Tuesday, January 25, 2022

Why is NFT worth money

Some people invest in NFTs because they’re awesome and fun to collect. There are lots of passionate individuals out there who love collecting art and adding them to their collections. While others buy NFTs to support their favorite artists and try to connect with them. Through NFTs, artists and fans can now directly connect with each other and even create meaningful communities. Then there’s this group of people who speculate on these assets, hoping to make a fortune out of their NFTs. These individuals believe that someday, the NFTs they’ve bought could be worth way more than what they paid for them.

Why Do NFTs Have Value? Why Are Some Worth Millions?

QGlobe

Non-fungible tokens have made mainstream headlines and caught the attention of artists and investors lately, much like the ICO craze in 2017. And when we say artists, we mean all kinds of artists, from musicians, authors, filmmakers, digital artists, and so on. If 2017 was the year of ICOs, 2021 is definitely the year of NFTs.

Non-fungible tokens are shaking up the art world big time and if you want to know why just keep reading!

As mentioned previously, NFT is simply a unit of data stored in the blockchain that represents unique ownership of any virtual or even physical assets. NFTs are much like authenticity certificates given to buyers or collectors of physical arts. The only difference is that they’re digital. NFTs continue to grow in popularity all around the globe and are seen as a remarkable technology that has the potential to revolutionize the digital art world.

In an interview during the 2021 Ethereal Virtual Summit, Vitalik Buterin, the founder of Ethereum, said that NFTs have immense potential and that he finds them interesting due to the fact that NFTs have allowed people who are trying to get into the blockchain industry, but don’t have a business model before to finally have one.

Another cool thing about NFT is that it opens up a huge opportunity for blockchain’s mainstream adoption. There are plenty of reasons why people are showing great interest in NFTs which greatly depend on whether you’re an artist, a buyer, or both.

Why are NFTs valuable? What influences people to buy them?

NFTs have value because there are people who are willing to pay and own them. An NFT is worth what someone is willing to pay for it. If an NFT is to be made by a famous artist or influencer, there’s a great possibility that it could be sold for more than a hundred, a thousand, or even millions of dollars. Yes, you heard it right, some artists are actually making millions by selling NFTs. And I’ll be sharing a list of some popular and most expensive NFTs later on.

NFTs have the potential to transform many industries, the art industry in particular, and significantly change how the world values art. NFTs give artists a unique opportunity to monetize their work and most importantly, show them off to the world and get the recognition they deserve.

Why are people willing to pay thousands, even millions of dollars for an NFT?

Some people invest in NFTs because they’re awesome and fun to collect. There are lots of passionate individuals out there who love collecting art and adding them to their collections. While others buy NFTs to support their favorite artists and try to connect with them. Through NFTs, artists and fans can now directly connect with each other and even create meaningful communities. Then there’s this group of people who speculate on these assets, hoping to make a fortune out of their NFTs. These individuals believe that someday, the NFTs they’ve bought could be worth way more than what they paid for them.

As you can see, collecting NFTs is almost similar to collecting physical items like magazines, action figures, paintings, movie posters, and other collectibles, except for the part where you need to clear up some space in your room for your collections. Your NFT collections, on the other hand, are stored somewhere in the blockchain which runs on your device. Very convenient, right? And another cool thing, you don’t really need to dust them off.

Now that you’ve grasped what NFTs are and why many people value them so much, let’s take a look at some of the most popular and most expensive NFTs. Including a tweet sold as an NFT. You’ll surely be thrilled to know which NFTs sold for millions! Are you excited? Then let’s continue by reading this.

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NFTs are "one-of-a-kind" assets in the digital world that can be bought and sold like any other piece of property, but which have no tangible form of their own.

What is a non-fungible token?

In economics, a fungible asset is something with units that can be readily interchanged - like money.

With money, you can swap a £10 note for two £5 notes and it will have the same value.

However, if something is non-fungible, this is impossible - it means it has unique properties so it can't be interchanged with something else.

It could be a house, or a painting such as the Mona Lisa, which is one of a kind. You can take a photo of the painting or buy a print but there will only ever be one original painting.

