In cryptocurrency there are a number of topics that are exploding with popularity.
One such topic is NFTs.
Non-fungible tokens (NFTs) are capturing the curiosity of the market. The concept of NFTs, while confusing at first, can ultimately change how you view the digital market.
While at first, they may just look like normal digital art, NFTs have much more utility than what you’d assume. Some projects are just collectibles, or rare art, from world-renowned artists that are going for ungodly amounts of money. But others have uses and plans that are revolutionizing the crypto market. During 2020, over $250 million worth of NFTs were bought and sold. This was a drastic increase from the year prior, up nearly 300%. Wide-spread adoption of NFTs and cryptocurrency is coming quickly, with celebrities and other notable individuals like professional athletes getting involved.
So, what’s the big deal? What are they?
NFTs are digital assets kept on a blockchain. They have unique qualities that prevent them from being interchangeable. This means they are difficult to copy, forge, or steal due to their home being on the blockchain. Each purchase is able to guarantee the authenticity of the item being sold.
The first problem this technology solves is ensuring artists around the globe receive their well-earned royalties from their work. The type of first-generation NFTs were music, artwork, event tickets, physical assets, domain names, and collectibles. This was only the beginning, over the last couple of years more and more uses are being found and utilized. One new utility intriguing investors is the ability to “buy in” to decentralized autonomous organizations.
Individuals who buy a project’s NFT, and stake it onto their platform receive proof of stake bonuses or yields from their initial capital. Additionally, some of this artwork is prepping for the metaverse and various play-to-earn games. Which means that if you bought a planet, avatar, car, etc. you could play with this asset in your digital space inside the Metaverse. Hello Ready Player One.
Currently, most NFTs are found on the Ethereum blockchain. Ethereum-based tokens are utilized to authenticate the ownership of the NFT. The item or collectible in question is attached to the token, so you can copy the file from someone else’s NFT, but it will clearly not be the original. Whoever owns the token owns the NFT. Each copy is verified as not being the original, drastically lowering the price of the asset to $0. The token attached to the asset contains the ownership information, a certificate of authenticity, and copyright information.
The blockchain itself is the public registry for ownership of all digital items. A ledger entry is created for any interaction on the blockchain. This entry, when interacting with NFTs, contains the address to the asset, which establishes the ownership of the NFT. When the NFT is sold the associated token is also transferred and noted as a ledger entry. This transfer of the associated token is how NFT ownership is tracked on the blockchain.
While NFTs gained popularity on the Ethereum blockchain they are no longer the only blockchain in the space. Due to the high fees associated with interacting on the Ethereum blockchain, other players are throwing their hat into the ring. Polygon, Solana, and most recently Avalanche are joining the craze. These blockchains require much fewer fees than Ethereum, making the barrier to entry much more manageable for the new investor. It is fair to note, that although the fees are much higher on Ethereum, it is still the leader in the space. It is not uncommon for popular NFTs to be sold for hundreds of thousands if not millions of dollars on the Ethereum blockchain. Beeple, a leader in NFTs, sold multiple million-dollar pieces during 2021. Snoop Dogg, a self-proclaimed whale or mega-investor in the space, reportedly owns over 17 million dollars in NFTs.
It may seem attractive to jump into this world of digital artwork. All that we ask at The Vegas Take, is that you be sure to always do thorough research. Speculative assets like NFTs could skyrocket 1000%, or they could drop to be worthless. Thanks for reading! This article is part of the educational series where I highlight different aspects of cryptocurrency.
As a reminder, I am not a financial advisor, and this is not investment advice. Please always do thorough research before investing.