevent it from being interchanged with something else.
It could be a house or a unique painting, such as the Mona Lisa. The painting can be photographed or purchased as a print, but there will only ever be one original.
NFTs are “one-of-a-kind” digital assets that can be purchased and sold in the same way as any other piece of property but have no physical form.
Tokens can be thought of as certificates of ownership for either virtual or physical assets.
How do NFTs work?
Paintings and other traditional works of art are valuable because they are unique.
Digital files, on the other hand, can be easily and indefinitely duplicated.
NFTs allow the artwork to be “tokenised,” resulting in a digital certificate of ownership that can be purchased and sold.
A record of who owns what, similar to crypto-currency, is stored on a shared ledger known as the blockchain.
Because the ledger is maintained by thousands of computers around the world, the records cannot be forged.
Smart contracts, such as those that give the artist a percentage of future token sales, can be included in NFTs.
Why are people interested in NFTs right now?
According to Rodriguez-Fraile, the rising price of Bitcoin, the impact of the pandemic, and distrust in the US dollar created a perfect storm.
Last week, Bitcoin reached a new high, surpassing $60,000 for the first time. Since the outbreak of the pandemic, people have been putting money aside. By 2020, 59% of people earning more than $100,000 had significantly increased their savings. People’s trust in the US dollar appears to be at an all-time low, so NFTs could be a viable alternative for them to invest in.
Will the value of NFTs remain stable?
Gary Vaynerchuk, CEO of VaynerMedia and an investor, told CoinDesk that he believes NFTs are in a bubble, but that doesn’t mean they won’t last.
“Many people said the internet was a fad,” explained Vaynerchuk. “In reality, the internet was a game-changing technological revolution, but many of the early projects were simply overpriced on the excitement of the moment.”
Even Winkelmann admits that NFTs are probably exaggerated.
What exactly do you get when you purchase an NFT?
When a person buys an NFT, they gain access to a one-of-a-kind token, but only on the blockchain. If someone buys an image or meme, they can claim ownership of it on the blockchain, but they have no control over how it is distributed.
When you buy an NFT, you are usually not buying content, but rather a token that connects your name to the creator’s art on the blockchain.
In contrast, digital tokens adhere to the same deflationary principles as bitcoin. NFTs cannot be duplicated, are easily authenticated, and are immutable, but their value cannot be predicted over time.
What did you think of what you read? Follow The Social Lions for such regular updates. We are a digital marketing agency based in Mumbai that focuses on increasing brand awareness and image for our clients.