NFTs are "one-of-a-kind" assets in the digital world that can be bought and sold like any other piece of property, but which have no tangible form of their own.

The digital tokens can be thought of as certificates of ownership for virtual or physical assets.

The surge in demand for NFTs has been driven by recent million-dollar sales, such as the first tweet that Twitter CEO and Co-founder Jack Dorsey sold for $2.9 million and the sale of digital artist Beeple's crypto art for $69.3 million.

In finance and economics, there is an interesting division between functional value and the intrinsic value of an asset, good, product or service.

You can do the following analysis: "How can I use this? How does this benefit me? Is this important to me?" versus "How much do I like this thing, product, or service on its own."

It is exactly the functional value of an NFT where there is most discussion, whether NFTs are worth anything or not, and why people buy NFTs.

The functional value of an NFT asset could be simply because you want to show people your cryptocurrency portfolio and your taste in art, or it could encompass other things like how much money you can make with a specific NFT in this speculative market.

The second way to look at the value of an NFT asset is through its intrinsic value.

For most people it doesn't make sense to spend money on digital things that can easily be downloaded and shared on the Internet.

On the other hand, there is another way to think about the value of NFTs, when it comes to supply and demand.

NFT is designed to create digital scarcity and provide a limited supply of a digital good. NFT does not guarantee demand for an asset. Demand is usually influenced by various factors, such as the stock market and stock exchanges.

One Bitcoin (BTC) will always equal one Bitcoin (BTC). You can also exchange a $100 bill for two $50 bills and it will have the same value. However, if a property or asset is not fungible, this is impossible – it means that this good has unique or exclusive properties, so it cannot be exchanged for something else.

Why are NFTs so expensive?

As with physical collectible items such as trading cards, baseball cards, and other physical assets, there is a market for NFTs. The buyers or investors typically tend to be enthusiastic cryptocurrency individuals who understand the idea of wanting to buy NFTs or digital products and have probably made a fortune in the past with cryptocurrencies. Ether or ETH coin, for example, has gone from just over $300 last year to a current price of around $4,300. In some cases, buyers of NFTs are just adding more assets to their digital wallets to show how much cryptocurrency they own, but for other investors, there is a deeper interest.

By selling digital art directly to collectors through NFT marketplaces like Rarible, Foundation, OpenSea, and SuperRare, an artist can begin to better monetize their work without having to rely on gallery, store, auction houses, or museums.

Jamie Wilde: Great, so you already broke down the acronym for me. The main aspect of it, really, is that word “fungible,” which is kind of a funny-sounding word, but what it means is that something can be exchanged and that it’s not unique. So when it’s nonfungible, two different NFTs are unique from each other. So I like to compare it to Pokémon cards. So you’re not gonna trade a Gastly for a holographic Charizard. But they are just pieces of paper, you know. They’re tokens that represent the actual things, just like an NFT. An NFT represents a digital asset, and that digital asset can be anything and that value can vary.

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Last week, Christie’s put a piece by the digital artist Beeple up for auction, becoming the first major auction house to offer purely digital artwork with a “nonfungible token,” or NFT. The piece, called “Everydays: The First 5000 Days,” is still up for auction, and bidding to own it reached $1 million within 10 minutes.

According to CoinDesk, $174 million has been spent on NFTs since late November 2017. “Marketplace” host Kai Ryssdal spoke with Jamie Wilde, a writer at Morning Brew, about what NFTs are and why people are spending so much money on the digital assets.

Kai Ryssdal: For somebody who has never heard of nonfungible tokens, what are these things?

Jamie Wilde: Great, so you already broke down the acronym for me. The main aspect of it, really, is that word “fungible,” which is kind of a funny-sounding word, but what it means is that something can be exchanged and that it’s not unique. So when it’s nonfungible, two different NFTs are unique from each other. So I like to compare it to Pokémon cards. So you’re not gonna trade a Gastly for a holographic Charizard. But they are just pieces of paper, you know. They’re tokens that represent the actual things, just like an NFT. An NFT represents a digital asset, and that digital asset can be anything and that value can vary.

