The rise of NFTs in 2021 has sparked a debate about their future. Despite this, digital collectibles continue to dominate the market. According to Chainanalysis (blog), NFT collectors sent over $37 billion to NFT marketplaces as of May 1, 2022, surpassing the $40 billion total sent in 2021.
However, the current cryptocurrency and blockchain market is turbulent, with bitcoin falling and widespread inflation.
So, will NFTs face an imminent demise? What drives their value? Let’s explore.
What are NFTs, anyway?
Imagine you are an artist wanting to sell your masterpiece. Instead of going through an agent, you can sell it directly to collectors through a digital auction by transforming your physical item into a digital collectible using NFTs.
In simple terms, NFTs are blockchain tokens that represent a unique digital item, allowing users to buy and sell ownership of these items without intermediaries.
NFTs are typically traded on specialized marketplaces, giving the holder ownership over the related data, media, or item.
What does non-fungible mean?
To understand “non-fungible,” it’s important to grasp the concept of “fungible.” The blockchain contains numerous identical tokens that can replace each other without disrupting the system. For example, bitcoin and other cryptocurrencies are fungible. NFTs, on the other hand, cannot be replaced or divided into standalone tokens. Each NFT is unique and cannot be shared. All information about its author, buyer, and transactions is securely stored in a blockchain. In this sense, NFTs are similar to real art, as they are unique and cannot be compared.
What makes NFTs valuable?
Although NFTs have no physical value, they gain value from scarcity, provenance, and the potential for future value. Their scarcity and exclusivity, combined with their status as part of art history, contribute to their value. Additionally, their ownership history is visible and transparent thanks to the blockchain, providing authenticity and source information. Furthermore, NFTs can appreciate in value over time, acting as a long-term investment for buyers.
Will the NFT industry collapse soon?
There is speculation about the sustainability of the NFT industry, but it’s important to remember that the industry is still in its infancy. Factors such as rising prices of Ethereum and other blockchain-based assets, and an oversaturated market, could contribute to a potential collapse. Many experts draw comparisons to the Dutch tulip mania, suggesting that the finite supply, blockchain vulnerabilities, energy-intensive mining, and the potential to copy unique collectibles could undermine the promising prospects of NFTs.
What does the future hold for NFTs?
Despite these concerns, the increasing popularity of NFTs is evident in the surge of wallets trading in NFTs. While the NFT boom may seem like a fast-flying frenzy, non-fungible tokens present opportunities for collectors and enthusiasts, with potential applications in gaming and asset ownership.
