DeGate x Bihu Series: Why do people buy NFTs and how do you choose the right ones?
Why do people buy NFTs and how do you choose the right ones?
DeGate x Bihu series: DeGate is proud to bring you DeGate X Bihu, a series of premium content from top content creators. Bihu.com is a premier crypto community with over 1 million users, creating deep analysis of the blockchain industry. In this fortnightly series, we bring you the very best articles from Bihu. Bihu was launched in 2018 by the same team behind DeGate.
By Mao (Twitter @porounclemao) This article is translated from Chinese and published with the permission of the Author. The views herein expressed are those of the author and do not represent the views of DeGate. We thank Mao for his kind sharing of an insightful look at the early development of NFT art and collectibles. We really appreciate all the support from ChainNews.
There are no such things as Art. There are only artists. — Gombrich, The Story of Art
Whenever friends around me find out that I’m a poor kid who bought some NFT art for a high price, they often look puzzled and ask questions like, “Why is this NFT (or some say JPEG or GIF) worth so much money?
To answer this question, I could choose to say emotionally and capriciously, “Because I am a fan and I like it”. But from the rational side, the question I attempt to answer is:
From the perspective of an investor in the crypto sector, how do you understand the logic of buying NFT art for collection or investment?
I hope to discuss this question in an easy-to-understand way. Of course, the views expressed in this article are the author’s own opinion.
(Thanks to LeftOfCenter, Alen, Shirley, Blair, Johnson, Rex, Felicia, and others for their inspirational discussions, and Mr. Cao Yin for his article)
Due to a lack of money, it took me about two years from the time I first encountered NFT art to the time I was first touched by it and convinced to buy one and add it to my collection. Although I learned to appreciate the work of some of the biggest artists such as Beeple, it was a pair of Hashmasks that I couldn’t resist owning.
Hashmasks, Mao Collection
This piece depicts a man wearing an abstract Picasso-style mask and holding an Alice in Wonderland book.
Thinking back to my own experience of going down the ‘rabbit hole’ of cryptocurrency a few years ago, I felt like I was seeing my confused self when I first started in the industry. Art needs to convey emotion, and it’s nice to feel that way in the fickle, cold world of crypto. But what exactly is art?
The British art theorist Gombrich begins his book The Story of Art by saying, “There is no such thing as art, there are only artists.”
Why are there only artists? Different people have different interpretations. But in any case, this tone makes it easier for ordinary people to understand artists and begin to understand art history, and emphasizes the importance of the role of the ‘artist’.
In today’s technocratic world, people prefer to call an artist a ‘Creator’ or a ‘Maker’ — an artist is someone who ‘makes things’.
With the entry of non-homogenized token (NFT) technology into the art world, the role of the ‘maker’ in crypto art has become more varied, giving rise to roles such as crypto artists, curators, critics, distribution platforms, and so on.
If we believe in this argument, it is difficult to talk about ‘NFT art’ in isolation from the scenario in which each NFT is made and the various players behind it. For the crypto art in question, we could even go so far as to paraphrase — ‘there is no such thing as crypto art, only the people who make it and the people who own it.’
Why not ‘NFT Artwork’?
If we put aside the so-called art, the crypto-art sector is not only richer in terms of the role of ‘people who make things’ compared to traditional art, but also expands the scope of ‘people who own’ artworks, which reveals a more promising capital market behind it.
At the same time, in terms of technical properties, the unique ownership ‘credential’ attribute of NFT non-homogenized tokens makes them naturally suitable for application in the field of NFT artworks with a unique value, and increasingly suitable as a value carrier for carrying or transferring large amounts of capital.
Owning an NFT artwork is the equivalent of having on-chain credentials for art assets, but NFTs are a long way from being used on a large scale. One of the central questions is why NFT artworks are still not universally recognized as being able to store value.
Firstly, the consensus on the value of NFTs remains controversial. Some believe that NFT art is more of a digital certificate for a collection, but this does not mean that all NFT art is inherently valuable, while others have a strong interest in collecting specific NFT art. Even the crypto community, which is the most receptive to new things, is polarised in its attitude to the value of NFTs.
Secondly, NFT art is an illiquid asset and pricing is extremely subjective and difficult. Typically, it can take a few days for an investor to purchase an average NFT artwork before it can be sold again, while higher-priced NFT works can take weeks or longer to resell.
Although more and more big names in the traditional field are attempting to distribute NFT, judging by indicators such as active purchasers, NFT art is still spreading in more niche circles.
In addition, the infrastructure of the NFT sector is still incomplete and most projects are still in the exploratory phase.
While the infrastructure and industry standards in the NFT space require improvement, we are fortunate to be in the midst of an era of rapid change and opportunity in NFT technology and crypto art.
With more NFT projects innovating and infrastructure being built, NFT artwork is increasingly being funded in a variety of built scenarios. The NFT sector as a whole is set to rise on the back of these key projects.
Although it is a bit risky, why not take part in a fantastical journey to capitalize on crypto art?
My Journey of Discovery in Investing in NFT Art and Projects
Why would anyone buy NFT?
