2022 cancels The Dawn of NFTs
The meteoric increase in NFTs in 2021 has led to a lively debate about the future of non-fungible tokens. But while experts argue about the long-term viability of NFTs, digital collectibles maintain their stronghold in the market. According to Chainanalysis (blog), NFT collectors sent over $ 37 billion to NFT marketplaces as of May 1, 2022. This number topples a total of $ 40 billion sent in 2021.
However, the current market for cryptocurrency and the blockchain is a shocking reason with bitcoin tumbling and violent inflation.
So, will we ever witness the imminent demise of NFTs? And what drives their value? Let’s find out.
What are NFTs, anyway?
Let’s say you are an artist who wants to sell your masterpiece. You have painted it and you have full ownership of your painting. But instead of paying the agent to sell your painting, you can sell it directly to collectors through a digital auction. To do so, you must transform your physical object into a digital collectible. And this is where NFTs come into the picture.
Simply put, NFTs are blockchain tokens that represent a unique digital element. Non-fungible tokens allow users to buy and sell ownership of unique digital items without intermediaries.
NFTs are usually bought and sold on specialized marketplaces, and they give the holder ownership of the data, media or item to which the token is related.
What does non-fungible mean?
To define the true meaning of ‘non-fungible’, let’s take a look at what fungible means. Blockchain includes a lot of the same tokens, which can replace each other. In this way, the system can continue to operate without interruption even after the components in the block chain have been replaced.
For example, bitcoin and other cryptocurrencies are fungible. If you send someone a bitcoin or part of it, you can get one back. It also does not have to be the same bitcoin or the same amount that you sent. Physical currency is also fungible – you can make a change or convert it to any other fiat.
However, NFTs cannot be replaced or divided into stand-alone tokens. Each NFT is unique and exists in a single copy, thus prohibiting sharing. All information about its author, buyer and transactions is securely stored in a blockchain. In other words, an NFT is a digital certificate associated with a unique object.
In this sense, NFT is similar to real art. You can not replace Monet’s paintings with the Mona Lisa – they just can not be compared.
What makes NFTs valuable?
In a general sense, non-fungible tokens have no physical value behind them. However, they still go up in value because of the community. And there is a reason behind this upward dynamic.
Scarcity
Due to the blockchain nature, non-fungible tokens are minted once and for all. No living person can go back in time and manipulate the origins of NFTs. Let’s take the Bored Ape Yacht Club collection. The project was launched in 2021 with only 10,000 unique cartoon monkeys generated by algorithms. This deficiency has bred in the value of this collection, which now translates to $ 400K. Therefore, scarcity and exclusivity are among the cornerstones of the NFT ecosystem.
Besides, owning an NFT now is like owning a piece of art history. Valuable or not, non-fungible tokens have already gone down in history as an era of digital art.
Provenance
Thanks to the blockchain (again), the NFT ownership history remains visible and transparent. At the same time, authenticity and source are documented on the platform, which eliminates art forgery and theft.
On the contrary, to prove the authenticity of the Mona Lisa, a collector needs:
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- A signed certificate of authenticity from a recognized authority.
- A signed statement from the artist (which is definitely impossible in this case).
Non-fungible tokens have all this information easily registered in the blockchain which remains unchanged until the blockchain exists.
Future value
The third and final component behind the value of NFT is its rising value. Once purchased, a digital collectible can rise in value driven by the total demand or deficit of tokens. This means that buyers can sell their NFTs at a higher price than what they paid for them. In this sense, non-fungible tokens act as a long-term investment that in some cases can provide returns.
Will the NFT industry collapse soon?
There is a lot of speculation in the industry about whether the NFT industry is sustainable or not. Although there are some concerns, it is important to remember that the industry is still in its infancy. It is difficult to predict the future of an industry that is still so new.
That said, some factors may be contributing to the collapse of the NFT industry. For example, if the prices of Ethereum and other blockchain-based assets continue to rise, it may be too expensive for people to participate.
Another factor refers to an oversaturated market. We may see more NFTs being created than there are people interested in buying them. This can lead to a decline in demand and prices, which can lead to investors losing interest.
The current NFT mania is often compared to the Dutch tulip mania when tulip bulbs were hyped to the sky and speculated in. When the flooding disappeared, the tulip bubble collapsed.
Many experts believe that non-fungible tokens will follow in the footsteps of Dutch tulips. Limited supply, blockchain vulnerabilities, energy-intensive mining and the ability to copy and paste your unique collectible can undermine the bright prospects of NFTs.
What will the future bring for NFTs?
Non-fungible tokens and the blockchain terrain in general provide untapped opportunities for both wealthy collectors and enthusiasts. However, the NFT boom gives the impression of a fast-flying madness doomed to oblivion.
Nevertheless, non-fungible tokens combine the excitement of art ownership and modern technology, making it an attractive investment. Today, the growing popularity of NFTs is reflected in the numbers – the number of wallets traded in NFTs increased, from around 545,000 in 2020 to over 28 million in 2021.
Currently, non-fungible tokens are set to ride the wave thanks to their adoption in games and unlimited potential in assets.
