Three experts explain why NFTs are so popular and what they mean for crypto investors
Table of Contents
- What is a Non-Fungible Coin, or NFT?
- NFTs are a popular choice all the sudden.
- Is NFT a good investment?
What does CryptoPunks, stoner Cats and an animated flying cat wearing a Pop-Tart body share in common?
All of them are NFTs, or non-fungible tokens. The NFTs, which are digital ownership of an irreplicable range of intangible goods, are the coolest kids on the crypto block.
Although they have been around since 2014 (and still in use), 2021 marked the beginning of mainstream adoption. According to data collected by DappRadar (an app store for decentralized apps), total NFT sales reached $25 billion in 2021. This is a significant increase from $94.9 million in the previous year. They have attracted the attention of big companies such as American Express and Gucci and have seen a huge impact on the worlds music, art, and sports.
Humphrey Yang, personal financial expert behind HumphreyTalks, says that buying an NFT can be “even more risky” than buying crypto. It’s almost like an investment in crypto. It’s basically gambling, but people don’t know the difference. They just buy them because they’re fun.
However, many people buy NFTs as fun or because they bring them joy. Laura Shin, a crypto expert, is one of these people. Although she purchased an NFT that was related to music, she claims her decision was driven not by investment but emotion.
Shin, a cryptocurrency podcast host, says that he bought the Kings of Leon NFT as soon as it was released. Shin is also the author of “The Cryptopians”: Idealism. Greed. Lies. and the Making of the First Big Cryptocurrency Crazy. This refers to the Kings of Leon album released via a NFT. “I bought it because I wanted to purchase it in the same way as any other thing. It wasn’t an investment. It was an emotional thing. That’s how a lot NFTs are.
Here’s a primer to help you decide if NFTs should be part your investment strategy.
What is a Non-Fungible Coin, or NFT?
An NFT, contrary to popular belief is a token that was created on a blockchain. It proves that you are the sole owner of that unique digital item. An NFT can be more than a JPEG. It isn’t a profile photo of a bored ape or a tweet made into a digital collectible or a pixelated punk look.
These are all the things an NFT can represent. What they are actually representing is code, also known as smart contracts. NFTs are powered by smart contracts. They allow you to sell or transfer NFTs, pay royalties to artists, interact with the metaverse and much more. Most NFTs are built on Ethereum blockchain.
NFTs are not able to be exchanged directly for each other like regular cryptocurrency. Because NFTs cannot be exchanged for one another, even if they exist in the same game, platform, or collection, there are no identical NFTs. The underlying thing that you are buying is code, which manifests in video clips, photography, and art among other things.
It may be helpful to understand the concept of “non-fungible” to better understand. If an item is fungible, it can be replaced or resold by another identical item. Cash is an example. You could keep multiple $5 bills in your pocket and use one to purchase something. It can be interchangeable and is therefore fungible. It is also interchangeable and therefore fungible.
Jack Dorsey, for example, sold his first tweet to an NFT for more than $2.9 million in 2013. Technically, you can take a screenshot of Dorsey’s first Tweet and save it on your phone. However, it is not yours and you would not be able sell it at the same value as the original. This distinction is important when it comes down to NFT trading. The digital representation of Dorsey’s tweet is owned by the person who purchased it. It cannot be duplicated or used in any other way. Yang says, “I would consider an NFT a digital collectible — it’s as much to me as I would think into.”
NFTs are a popular choice all the sudden.
People didn’t understand non-fungible before 2021. Now, celebrities like The Weeknd and Paris Hilton use it in their everyday conversations. According to DappRadar , NFT sales have risen by nearly 38,000% over the past year. The most expensive NFT sold was actually auctioned in 2021 by Beeple, a $69million sale. Even a skit on SNL about NFTs is available. It was actually minted into a NFT.
So why is NFTs so popular?
Experts believe that NFTs’ explosive popularity is a sign of the unpredictable adoption curve of new technologies. There were many factors that contributed towards NFTs’ growth in 2021.
The bull run in Ethereum and Bitcoin saw many new investors flock to crypto in 2021. Yang says that once you have some crypto it is easy to explore other crypto investments such as NFTs and staking. Artists and creators have a new way to show and monetize their work through NFTs. They also provide transparency and authenticity about ownership.
There have been many celebrities talking up them and contributing to the buzz on social media. Take, for instance, the Bored Ape Yacht Club. One was purchased by Jimmy Fallon, one by Stephen Curry and one bought by Paris Hilton. If you buy a Bored Ape you will be part of the same group as many celebrities. There is even an in-person element with Board Ape Yacht Club parties. People are competing to purchase Bored Apes because there is only a limited number — approximately 10,000. Yang says that these two features are what make them valuable in a societal context. Stephen Curry is a great example of someone who wants to be associated. You can also own a NFT and go to any of their parties. Yang says that it’s like a membership card, and the value comes from other people assigning value.”
Is NFT a good investment?
Experts say NFTs are not yet ready to invest in primetime. There are many aspects of crypto that you need to be comfortable with before purchasing an NFT.
One, it is difficult to buy an NFT, according to Doug Boneparth (a New York-based financial advisor and president at Bone Fide Wealth). To get started you will need an Ethereum-compatible cryptocurrency wallet, some ether, and to connect your wallet with an NFT marketplace. There are many hoops to jump through. Also, NFTs are vulnerable to scams and crypto hacks . These have become more sophisticated and common. You can find out how many opportunities there are to get into trouble by doing a Google search for NFT scams.
Then there is the issue of utility and value. NFTs do not have the same intrinsic value as a stock or bond. Yang says that a successful NFT is like a strong brand. It is valued by others, so it is “only as valuable” as the price someone is willing to pay. Yang says that NFTs are generally not a good idea for average investors unless they’re looking to invest in art or if you’re okay with never seeing the money again. NFTs are full of inherent risk.
Need A NFT Smart contract creator? Meet anftraders.com