What a weird time we live in! You can’t open your social media without everyone talking about NFTs. You step outside and everywhere you go - NFT this, NFT that. It seems that the world has gone meta!
Everyone is crypto crazy. What is this global obsession with NFTs? Here’s everything you need to know about the NFT craze.
What is an NFT?
Non-fungible tokens, better known as NFTs, are units of data stored on the blockchain. They are non-interchangeable pieces of digital art - usually photos, videos, and audio but pretty much anything can be an NFT, from a gif to a tweet or even a pair of sneakers.
Since NFTs are linked to the blockchain, they have a unique digital signature that allows anyone to verify the NFT’s authenticity and ownership.
How to create and sell NFTs?
It isn’t that hard to mint (the term for creating an NFT used in the crypto scene) your NFT. There are plenty of platforms that make it easy. In marketplaces like OpenSea or Rarible, all you need to create your NFT is to have an Ethereum wallet (MetaMask, Coinbase, or dozens of others) and simply upload your artwork.
To sell NFTs, you only need to mint your artwork to your profile and list it for sale. Keep in mind that most marketplaces take a creator fee.
How to buy NFTs?
If you want to buy NFTs, you have to turn to the same marketplaces I’ve talked about above. The buying procedures there are also pretty easy and all you need is to have an Ethereum wallet.
Every marketplace is different but most include the same steps:
#1 Set up a crypto wallet and acquire Ether tokens.
#2 Choose the marketplace you want to buy the NFT from and register the account with them.
#3 Connect your wallet to the marketplace. Usually, it is a simple process that requires signing in to the wallet via the marketplace.
#4 Choose the NFT you'd like to buy and bid in an auction, or, if there's a possibility, buy directly.
#5 After your bid goes through, the necessary amount will be debited from your wallet. In addition to the price of the NFT, you'll have to pay a transaction fee.
Why is everyone so crazy about NFTs?
What caused this massive obsession? There are many reasons behind the popularity of NFTs, but these are the main four features that make NFTs so appealing to people:
Authenticity
NFTs are authentic. They are minted through the blockchain and every NFT token has a unique digital signature, meaning it cannot be duplicated.
But I can just right-click and download it...
Yes, NFTs are digital, meaning they can easily be copied or downloaded. Anyone can reproduce it by taking a screenshot or right-clicking and downloading it. BUT: The true value of an NFT is in owning the original. The same could be said about traditional art - there are many copies of Leonardo da Vinci's Mona Lisa, but none of them are as valuable as the original.
The feeling that comes with owning something original gives people a sense of accomplishment and pride.
Ownership
Like with authenticity, the blockchain that NFTs operate under secures the proof of ownership through smart contracts. NFTs can only have one owner at a time, so if the owner sells the token, the transfer record will be immediately documented on the blockchain.
Uniqueness
NFTs are one-of-a-kind. Since they are non-fungible (hence, the name), each NFT is completely unique and cannot be exchanged with assets of the same type.
Scarcity
There is a limited amount of NFTs released with every collection. And, there is a sense of pride in being the person with a unique piece in their collection. A piece that no one else can get their hands on.
Some other things could also be at play:
Status and prestige
Status is important for people, so they use luxury items as a symbol of their status. Showing off a brand item guarantees them to be recognized by others as wealthy or belonging to a certain social status.
Belonging
People have a herd mentality - we want to belong with others. So we try to do the things others are doing to fit in. So if everyone is getting themselves involved with NFTs, we immediately do it too because we fear to stand out. And, the participation of huge brands and well-known celebrities plays a major role here since they create an image that everyone is doing it.
Emotion and representation
People put a sentimental value on objects. If an object they purchased invokes an emotion or a memory, it is valuable. People also get affected by the meaning and message behind the object, and they love choosing the things that represent their personality.
So, the same reasons why people are so drawn to luxury items are the same reasons why people buy NFTs. In a way, NFTs are also luxury goods, only digital and not physical.
What's also important - NFTs benefit artists and creators
NFTs bring opportunities for artists to get the full value for their art. Instead of paying commissions to art galleries or publishing companies, they get to keep the majority of the purchase price. NFT marketplaces, like OpenSea, charge the creators very little.
And, there are even some marketplaces that support the artists and don't charge anything. Also, creators have the possibility to receive a royalty payment each time the NFT is sold.
How Crazy Are People About NFTs?
So how captivated by NFTs did people become? Here are some facts, so you could see for yourselves:
The NFT sales in 2021
It is recorded that the NFT sales hit $25 billion in 2021. NFT sales volume totaled $24.9 billion in 2021, compared to just $94.9 million the year before. Around 28.6 million wallets traded NFTs in 2021.
The surge in NFT marketplaces
There was an activity spike on OpenSea recorded in the middle of last year. Despite a having slow start in 2021, OpenSea activity last July has surpassed $2.5 billion with a total of 2.45 million transactions.
