The blockchain, as it were, has moved some people from a point ‘A’ to another point ‘B’ and for those who have been able to adapt and adjust to the technology, this movement is a positive one. While some people have amassed good fortune with the aid of the blockchain, some remain, lagging behind. Recently, there has been a lot of buzz around NFTs and it won’t hurt to know what NFTs are and why they are worth so much.
NFT is an acronym for Non-Fungible Token. But to get a better grasp of the subject, it will be helpful to understand what is meant by the term ‘fungible’. For something to be fungible means that it has units which are interchangeable. NFTs mean exactly the opposite. To better explain this, let’s use the example of a $100 bill. A $100 bill can be exchanged for two $50 bills and the value remains exactly the same. This is because fiat currencies are fungible and NFTs are exactly the opposite. Non-fungible assets have unique properties or attributes that make an exact interchange with another asset impossible. The Mona Lisa hanging in the Louvre in France is non-fungible. One of the simplest ways to think of NFTs is as certificates of ownership for assets.
Like every physical piece of art, the worth of NFTs are determined by different factors such as its connection to an artist, its cultural significance and its history. Among many things, NFTs solve the issue of an oversaturated digital world by allowing for verified ownership. While it is true that photos can be taken, prints can be made, digital files can be copied and pasted, there will be only one original of the Mona Lisa. NFTs work pretty the same way.
In 2021, a digital-only artwork sold at Christie’s auction house for an impressive $69m. The highest bidder didn’t receive a physical painting or even a print of the artwork they bought; they received an NFT. The NFT isn’t the asset or piece of artwork itself, but rather a piece of code on a digital ledger that maps out the metadata of the asset, such as its owner, where the asset is, and such. The following are some of the reasons NFTs are worth so much.
With the internet and the accompanying ubiquity of digital contents, forgery has become a business for some people. NFTs are far more reliable in this sense, as their originality is cemented in the blockchain. Being able to prove authenticity adds to the worth of an NFT.
NFTs are permanent – their code and metadata can’t be altered or changed, and they’re secured for all the world to verify on the blockchain. Knowing that your NFT (digital certificate of ownership) is secure on the blockchain, adds to its worth.
An NFT might not only be a way to demonstrate your taste in art or pop culture, but it can also demonstrate your membership in a community. We see this in particular with NFT collections such as CryptoPunks, Bored Apes, and many others. By owning an NFT in one of these collections, you essentially become a member of that community. And some of these communities are quite active. Combined with utility, these NFTs could be a powerful economic force. This also adds significantly to their worth.
In the same way that the Mona Lisa is one-of-a-kind, many NFTs are also one-of-a-kind or limited. Therefore, the rarity of an NFT can add to its worth.
NFTs can be enhanced by utility. For example, you can offer owners of an NFT a backstage pass in the real world; you can associate physical goods along with the NFT; you can allow for fractional ownership. And this type of utility can add significant value to an NFT.
NFTs are easily transferable. They can be resold to practically anyone around the world, meaning there’s a massive pool of potential buyers. Easily being able to flip an NFT adds to its worth.
Putting Things Together
We can see clearly that NFTs are not just simple JPEGs. They have the potential to add real value by bringing in some sort of special connections into the digital world that we see with physical art. The worth of an NFT is enhanced through its authenticity, scarcity, transferability, immutability, utility, and community.