The explosive growth of NFTs in 2021 has sparked a lively discussion on the prospects for non-fungible tokens. However, despite disagreement among experts over the long-term viability of NFTs, digital collectibles continue to dominate the market. As of May 1, 2022, NFT collectors had sent over $37 billion to NFT marketplaces, according to Chain analysis (blog). This amount surpasses the $40 billion sent overall in 2021.
However, with bitcoin falling and severe inflation, the market for cryptocurrencies and blockchain technology is currently unstable. So, when will we see the end of NFTs as we know them? What determines their value, then? Let’s investigate.
What Exactly Are NFTs?
Imagine you are a creative person wanting to market your creation. You are the exclusive owner of the painting because you painted it. However, you can sell your painting to collectors directly through a digital auction rather than paying the agent to do so. You must convert your physical object into a digital collectible in order to accomplish that. NFTs have a role in this, too.
NFTs are essentially blockchain tokens that stand in for a particular digital asset. Users can purchase and sell ownership of one-of-a-kind digital objects using non-fungible tokens directly from one another. NFTs provide the holder ownership over the data, media, or thing that the token is tied to and is typically bought and sold on specialized marketplaces.
The Definition of Non-Fungible Token (NFT)
Let’s examine what fungible really implies before defining the term “non-fungible.” There are numerous identical tokens on the blockchain that can be used in place of one another. In this manner, even after the blockchain’s component parts have been changed, the system can continue to function without interruption.
For instance, cryptocurrencies like bitcoin and others are fungible. You can receive a bitcoin back if you send someone bitcoins or a portion of them. Additionally, it is not required that you send the same bitcoin or the same amount. Physical money can be changed or converted into any other fiat; it is also fungible.
However, NFTs cannot be changed or split into separate tokens. Since each NFT is distinct and only exists in one copy, sharing is not permitted. Its author, buyer, and transactional information are all safely preserved in a blockchain. Or to put it another way, an NFT is a digital certificate that is affixed to a special item.
NFT is comparable to authentic art in this way. The Mona Lisa cannot be used to replace Monet’s paintings; they are simply incomparable.
What Gives NFTs Their Value?
Non-fungible tokens, in general, have no inherent physical value. They still gain value, though, thanks to the neighborhood. There is a reason for this rising dynamic, too.
Scarcity
Non-fungible tokens are only ever created once because of the blockchain’s inherent properties. No one alive has the power to alter the creation of NFTs. Take the Bored Ape Yacht Club collection, for example. Only 10,000 algorithmically created, distinct cartoon apes were present when the project was introduced in 2021. This scarcity has increased the collection’s worth, which is at $400,000. Therefore, one of the pillars of the NFT ecosystem is exclusivity and scarcity.
Additionally, buying an NFT now is like owning a piece of art history. Non-fungible tokens have previously been recognized as a significant period in digital art, whether they are valuable.
Provenance
Again, the blockchain is to thank you for maintaining the transparency and visibility of NFT ownership history. Art forgery and theft are prevented at the same time by the platform’s documentation of authenticity and source.
On the other hand, a collector needs the following to demonstrate the Mona Lisa’s authenticity:
- A dependable authority’s signed authenticity certificate.
- A declaration by the artist was signed.
All of this information is conveniently stored in the blockchain for non-fungible tokens, where it remains unchangeable so long as the blockchain survives.
Future Worth
The third and last factor influencing NFT’s worth is its increasing value. A digital collectible’s value can increase after purchase, depending on whether there is a general shortage or demand for tokens. It implies that buyers can recoup more from the sale of their NFTs than they originally paid. Non-fungible tokens function in this sense as a long-term investment that occasionally yields a profit.
Will The NFT Market Soon Collapse?
Whether the NFT sector is sustainable is a topic of much discussion in the market. Even though there are some issues, it’s vital to keep in mind that the sector is still young. An industry’s future is difficult to foresee because it is still so young.
Nevertheless, a number of reasons might play a role in the demise of the NFT sector. For instance, it can become too expensive for consumers to join if the cost of Ethereum and other assets based on the blockchain keeps increasing.
An over-saturated market is a different factor. It’s possible that more NFTs are produced than there are consumers interested in purchasing them. This can result in a drop in both demand and pricing, which might turn off investors.
Many people link the present NFT craze to the Dutch tulip mania, which saw tulip bulbs hyped up and the subject of speculative speculation. The tulip bubble burst when the euphoria passed.
Numerous experts predict that non-fungible tokens will imitate the Dutch tulip. The promising future of NFTs may be threatened by factors including limited supply, blockchain weaknesses, energy-intensive mining, and the ability to copy-paste your special item.
What Is The Future of NFTs?
For affluent collectors and enthusiasts, non-fungible tokens and the blockchain landscape, in general, offer undiscovered prospects. The NFT boom, on the other hand, appears to be an ill-fated, fast-moving frenzy.
Non-fungible tokens, however, combine the thrills of art ownership with contemporary technologies, making them a desirable investment. The number of wallets trading in NFTs increased, from over 545,000 in 2020 to over 28 million in 2021, reflecting the NFTs’ rising popularity today.
Non-fungible tokens are currently poised to ride the wave as a result of their widespread use in gaming and limitless possibilities in asset ownership.
