The NFT market witnessed incredible growth in 2021, with the trading volume reaching $10.7 billion in the third quarter of the year, a massive 723% increase from the previous quarter and a staggering 38,000% YoY growth. What was once considered a niche idea has quickly become mainstream in a short amount of time.
This sudden rise in popularity is attributed in part to celebrities and well-known individuals embracing NFTs and giving it credibility. Additionally, people interested in cryptocurrencies view NFTs as another means of making money and obtaining value. However, despite its rapid growth, NFTs also face a significant amount of skepticism and doubt about its market. Despite this, the technology behind NFTs is considered useful and has practical applications.
So what are NFTs and are they a wise investment option? NFTs are digital assets that are verified and stored on a blockchain and are typically traded using cryptocurrency in NFT marketplaces like Opensea and SuperRare. In the early days of NFTs, they were referred to as “art on the blockchain” or “dank rares.” Now, NFTs are a rapidly growing market, but with their growth comes skepticism as well.
The growth of non-fungible tokens from digital art to big brand investment
A non-fungible token can be simply defined as a digital ownership certificate for a unique asset. This involves digitizing any item, property, contract, etc. and the NFT itself serves as evidence of ownership. NFTs encompass a wide range of digital content including music, video clips, domain names, and tweets, but the current focus is on collectibles and digital art. The NFT collectibles market has generated over $5.6 billion in sales, while digital art has generated over $1.8 billion.
Art and collectibles have become a major aspect of NFTs as they align perfectly with the purpose of NFTs. They serve as a certificate of authenticity and ownership. While physical items can be easily authenticated due to their uniqueness, digital copies can be easily replicated. An NFT provides additional validation of ownership in the digital realm.
And the market is only about to get bigger. In October 2021, cryptocurrency exchange Coinbase and auction house Sotheby’s both announced their intentions in launching their own NFT marketplaces. I think it’s really exciting to see big companies, Budweiser, Arizona iced tea, those types of brands coming in and buying NFTs and saying we want to play in this space, as well as investment companies saying we’re going to add crypto, whether it’s cryptocurrencies or NFTs, to our portfolio options services that we can assist with. There’s only a couple 100,000 users on even the largest NFT platforms today. And you know, when you have big players like FTX, or Coinbase, or even larger entities organizations come into this market, it just expands the userbase.
There are many reasons why NFTs have caught the attention of investors, but its most alluring quality lies in its potential for profitability. I do believe that a lot of new participants are doing it because they believe there’s an opportunity to make money. And it’s not false. People have made substantial amounts of money in the market flipping and trading these assets online, so it’s not like you can’t do it.
There aren’t many other good investment options, particularly for younger people. Because you can’t afford to buy a house, you can barely afford to pay your rent. Your job probably pays you peanuts, and the stock market is perceived as an insider’s game. So why not put all your money into a digital lottery and see if you can’t make a million dollars overnight? Who knows, you could be the lucky one. Meanwhile, the underlying blockchain technology allows collectors to have a more accurate proof of authenticity and originality while giving artists more control over their work.
The blockchain’s impact on art and collectibles
The blockchain operates as a database that maintains a list of transactions that are dispersed across multiple computers. This makes it difficult or even impossible to alter the records on the blockchain, thus ensuring the trustworthiness of the information stored on it. This allows for verifiable authenticity and scarcity, which is particularly beneficial for the art market or any market that deals with collectibles. On the blockchain, it is possible to determine the exact number of prints of a particular artwork, a task that is challenging to achieve in the physical world.
Despite its advantages, many experts are wary of investing in the NFT market due to its current high prices. The concern is that the market has ballooned too quickly due to excessive hype and speculation. The driving force behind the high NFT prices is likely the hype surrounding cryptocurrencies. The current situation can be seen as the latest chapter in a sequence of market bubbles. This particular bubble may reach its peak, which is a cause for concern for experts. Despite understanding why younger people are attracted to this market, the uncertainty surrounding its stability still raises alarm.
Another problem in the NFT market is its volatility. Volatility is a common characteristic of cryptocurrencies, and a majority of NFT collectors have a background in cryptocurrency. As a result, the value of NFTs is closely tied to that of cryptocurrencies. As long as this volatility persists, we can expect to see repeated market bubbles. Is it wise to entrust one’s retirement savings to an asset that can fluctuate wildly, from being worth $1,000 one day to $1 million the next and back to $1,000 the following day? Retiring on such a precarious source of income would be a challenge. One must be prepared to face the possibility of both significant gains and losses.
Security concerns and the question of ownership
The security of NFTs has been a major concern in recent months, with many reports of thefts and scams making headlines. Despite this, it is important to note that the insecurity of NFTs is not a fundamental issue. The challenges surrounding the security of NFTs are similar to those of other technologies and finding a completely secure technology is rare. As the NFT market is decentralized, the responsibility of keeping your assets secure lies with the investor. This means that by taking the right precautions, such as backing up your private key, storing your NFTs in a safe wallet, and using secure passwords and uncompromised devices, NFTs can be secure. Despite the security concerns, investors should not let this deter them from investing in NFTs but instead should take the necessary steps to ensure the security of their assets.
One of the key challenges in the NFT market is the issue of ownership. Despite the fact that only a select few can purchase tokens, almost anyone can make unlimited copies of the original artwork. This leads to the question of what exactly investors are buying when they invest in a token. The digital nature of NFTs and the ability to create perfect copies of the artwork challenges our understanding of what ownership means and what constitutes an “original” or “authentic” copy of a work.
For example, when it comes to paintings, there is only one original piece, such as the Mona Lisa located at the Louvre in France. Any copies made of the painting are not considered to have the same value as the original. However, with digital artwork, the ability to create perfect copies raises the question of what constitutes authenticity and originality, since all copies of the work are identical.
When it comes to investing in NFTs, it’s important to approach it from a place of personal interest and passion. Don’t purchase NFTs simply because they are a new form of digital asset, but rather choose them based on your appreciation for the artwork or collectible item. It’s crucial to buy NFTs that you truly love and want to own, rather than just jumping on the bandwagon of the NFT trend or being drawn in by the technology behind it.
Embracing the future of digital collectibles
If you’re considering investing in NFTs, it’s important to approach it with a collector’s mindset, not a speculative one. Mass speculation, where people aim to flip their investments quickly for a large profit, is likely to result in disappointment. Instead, the advice is to only purchase NFTs that you truly love and wish to own, not simply because they are NFTs. This could be because you enjoy the art, find the collectible to be cool, or want to be part of the community or history surrounding the NFT. When buying NFTs, it’s important to consider if you would still be satisfied with your investment even if the whole NFT market were to collapse tomorrow. Despite differing opinions, one thing both supporters and skeptics can agree on is that this is only the beginning of the NFT movement.
s NFTs become increasingly popular, it’s important to consider the potential for volatility in the short-term. Despite this, many experts remain bullish about the future of NFTs and believe there is significant opportunity for growth. The current state of the NFT market is only the beginning and there is much more potential for the industry to grow and evolve. Some people may feel like they have missed the boat when it comes to NFTs, especially artists, but it’s not too late to get involved. NFTs have already made a significant impact and are changing lives, making it unlikely that they will disappear anytime soon.
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