Ryssdal: OK, so as a real-life example, I’m just gonna pick the whole NBA Top Shots thing. The NBA is making money selling, as I understand it, video copies of various game moments, except they’re encrypted on the blockchain somehow. Does that make sense?

Wilde: It does make sense to me. I understand how it can sound a little confusing.

Ryssdal: Yeah, but so here’s my question, though, right? I can go online, and watch LeBron James dunk until the cows come home. But somehow, the NBA has found a way to put these things on the blockchain and turn them into NFTs, and is now selling them for like six figures plus.

Wilde: Yup. I mean, it just depends on how you really think of value right? For me, it kind of makes sense that these just digital assets, even if you can see them elsewhere, are valuable just because you own them. And for things like digital art, that becomes really important because maybe they don’t have a physical component at all. And I think if you, you know, when you grow up living and breathing the internet, the importance of having your name owning a meme that had such cultural ramifications, for instance, I don’t know, makes more sense.

Ryssdal: Yeah. And look, this all makes sense as we become more of an internet-based society and go eventually completely digital as we will. We’re just, we’re clearly on the leading edge of this thing. But let me back up for a minute. So forget the NBA, and forget, you know, making more money off LeBron. If I’m a photographer or an artist this is an opportunity for me.

Wilde: Absolutely. And we’re seeing more and more artists make it an opportunity. And we’re seeing them break each other’s records all the time. Grimes just sold some pieces for hundreds of thousands of dollars, and that was really fascinating to see. And for creators, especially ones that are completely digital, this is really just finally saying that their work is valuable in a way that they can make money off of beyond ads, or even for music artists, you know, beyond streaming, which they’ve always had issues with.

Ryssdal: So back to this Grimes example, who is I think, as of the latest reading Elon Musk’s significant other, so just to frame it in terms of pop culture references. So I buy this NFT from from Grimes and I pay $100,000. There’s nothing that says I can’t resell it for $150,00 right?

Wilde: Not that I’m aware of.

Ryssdal: Yeah. So secondary market exists.

Wilde: There is a secondary market and I know in particular like for NBA Top Shot there is and I believe for this art, there definitely will be. So yeah, you either buy NFT’s because you have some intrinsic emotional attachment to them or you buy it because you think someone else will have that value attached to it and want to buy it from you and that you can make money off of it.

Here are the five most significant use cases of NFT that explain why some are worth millions and still worth buying.

If you are keeping well in touch with the trend of non-fungible tokens (NFTs), there are high chances that this question might have crossed you- why are NFTs so expensive? Yes, years back you would have been fine not investing in the new hype of the market. However, reading about all celebrities, business and investors buying NFTs comes like a major FOMO-fest and for all the right reasons. There are plenty of reasons why NFTs are so expensive and here is how we sum up all the reasons- the use cases.

Yes, apart from looking fun and cool as the digital collectibles, NFTs have real use cases that cannot be ignored. Non-fungible tokens are solving real world problems and as time progresses, they are likely to be adopted in more day-to-day utilities.

Here are the five most significant use cases of NFT that explain why some are worth millions and still worth buying.

5 Use Cases of NFTs That Explain Why They Are Worth Millions

Gaming

We begin with the most basic and widely known use case of NFTs. Online games are growing at an unprecedented rate. As many as 2 million people indulge in online gaming every day and the most obsession in the industry is virtual reality games. Games are making room for unique digital items that are tradable and can be purchased. NFTs can play different roles in this sphere- in the form of collectability, art and utility. Most of the time, these NFTs have cosmetic value but the real utility is also slowly coming to light.

All these reasons and more have propelled the sale and renting of NFTs among players.

Apart from serving the cosmetic purpose in games, NFTs are also being increasingly applied in card-collecting games. Here, every card is an individual NFT and this explains why non-fungible tokens are in high demand for buying or renting by the gamers.

Art Collectibles

NFTs as the form of digital art collectibles are in great demand. Whether it is Bored Ape Yatch Club or NBA Top Shot, NFTs are the new store of value that are worth investing in.

Such non-fungible tokens are making up for big sales on NFT marketplaces like Opensea, BakerySwap, and Treasureland. Among all the use cases of NFT, this one is so far most widely popular. And while one can sell fake art in the real world that is so identical that nobody notices, it is impossible to fake valuable art on blockchain. Thanks to the smart contracts.

