NFTs are everywhere, and it seems like everyone is talking about investing in them. But why are they so expensive?
In a world where everything is going digital, from ordering food to finances, NFTs are the latest addition. And it’s come to point of becoming mainstream, leaving us with no choice but to sit back and take notice!
NFTs started making all sorts of noise in early 2020, which left us both excited and confused at first. In 2021, sales of NFTs reached some $25 billion as the speculative crypto asset exploded in popularity, data from market tracker DappRadar shows. A possible investment and a viable source of digital transaction, we are here to decode what makes NFTs so expensive. But first, let’s start with what are NFTs.
What are NFTs?
In simple words, NFTs are non-fungible tokens. When we say non-fungible, it means that these tokens or assets are unique, irreplaceable and provide exclusive ownership on the blockchain. They are something of value that cannot be interchanged. NFTs can be anything digital, such as a piece of art, or drawings, or music.
This means that you own digital work in any form that no one else can possess. And depending on what its value is in the NFT space, you can decide to either keep it as a collectible or trade it for profit.
But the question remains why are NFTs so expensive.
Why are NFTs expensive?
First things first, NFTs are non-fungible, which means that the ownership of the item lies solely with the person. They verify the authenticity of a non-fungible asset, which makes these assets unique and one of a kind. For example, investing in a Picasso piece of art. There can be multiple copies of his art but only one original piece. That is what makes the original painting valuable and irreplaceable.
NFTs are different from cryptocurrency in the manner that you can exchange cryptocurrency to purchase valuable products, so they are fungible that way. NFTs are not, and that is why they are such a huge investment tool.
Other factors that make NFTs such valuable investments are utility, ownership history, underlying value, perception of the buyer, liquidity premium and future value.
How are these NFTs created?
The process of creating an NFT is called minting. Artists, gamers, different brands, musicians, etc. can create NFTs and put them up for sale. After creating the item they want to sell, they can list it out on a digital marketplace of their choice.
The creator of the piece of work usually attaches a certain commission to their work, so that anytime someone purchases it, the creator gets paid.
As the charges for the transaction and the gas or energy required to make that transaction are quite high and are borne by the buyer, the seller stays in benefit for every purchase. Also, these energy charges can fluctuate for different sites.
A creator can get on any platform like Rarible, Ethereum, and SuperRare. These are platforms where NFTs are created and traded. For the artist or brand, these platforms allow you to create NFTs using blockchain technology that cannot be changed or copied. This means that once the NFT is created, nobody can ever change or alter the ownership of this creation and neither can it be recreated.
Once the NFTs are uploaded, they can be viewed by anyone and can be bought or sold, much like stocks. They are like collectibles but also valuable investments.
What are your thoughts on NFTs?
Main image credit: Courtesy Instagram/notfungibleman
This article first appeared on Lifestyle Asia India.