Money can rug, but fun can not rug
— from an NFT community project member’s introduction
My first instinct about people who spend a lot of money on NFT art is that they are either too rich or just plain stupid, but is this the case? To begin the investment journey of investing in NFT art, one must first think: what drives people to acquire or buy an NFT?
If we consider the theory of needs, the famous Maslow’s Hierarchy of Needs summarises that human needs have five levels, from the bottom of the structure upwards: physiological (food and clothing), safety (job security), social needs (friendship), and self-actualization. Taking into account the above summary that NFT always has two parties, “creators” and “buyers”, we can guess the roles played by these two parties in terms of needs.
The “buyer” also has five levels of demand for NFT artworks, from the bottom of the structure upwards: to obtain short-term speculative gains, to obtain long-term investment gains, to obtain fans or ecological interests, to obtain social attributes (on-chain status symbols, interactive social credentials), and to obtain the pleasure of collecting.
It can be seen that often the news we see, including a numbered Cryptopunk fetching millions of dollars, is likely to be from a group of collectors with a high standard of demand for NFT artworks. But, as time goes on, we cannot ignore the quest for investing in NFT and fan equity or social proof by more regular people entering the game.
As we see, more and more new users have started to collect NFT art that is already valuable, and it is conceivable that as the base of people involved in the NFT art scene grows, the more people will collect and invest in it, and the more likely it is that more high-priced art will emerge.
To put it another way, if you believe that there is a small circle of people who collect NFT art simply as a hobby and because they like spending money, the more loyal the circle, the more likely it is to attract more smart money from outside the circle into speculation. Of course, one must also be aware that this can create bubbles and have side effects.
How do you choose NFT art and projects from a business model perspective?
First of all, crypto art projects do not necessarily require a so-called business model, and the criteria for various artworks are closely related to the preferences of the audience. But the cryptocurrency properties of an NFT itself, and the success of crypto art projects such as Cryptopunks and Hashmasks, have inevitably set a standard for project design and distribution for exploring the establishment of NFT crypto art projects that are primarily collectible.
Until now, projects such as Cryptopunks and Hashmasks remain among the top crypto art projects in terms of trading volume and price. But more importantly, these NFT art projects have a strong consensus community of fans.
From a collector’s perspective, the common characteristics of these quality projects in terms of project art and thematic design include:
- Attractive artwork in its own right, with a fixed volume of distribution
- A high level of community involvement in the mode of distribution (fair distribution or blind box purchase distribution)
- Attractive collection rarity design (e.g. alien or zombie characters for Cryptopunk)
- Other: foreshadowing or credit cookies that contribute to the long-term development of the project (e.g. cultural hidden properties for Hashmasks, etc.), community events with rewards (e.g. hosting online exhibitions, etc.)
In addition, for crypto art platforms, how NFT artworks are sold is constantly being innovated. Not only can crypto artists register on the platform distribute their work and bid on the marketplace, but many platforms have begun to experiment with the model of partnering with artists for priced sales.
For example, the Nifty Gateway platform has launched the NFT Drop model, which selects a different artist’s work each day and allows the artist to release a series of limited-edition NFTs with different price tiers. Not only is this an easy way for newcomers to collect, but the sales process is also a process of ‘price discovery’ for crypto artists’ work, in terms of whether people are willing to buy the works as they are released, how they perform on the secondary market, and so on.
Nifty Gateway’s NFT Drop model
In addition, projects such as Meme are exploring models that combine tokens and deep partnerships with major artists, where investors can buy MEME tokens and pledge them in pools of different artists to gain points, which they can use to buy artist releases. The benefits of this innovative model over an open market platform include:
- Participants don’t need to spend a lot of time picking artists and the community can try to work with big names or promising crypto artists;
- Helping token holders to access the collections of some of the biggest artists who have fetched sky-high prices without incurring huge costs;
- Participants can play different roles at the same time, including token investor, art collector, or project governance participant, etc.
- Participants can meet a variety of needs, including long-term low-cost access to art collections, direct interaction with artists in the community, buying art for resale, and speculation or a long-term investment.
A work by the famous crypto artist Fewocious released on the Meme platform
Are these business models designed to simply attract more fans to discover and buy the collection? Indeed, within niche circles of art collecting, such designs tend to have greater appeal to collectors and create a strong consensus within the fan community.
But from another perspective, the “business model” of NFT artworks is an exploration of how NFT artworks can be clearly “priced” and serve to generate a more valuable community consensus.
In the future, NFT distribution models will gradually become a prerequisite for capitalizing on NFT artworks, such as blind box distribution models or NFT Drop models, which will provide an objective reference for the more subjective pricing of NFT artworks, while the design of rarity will influence the subsequent pricing and value-add of different types of NFTs.
It is worth noting that simply copying these business models will not necessarily result in quality NFT art projects, and it is even foreseeable that, similar to the old ICO boom, 99% of NFT art projects will be worth nothing, and the value of the project will ultimately depend on whether the work is liked or whether the project can achieve a strong consensus.