Fashion

This is one of the youngest and perhaps, the most revolutionary development among the use cases of NFTs. And the specimens of the same can be witnessed in metaverse. High-end fashion brands like Gucci, Balenciaga, and more are taking a plunge in the world of NFTs. One can find NFTs of the luxury clothing, shoe and accessory brands with their products being on display on web in the most unique way.

Gucci partnered with Christie’s, the art auction house, for its fall 2021 collection on an NFT video “Aria”. It was sold for a whopping $25,000.

Real Estate

NFTs are the new real estate and anyone aware with metaverse will have nothing to disagree. As the name indicates, it is the tokenization of any type of real estate asset that can be bought inside the virtual world and represents ownership.

Famous metaverse projects such as Decentraland, The Sandbox and Solice, are all selling thousands of NFT virtual land that can later be used in the same way as real world real estate. This sphere of NFTs is increasingly becoming popular as big brands are stepping in to secure pieces of land in the metaverse. Founder of TechCrunch Michael Arrington purchased a property in 2017 using Ethereum, later listing it on real estate platform Propy in May 2021 in the form of real-estate backed NFT.

Musical NFTs

The world of NFTs and blockchain has just started to develop and there is still infinite scope of scaling up. Musicians and artists can attach their audio files to their NFTs and can later sell it in the NFT market in the form of unique collectible. It is more like a blockchain edition of music albums that artists otherwise release on YouTube, Spotify, etc.

These musical NFTs are helping the artists, music composers, bands, and DJs to reach out to their fans in a whole new way. While NFTs cannot replace traditional record labels and streaming platforms anytime soon, musicians are certainly acknowledging the advantage of saving hte intermediary cost that eats up on revenue.

Arudhi Verma

Arudhi writes on Politics, Economy and Latest news. A commerce and psychology graduate with a soft corner for classic novels, nothing spells 'love' like art and coffee for her. When not writing/reading poetries, she can be found dancing alone in her room with loud music or painting by her window. She has played professional roles as Writer, Editor and Assistant Director in past and doesn't hesitate from trying new boxes every now and then.

In February, a GIF showing a rainbow cat famous in the internet sphere called “Nyan Cat” was sold for 300 Ethereum, or about $580,000. Around the same time, a clip of basketball player LeBron James performing a spectacular act was bought through the NFT platform “NBA Top Shot” for the equivalent of US $208,000.

Controversy between NFTs and Carbon Footprint

There is a lot of criticism of the NFT market because of doubts about the economic dangers and environmental impact it can bring.

The Ethereum blockchain where most NFTs are stored is particularly energy-intensive, because in order to make transactions secure and in the decentralized form it is necessary that many computers that enable its existence have to be running continuously, which means a high energy cost, and this coupled with the fact that most of this equipment uses fossil fuels.

In fact, blockchain technology consumes a lot of energy because of the computing power required. Thus, the Bitcoin network uses gigawatts of continuous power or tens of tons of CO2 per day.

But the Ethereum Foundation announced that it will upgrade the Ethereum blockchain to Ethereum 2.0, which means that the platform will stop using Proof-of-Work (PoW) and will switch to Proof-of-Step (PoS), to make the blockchain 99.9% greener properly.

Physical collectibles are protected and verified by various authentication mechanisms, however, none are particularly reliable in today’s world when even acclaimed art collectors and appraisers have been fooled by forgeries.

But Aren't NFTs in a Speculative Bubble?

Are NFTs in a bubble?

Very likely, yes, NFTs have been in a speculative bubble in 2021.

There has been a lot of investor speculation in this space and there is no denying that this speculation has been driving up prices.

But how did we get here?

In 2017, CryptoKitties, a game in which users breed and trade digital cats, brought attention to NFTs.

CryptoKitties, however, was still a rather niche project at that time, known primarily by people who followed the crypto space.

But by 2020/2021, NFTs really started to capture the attention of the general public. And with that attention, we saw a huge explosion of participation, and, of course, prices.

There are a few reasons that can be attributed to the increased value of NFTs in the past year.

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