This shows just how big is the demand in the NFT scene.
The most expensive NFTs
Some people will pay millions for a piece of digital art that is NFT. The biggest NFT sale was at $91.8 million for a piece of artwork called "The Merge" created by an artist with the pseudonym Pak. The second most expensive NFT ever sold was Beeple's collage called Everydays: The First 5000 Days which was sold for $69.3 million.
There are also some very popular collections, that people are ready to pay a fortune for just because they are trendy. Examples of these would be Bored Ape Yacht Club with an average price of over $200,000, and CryptoPunks - a collection of randomly generated images. The cheapest CryptoPunk is worth over $100,000, and three of them can be found on the top 10 most expensive NFTs list.
The average price of an NFT
While the average NFT cost varies from marketplace to marketplace (for example, it is $900 on Mintable, $500 on OpenSea, and $150 on Valuable), a common price range of an NFT is from $100 to $1,000.
What changes did NFTs bring?
The NFTs have caused many changes for a number of different industries, including art, media, sports, fundraising, and many others. Let's see some changes that NFT caused.
Art
With NFTs, artists have a platform to find their audience. An audience that’s willing to invest in their artwork. Also, with NFT marketplaces, artists can get the full price for their art without paying commissions to the middlemen, such as galleries or art houses.
Media
NFTs solved a lot of problems for the media industry that the digital world has previously caused. With blockchain technology, media is safe from fraud and unauthorized copying. Film studios, musicians, game developers, and other creators can eliminate the risk of duplication and piracy of their new releases using NFTs.
Sports
The most popular collectibles are sports collectibles and it makes a lot of sense that the sports industry was one of the first ones to make use of NFTs. Sportscards, items, and even tickets or event passes are already being tokenized. And, let's not forget NBA Top Shot - NFT video clips of the NBA top players and their best moments memorialized in a digital card form.
NFTs have provided sports fans with more opportunities to engage and get closer to their favorite teams and athletes. And, it was a way for many struggling teams and leagues to keep afloat during the pandemic.
Fundraising
NFTs have been a great opportunity for fundraisers to raise funds. They can auction off NFTs or give them as a gift for donors. Some fundraisers even accept NFTs as a donation. For example, Tim Berners-Lee, the man behind the internet, auctioned an NFT of the original internet source code for $5.3 million and all of the proceeds went to charity. Merriam-Webster donated all of the proceeds they got from selling the NFT definition token to the education nonprofit.
Do NFTs have any downsides?
NFTs rely on cryptocurrencies that cause huge amounts of carbon emissions. Most NFTs operate under the Ethereum blockchain and Ethereum is known for being environmentally harmful. Naturally, the more people buy NFTs, the more they harm the environment.
However, there are already plans and strategies made to tackle the problem. Ethereum, the platform where most NFTs reside, is planning to switch its model from "proof of work" to "proof of stake", which would make it more environmentally friendly. What does that mean?
Proof of work is a model where instead of a third party, like a bank, a bunch of energy-guzzling computers are overseeing the transaction. The people (or "miners") solve complex puzzles and that's how financial records are kept safe. By solving these puzzles, miners add a block of information of verified transactions to the blockchain and get tokens as a reward. When someone makes, buys, or sells an NFT using Ethereum, they’re responsible for some of the emissions generated by those miners.
The alternative that Ethereum suggests - the proof of stake model gets rid of the need for computers. In this model, participants have to stake a specific amount of their currency as collateral for the chance to validate the information. Then, the participants who will validate the block of information are randomly selected. Thus, it eliminates a competition-based mechanism and there's no need for energy-guzzling computers anymore.
Will it last?
So will the obsession with NFTs last or is it just a bubble waiting to burst? The experts have mixed opinions about it however they are leaning towards the argument that NFTs are here to stay.
Of course, many projects with weaker ideas will blow over in time, but experts say that NFT projects based on strong fundamentals will last longer. The whole concept of NFTs appeals to the human need for authenticity and ownership. It's an appealing business opportunity, with people making money off of it.
Experts believe that NFTs are a great opportunity for education – it's a way to make education more accessible to more people. With online schools and universities, certificates and degrees are generally offered in printed form or as a digital badge but it always caused the issue with the verification of authenticity. Experts say that educational institutions could offer certificates in the form of NFTs. This way, it would make it easier for students to prove the certification.
According to the experts, the concept of NFTs is only in its early phase and is going to expand in the coming years.
Concluding thoughts
While it seems that the world is going crazy with this whole NFT thing, NFTs have actually brought many good things into the world. It might seem stupid at first but the changes that the concept of NFT caused have brought a lot of positive results for many people. Yes, there are still some issues, like carbon emission, but people are working hard to solve them. Overall, NFTs brought a lot of innovations and they are here to stay.
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