As wild as it might sound but there are individuals out there who have an immensely crazy fetish for paying millions of dollars for tokens. NFT, also known as non-fungible token is a unit of data that is stored in blockchain and can be a digital answer to your unique collectibles. In economics, a fungible asset has the property of interchangeability and each of the asset’s part is indistinguishable from another part.
However, NFTs do not play along with this economics principle as they are non-fungible. As aforementioned, a non-fungible token is a unit of data stored on a digital ledger, called a blockchain, thus it emphatically certifies any digital file to be unique.
picture credits- Mint
It is to be known that in the digital world, NFTs are “one-of-a-kind” asset, which can definitely be bought and sold in a primitive manner but do not have a tangible form of their own. Interesting, right? Thus, it can be righty stated that these digital tokens are considered as certificates of ownership for physical and digital assets that are “one-of-the-kind”. But this gives way to a sensible query as to maybe your digital ownership can be forged? Giving you a sense of relief, the records can not be forged as the ledger is maintained on millions of computers around the world, that emphatically safeguards your ownership.
How does tokenized work help industries?
For the starters, artist like Mike Winkelmann, digital artwork entitled “Everydays – The First 5000 Days”, in 2021 sold for a whooping price of US$69.3 million. The incredible sale of the digital artwork led to shock waves among various artists as the purchase resulted in the third-highest auction price achieved for a living artist. It is to be noted that the purchase did not result in actual ownership or physical exchange of the artwork, but it was the use case for NFTs. It is due to the ability of blockchain technology that assures the ownership and unique signature of NFTs. Additionally, CEO Dylan Field, sold a digital avatar entitled “CryptoPunk #7804” for US$7.5 million. This was coupled with the sale of a second avatar “Ape, Fedora #6965” for US$1.5 million in February 2021. NFTs represent collectibles and assets like card collections but again, of course, in a digital format.
The industry making the most out of the NFT technology is the pandemic struck music industry which has recorded decline in revenues by 85%, due to no tour revenue this season. As aforementioned, this is possible due to the blockchain technology that enables the network to give this golden opportunity to musicians to tokenize and publish their work as non-fungible tokens. It is to be noted that this has significantly extended the opportunistic list of options for musicians and artists to monetize and profit from their music. This works, as NFTs allow more avenues for supporters and fans to support their cherished bands or artists amidst detestable pandemic.
According to reports, NFTs were immensely popular and tremendously beneficial to the music industry within 2021, as in February 2021 alone, NFTs reportedly generated around $25 million within the music industry.
Why experts consider it as a bubble?
NFTs have been around for years and its market is certainly blooming and has exploded into a bonafide frenzy in recent months. For the very basic reasons, NFT’s strength can also be considered as its weakness. As anyone on the internet today can create an NFT out of literally anything, it means that there is an innumerable number of “really bad” tokens out there. It takes a keen and an experienced eye to rummage through the innumerable tokens to weed out what’s worth collecting or investing in.
Another reason for which perhaps even cryptocurrency is admonished is high volatile nature of the NFT market. The market suffers from massive volatility as there aren’t any credible mechanisms in place yet to help people price or value assets. According to reports, over the course of 2020, the value of some of the most popular types of NFTs spiked by around 2,000%. In terms of liquidity, that measures that how quickly an asset can be converted to cash, NFTs are not like bitcoin or stocks but rather like one-of-a-kind baseball cards as every seller needs to find a potential buyer who’s willing to pay a certain price for the one-of-a-kind item.
Another potential cause of the token bubble is the dubious ownership claims of the NFT. There is usually a fine distinction between the token itself, which as aforementioned, is a record of ownership that lives on a blockchain and the asset it refers to. The asset which is usually a photo or a video is stored separately. If an organization that issued NFTs goes out of business and ceases to exist and stops hosting various digital artworks, buyers will be woefully left with tokens pointing to files that no longer exist.
Therefore, what do you think that is NFT a potential monetizing alternative or a financial bubble that is doomed to burst?