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Why you should be collecting NFT’s (and why you shouldn’t)?

What is all the Hype about NFT’s? What makes them so valuable?

Graphic by Rhett/ Mankind

Here are a few recent NFT highlights:

A video clip of Lebron card James dunking got sold for $208k on a platform called NBA TopShot.

Grimes sold her collection of digital artworks for around $6 million. The highest-selling piece was a one-of-a-kind video called “Death of the Old” that involves flying cherubs, a cross, a sword, and glowing light that’s set to an original song by Grimes. The winning bidder took it for nearly $389,000.

3LAU generated $11.6 million in a recent NFT auction, commemorating the three-year anniversary of his best-selling album, Ultraviolet. (Only 33 Ultraviolet Vinyl NFTs will ever be minted.)

Famous band Kings Of Leon claims to be the first band to release their album as an NFT. The auction included six “golden tickets” that will include perks like front row tickets for life.

There is an offer to buy Jack Dorsey’s (Twitter’s CEO) first tweet for $2.5 Million. Holy Smokes!

In this article, I’ll cover all about NFT’s for you guys to decide if it's worth investing in and what the future holds for it.

NFT stands for Non-Fungible Token. A Non-fungible asset is something unique that isn’t readily interchangeable. Think of a rare sports card, an antique car, or a piece of land. This differs from a fungible asset like cash (a $10 bill is always worth $10, no matter who owns it or what condition it’s in). A token is a type of virtual currency that lives on a blockchain and represents a specific asset, like a piece of digital artwork. So, in simple terms, an NFT is documentation of ownership of a one-of-a-kind digital asset.

NFT can be a GIF, image, videos, music album, a plot of virtual land, tweet, etc. The NFT isn’t actually the piece of artwork itself; it’s a piece of code on a digital ledger (blockchain) that directs to where the artwork is stored — usually on a server somewhere else.

You might be wondering why go through all this trouble to create some digital asset when you could just buy a real collectible item?

Two Reasons:

It can be hard or time-consuming to verify authenticity. Original content can be faked, forged, or replicated.

It can be hard to trace an object’s ownership history. You can go to websites like etherscan.io and view the entire history of NFT’s.

Brief History of NFT’s:

It may seem like NFTs came out of nowhere, but they’re an innovation that has been in the works for several years:

• 2017: NFTs first garnered widespread public attention with CryptoKitties, a game in which users breed and trade digital cats.

• 2018: A mini hype cycle led to VC-led investments, and platforms were created to buy, sell, and mint NFTs (like SuperRare, OpenSea, Rarible, and Nifty Gateway).

• 2019: Big brands like Formula 1 and Nike entered the space.

• 2020: The market for NFTs tripled in size to $250m+.

But in the first few months of 2021, we’ve seen an NFT explosion.

Trading Volume:

Top NFT Collectibles Sales in the past 30 days by Zachary Crockett

In February alone, the 10 most popular NFT collectibles saw a 400% average MoM rise, totaling nearly $400m in sales volume. (NFT) trading volume over the last 30 days on the five most popular NFT marketplaces (NBA TopShot, OpenSea, CryptoPunks, Rarible, SuperRare.co, and Axie Marketplace) has hit $419.92 million. The highest daily trading volume was on February 22, 2021, at $64.20 million. Over the same period, the NFT marketplace recorded an average of 17,766 daily traders. The highest daily number of traders was also on February 22, 2021, at 44,100. If the current interest in NFTs is sustainable, the trading volume and active traders on the marketplaces could potentially keep rising.

You might be wondering what’s driving this sudden growth in NFT’s: The factors for its growth are driven by its inherent quality, flooding of early adopters, and FOMO with retail investors due to recent hype.

1. COVID-19 has made us more plugged into virtual spaces: More people working from home = more time interacting in virtual spaces = more openness to the value of virtual goods and services.