How do you avoid NFT artwork that is in danger of losing its value? I have a few tips to share with you:
- Buy projects that already have a strong consensus and value, and stay away from overhyped NFT art projects;
- Buy works that you like based on your aesthetic instincts, as there is a good chance that they will not change hands in the short term, but at least you can keep what you love;
- The artworks or projects that do stay will have a seminal or profound impact on society, culture, industry, and art history (if it hasn’t had an impact now, it certainly won’t have a profound impact later).
How do I sell my NFT artwork? Who will buy it?
When I first got into NFT art collecting, my biggest concern was, “If I buy crypto art at a high price, how long will it take me to sell it? Will no one like it so I won’t be able to sell it?”
These concerns and questions have always existed in the traditional art world, but the development of infrastructure in the NFT space is seeking to ameliorate these problems in the traditional art market.
Advantages that the crypto art market currently has over the traditional art market include:
- A simpler ‘wallet + platform’ entry point, making it easier for more ordinary people to participate in auctions, invest, collect, and trade;
- The buying and selling process is simpler and more suitable for large funds (bidding and resale can be completed in minutes, without the need for traditional auction houses and banks);
- On-chain auctions are more open and transparent, and at the same time richer in form, and because of the traceability of the blockchain, there is no need to identify the authenticity of artworks. At the same time, it is easier to see other people’s collections and buying and selling records, adding more social attributes to crypto artworks.
So, who will buy my NFT artwork?
In Ben Roy’s article ‘The Fat CryptoPunks Thesis (Why is CryptoPunks set for a Cambrian explosion?)’, he writes that the total market value of CryptoPunks will continue to grow significantly over the next five years and may even match the size of the entire NFT market. Using CryptoPunks as an example, he divides the future purchasers of CryptoPunks into two categories:
- Those holding funds with no cryptocurrency in them (new investors with high net worth)
- Those holding funds with native cryptocurrencies (regular investors in NFT artwork and NFT veterans)
In my views, the reason why collectors of NFT art in the future do not need to worry about not being able to sell quality art is that as the continuous enrichment of infrastructure in the field of NFT in the future, innovative tools such as NFT loan mortgage products and NFT exchanges will continue to emerge. Purchasers of NFT art will also attract and reach a large part of the existing cryptocurrency investment population. There will even be robotic spread arbitrage (quantitative traders in the NFT space?), NFT decentralized exchange liquidity market-making and other requirements, and so on.
In the future, not only will the range of people buying NFT art expand, but the attributes will also change. It may not be one person buying art, but a group of people, a pool, or an exchange, or even a bot. At the same time, ordinary NFT artworks could be sold at Floor Price in a liquidity pool at any time, while valuable crypto artworks with high prices would be fragmented into an asset with common ownership to facilitate selling.
Although still imperfect, these visions of the NFT space are being realized, with more and more NFT projects attempting to combine with DeFi and gradually putting together a composable ‘NFT Lego’ in the NFT ecosystem.
My List
Finally, a glimpse into the future of the NFT art market can be found in some of the projects that are currently exploring and driving the NFT sector:
NFT liquidity/pricing related projects: NFTX, Very Nifty
NFTX
Website: https://nftx.org
Description: NFTX is an NFT index fund protocol that provides liquidity to illiquid NFTs such as CryptoPunks by creating NFT tokenized index funds (e.g. $PUNK) that currently support users to deposit their personal NFTs and make random redemptions. NFTX also offers niche NFT collections, such as CryptoPunks’ zombie series index fund PUNK-ZOMBIE.
Very Nifty
Website: https://nft20.io
Description: Very Nifty is a community-driven NFT liquidity + swap project that divides NFT assets into different asset pools and encourages holders into depositing NFT and providing liquidity through models such as rewards for mining. The platform currently supports users to deposit personal NFTs and redeem them at any time, and supports an NFT-NFT one-click exchange model within NFT pools.
NFT trading and fragmentation related projects: NFT Protocol, NIFTEX
NFT Protocol
Website: https://www.nft.org/
Description: NFT Protocol aims to create a decentralized NFT exchange. The platform is currently in internal testing and will be officially released in the first quarter. The currently released demo supports NFT swap functionality on ERC-721 to ERC-721 and ERC-721 to ERC-20. The platform will also be partnered with the Flow public chain.
NIFTEX
Website: https://www.niftex.com/
Description: NIFTEX is a trading platform that supports NFT holders to fragment their NFT into ERC-20 tokens. The project aims to provide the ability to split and sell NFTs, provide restrictions against sell-outs, and facilitate investors to invest in high-priced NFTs.
NFT collateral and lending-related projects: NFTfi, Drops
NFTfi
Website: https://nftfi.com/
Description: NFTfi aims to be a peer-to-peer mortgage lending platform for NFTs. Users can choose to pledge NFT and lend out assets such as ETH or DAI. If the borrower defaults on the loan, ownership of the NFT is transferred to the lender.
Drops
Description: Drops aims to be a lottery, pledge, and lending platform for NFTs, a project currently in development and created by the team behind the blockchain game Noderunner.
Original Link：https://bihu.com/article/1827784944
