Do You Understand NFTs?
If You Don’t Read Here.
Between 2020 and 2021, the sports industry lost approximately $18bn. Of course, this is a consequence of the disrupted engagement of fans in live sports. That, too, came with the pandemic. But we know challenges create opportunities. So, we recorded a whopping $1.5bn in NFTs transactions around the same time. It’s probably not comparable to the loss but notable enough to pay attention to it.
Odds are you’ve heard of NFTs(Non-Fungible Tokens) and their uniqueness. But is there more to NFTs?
I’d say yes.
See, NFTs primarily restore and sustain the lost connection between fans and creators. To me, it’s like owning an autographed picture of my favorite Formula one driver, Max Verstappen.
I’d be sure of two things, I’m probably the only one who has this exact picture. And two, perhaps Max is aware of this picture, subliminally creating a connection impression between Max and me. Although all this might be wildly untrue, it still serves a great deal in selling dreams to me; just don’t wake me up.
NFTs rescuing Artists.
For many years artists have been ripped by giant corporations. On the other hand, piracy robbed them of their work. For instance, in the past, armatures would try to copy famous painters’ art pieces; fortunately, you could tell apart the counterfeits from the original work.
But, in this digital world, “command + c and command + v” makes it impossible to differentiate an original from copied data. Digital products can be copied and pasted; reiterating the process will create a gazillion folders of the same data. Ultimately destroying uniqueness and value thereof, especially in the case of digital art.
NFTs are somewhat a savior of the Arts Industry. The industry’s returns have been dwindling for the bulk of artists trying to make ends meet. How this works is by restoring uniqueness.
NFTs are issued on a blockchain. The blockchain designates ownership of assets immutably. In a more literal sense, digital support tied to an individual data file stored in a blockchain is what we call an NFT.
A media file is converted to an NFT through a process called minting. That happens on the Ethereum blockchain platforms like opensea.io and mintable, where NFTs are written in the applicable blockchain database. The media file can be a .jpg, png, mp3, mp4, MOV, you name it. Any digital file you have copyrights to can be minted.
Yes, some dude from Asia made thousands minting his selfies. After all, the guy is not a Brad Pitt I-belong-to-a-glamour-magazine type, ridiculous, right?
The Question of Value in NFTs
The idea of the value of NFTs is not straightforward. See, we usually assign value to objects with intrinsic value. I mean, it’s easy to understand the value of platinum while holding your smartphone or the value of gas when your foot is on the gas pedal in your car.
The question then becomes, what’s up with NFTs then?
Most NFTs do not have a functional value that matches their price tag.
But that also opens a pandora’s box of our unnecessary purchases. Things like Gucci slides and Louis Vuitton handbags.
Giving us a quick answer, perhaps bragging rights are some of the primary reasons NFTs are a thing.
Remember, NFTs are a decentralized medium between a fan and the artist. If you come to think of it, we love bragging about our connections to famous people. NFTs are the closest digital signature that confirms our relationships with our superstars. This might sound dumb but remember, we’re not as rational as we think.
Functional Value NFTs
On the other hand, there are tokens with functional value. I’d prefer dubbing such NFTs utility tokens. Because they can do something.
Typical examples are in gaming features; some NFTs allow holders to access game levels, accessories, and tools.
Fortnite allows its users to buy costumes, dance moves, and gun customization. Now, think of the costumes being NFTs. Each outfit would be unique, meaning the player who bought it actually owns it and can resell it for a profit.
This has been implemented on many platforms, but there could be more. Brands can sell NFTs that give exclusive offers to holders. Music bands and sports teams can provide fans with voting rights on pivotal decisions for the organization through NFTs. The idea is to give special privileges to dedicated fans who hold their teams at heart.
Utility NFTs extends to real estate and smart contracts for logistics and more. But that’s a discussion for another day.
If NFTs are to survive the test of time, utility tokens will most likely emerge on top.
Collectibles NFTs
https://www.youtube.com/watch?v=4se4_ZqkcKw&t=1469s
Alongside utility tokens, we have collectibles. Their value structure mimics that of baseball cards. It’s all premised on scarcity and trading.
They usually comprise great art pieces or jaw-dropping sports performances on video. These are your crypto kitties, 5 000 days by Beeple and NBA top shots.
This category carries a chunk of mediocre art pieces. That is because the threshold for minting pictures is too low. Anyone can make a collectible from almost anything so long they have copyrights.
On the contrary, though collectibles are technically nice-looking bummers, they have the highest sales value on single tokens. A fascinating piece is 5 000 days by Michael Winklemann, which sold for a record-breaking 69 million. Perhaps some collectibles are worth collecting.
Major Advantages of NFTs
NFTs have their shortcomings, as they are still at the early stages of development like any blockchain product. But let’s look at what they could potentially mean in the future.
- Lessens the burden of raising capital for brands
Companies may issue tokens to expand their projects. In fact, this would be a win-win situation for both the brand and its clients, given the tokens issued are utility tokens.
Currently, businesses have to liaise with investors to get funding. Which can be a painstaking uneventful process. Tokens may gradually bypass this time-consuming process.
- Creating sustainable revenue streams for creators
NFTs carry smart contracts that may contain a royalty percentage designated to the original creator of the token. That way, the artist benefits from any subsequent sales of the NFTs.
In my opinion, that is revolutionary. Creators get rewarded for their sweat relatively in a world where big corporations pay artists so little yet sell their work for so much.
Trading NFTs
The juiciest part of NFTs is that they can be traded for a profit. By the end of 2021, market participants realized a total profit of $ 21 Billion. Furthermore, there was a massive leap in buyers from 75 000 to over 2.1 million, according to nonfungible.com.
Like any commodity, trading NFTs refers to buying and selling media files. Technically you’re buying and selling jpegs. However, these jpegs are minted in the blockchain. That way, the media files contain an immutable history of ownership and special programs that can be built on them.
Collectibles are the ones dominating the market currently. Creating them is a matter of designing artwork and minting it. If your art skills are next to zero, you can always outsource this part on fiver. As for minting, there are no special skills required. It’s a question of a pocket deep enough to sustain the gas fees.
Common Technical terms
For transactions to be recorded in the blockchain, computational work needs to be paid for. The unit to measure this work is called gas. The minimum gas required is about 21 000 units. And that’s where the term 21K gas limit comes from. You’ll, however, choose how much you’re willing to pay for each 21 000 unit; what you desire is your gas price. A higher gas price implies your transaction will be executed faster, so you assign urgent transactions a higher gas price.
So your gas fees are a product of gas limit and gas price (gas limit(21K) x gas price)
In reality, they’re a few more fees you’ll need to pay, including fees associated with the platform you’re using to trade your NFTs; for instance, opensea.io takes 2.5% of all transactions on its platform.
Be warned before making any dumb decision; they’re predatory behaviors on NFT markets. If anything, the crypto industry has been abused into a hub of all nefarious activities. So you ought to be cautious.
The value of collectibles is very speculative and irrational.
I just read a story of a guy who bought an NFT for 2.5 million USD and tried to sell it for 35 million USD. Only to get the highest bidder at USD 3500. My friend this is called a loss; I hope it wasn’t his granny’s lifetime savings.
Sources
Adopted from derbymatoma.com and youthvisionoverload.com
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