With the cost of Bitcoin booming to over $60,000 dollars in 2021, we found ourselves just about wrapping our heads around digital currencies and blockchain technologies. Then, NFTs broke onto the scene. Now almost every single celebrity or company is launching their own iteration of some form of NFT service. From Salman Khan to Amitab Bacchan, even the most prominent figureheads in the country are jumping onto the NFT bandwagon. Surely, with markets and interested actors showing such keen interest in NFTs for Sale and the digital art NFT markets, there must be something to it after all? Let’s try to understand what NFTs are, how much of it is legitimate value, how much is just hype, and more importantly, should you be rushing to buy NFT tokens right this moment?
In order to understand what NFTs are, we must first aim to understand a little about how blockchain technology runs. For the sake of this explanation, let’s look at the blockchain as essentially a giant ledger of transactions. If you buy bitcoin, for instance, this transaction is logged in the bitcoin blockchain, which is composed of various computer network nodes.
Similarly an NFT or Non-fungible token is a one of a kind piece of code in the form of cryptographic assets that is stored on a blockchain, most commonly, the Ethereum blockchain. If you create an NFT of your digital art for instance, that NFT will be the sole instance of that artwork etc, with no replicas. Unlike a JPEG that can be copied, an NFT is a singular unique asset that can only be bought and sold, not replicated.
There is a lot of hype around digital art NFTs with countless pieces of digital NFTs for sale , and an equal number of people rushing to buy NFT tokens; and all of this hype is not baseless. The technology behind NFTs holds a lot of potential for Copywriting art, IPR and in the fight against piracy; If an artist releases a piece of art as an NFT, the blockchain will have a clear log of ownership, eliminating the possibility of fraud. Furthermore, tokens could hold significant value in a world increasingly looking to focus on virtual and augmented reality.
There is, however, a caveat. The value of NFTs are not based on any tangible asset. Unlike a company’s shares or bonds which are based to a large extent on its existing business lines, tangible and intangible assets, creditworthiness etc, NFTs are purely speculative in nature. Their value is determined only by what investors believe them to be worth in the future. Whilst this is similar to the market for physical art, the fact that only piece of that artwork exists increases its scarcity and thus its value. Digital assets such as NFTs have the potential to be widely distributed, even if only one owner is regarded as the actual owner of the original asset. An example of how speculative investments of this sort work can be seen in the extreme volatility in crypto markets, which could put novice investors who do not understand the underlying technology and dynamics of the market at risk.
Digital art NFT tokens have significant promise for the future, which to a large extent justifies the global investment on an institutional level in the technology of blockchain and its various uses. As an individual investor, however, if you are considering investing in NFTs, you should ensure that you research any investment thoroughly and allocate only a small portion of your portfolio to the same. As time passes, you’ll be able to see how the technology develops and if the asset still has value for investors going forward.
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