Recently, along with the rise of cryptocurrency has been the rise in popularity regarding NFT’s. You might have seen pieces of digital art being sold for upwards of $700,000, and been wondering, “how does that even have any real value”, or “why would anyone want to buy that”. In this article, the concepts behind NFT’s are going to be explained, and will hopefully give you some clarity.
What is an NFT?
NFT stands for Non-Fungible Token. This means that the asset cannot be interchanged with another NFT, because no two NFT’s are identical. This is the opposite of, for example, something like money. If you had $5, you could exchange that $5 for 5 $1 bills. These two sums are equal and therefore hold the same value. With NFT’s, this is impossible. Think of them like artwork. Starry Night by Van Gogh is unique, because it was painted by him and there is only one of it. You cannot exchange it with another piece of art, such as the Mona Lisa, because you can’t necessarily correlate the values. A token is a digital certificate stored on a secure blockchain of transactions. These NFT’s are publicly verifiable to the original creator, making legitimate fraud impossible.
Why do NFT’s even have value?
It’s hard to quantify value with the ownership of a digital piece of art, let alone with that art being worth potentially thousands of dollars. The reason that NFT’s have value is because people like gamers and collectors can become the owners of ingame items, and end up making money or commissions from them. They also don’t need to sell them with the help of an auction house, allowing them to keep a larger share of the profits. The creators of these works of art can also earn royalties as their pieces of art are sold. The NFT’s are extremely rare, and because of the simple structure of supply and demand, this correlates to lots of value for them. An example of this would be the $222,000 spent on an NFT to purchase a segment of the digital Monaco racing track. In the F1 Delta Time game. The owner receives a 5% commission every time races are held on this track, including entry ticket fees.
What are some examples of popular NFT’s?
- Dragon, the CryptoKitty is valued at 600 eth, or 1,770,618.18 (5/1/2021)
- CryptoPunk, valued at 1,445,536.95 (5/28/2021)
NFT’s are a risky investment, and similar to Crypto, is something that you should only really look into if you completely understand it, and it’s high level of volatility.