2. A boom in cryptocurrency (and a larger acceptance of the ethos of decentralization) has generated interest in other digital assets. (NFT’s are leveraging on recent DeFi explosion)

3. Major institutions (like Christie’s auction house and NBA) have lent NFTs credibility and prestige by jumping aboard.

4. Non-fungible goods often thrive during times of economic turmoil: Rare coins, for instance, saw price spikes during the Great Depression, the stock market collapse of 1987, and the 2008 recession. “People are realizing, ‘Wow, I can do all these things — meetings, happy hours, whatever — virtually,’” says Hrish Lotlikar, CEO of an AR-based metaverse called SuperWorld. “That gives way to, ‘Wow, I can buy assets virtually too. I don’t need physical money.’”

5. Every NFT can be traced back to its original issuer, making each transaction verifiable and making fake circulation impossible. How many times we have come across stories of replicas and artwork being stolen in the collectibles art market.

6. Top creators have found a new way to engage with their loyal fan base and monetize on their efforts. Buying a tokenized version of a celebrity or top athlete means investing in cultural significance and social capital.

Why you should be collecting NFT’s:

Superyo by Frenetik Void

Like most things in the world, the value of an NFT comes from extrinsic, not intrinsic, factors, including:

1. Authenticity: Physical collectibles have all kinds of authentication mechanisms, and none are particularly efficient (even acclaimed art appraisers have been duped by forgeries). By contrast, the originality of an NFT is cemented on the blockchain.

2. Scarcity: Many NFTs are one-of-a-kind or limited. For instance, only 10k CryptoPunks were released. Of those, only 24 are “apes.” And among the apes, just 1 dons a fedora.

3. Transferability: It can be resold to nearly anyone around the world, meaning it has a broader pool of potential buyers.

4. Immutability: The code and metadata of the NFT can’t be changed, lending it permanence.

5. Utility: Some NFTs can serve functional purposes, generate revenue, or be exchanged for physical assets.

6. Fan loyalty: Think of it as a geeky implementation of bragging rights or a way to channel financial support from fans to artists (or athletes, or anyone doing anything admirable from the fans’ point of view).

Many NFT collectors see a future for the tokens in increased “real world” integration. With Top Shot, for instance, we may see NBA players offering court-side seats and meet-and-greets in exchange for certain moments.

Inside the virtual world Decentraland, Decentral Games is building a virtual casino where people can play poker tournaments. Buying (and wearing) certain NFT clothing items — say a digital $1k jacket — will get you a seat at certain high-roller tables. But ultimately, an NFT is only worth what someone else will pay for it.

The use of NFTs would enable, for example, concert organizers to limit resale prices and drive even the most tech-savvy, robot-using scalpers out of business. Tokens could be used to sell digital wildlife to fund conservation efforts. Or they could be employed to track entire supply chains from their origins to the end consumer, making the value-creation process transparent.

TOP PLATFORMS TO TRADE NFT’s

Why you shouldn’t be collecting NFT’s:

  1. BUYERS of NFTs may be blind to the fact that there’s no limit on the supply: In the case of baseball cards, there are only so many rookies a year. In the case of art, there’s a limited number of famous paintings and a limited amount of shelf space at Sotheby’s. NFTs are going to be more like Kindle books and YouTube videos. The vast majority are going to have ten views, not a billion. It’s an unregulated, non-transparent hustle with ‘bubble’ written all over it.
  2. Implied Volatility of Crypto Currency: We’re all familiar with the volatility of BTC and how many swings it has gone through in the last few years.
  3. Cryptocurrencies and NFTs are an absolute disaster for so many more reasons than the ecological. More on this issue at the article tagged below: https://everestpipkin.medium.com/but-the-environmental-issues-with-cryptoart-1128ef72e6a3

Conclusion:

NFTs are still early and will evolve. Their utility will increase as digital experiences are built around them, including marketplaces, social networks, showcases, games, and virtual worlds. It’s also likely that other consumer-facing crypto products emerge that pair with NFTs. Someday every internet community might have its own micro-economy, including NFTs and fungible tokens that users can use, own, and collect. Crypto has a history of boom and bust cycles, and it’s very possible NFTs will have their own ups and downs.

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Manav Golecha

Manav Golecha

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