Why are NFTs so popular?
Even if you haven’t had your ear to the ground when it comes to the latest in financial news, you know that NFTs are blowing up markets right now, driving considerable buzz and opening up entirely new industries.
But if you’re not familiar with them, you might be left wondering: why are these fancy images so popular? Well fear not, dear reader — in this article, we’ll answer that very question.
What are NFTs?
The long and short of it is that NFTs (which stands for Non-Fungible Tokens) are a type of digital asset that mirrors real-world assets, except for one key difference: they don’t have a physical form. Theoretically, an NFT can be any kind of digital asset. The most common form of NFT is art — and it’s also the best analogy to fully understand NFTs.
While any piece of art can technically be mass reproduced, there still remains an original piece of art from which those reproductions are made, and that original is understood to have a distinctive value because of its singular uniqueness. NFTs follow the same basic principle: while their data (visual or otherwise) can be reproduced, the NFT is the original, verified via blockchain technology.
How did NFTs get so popular?
Like all cryptocurrency technology, NFTs have existed for several years but exploded in popularity during the COVID-19 pandemic.
The first NFTs were produced in 2012, but the form languished in relative obscurity until 2017. That year, John Watkinson and Matt Hall created CryptoPunks, a collection of 10,000 unique pixel art characters that could be owned in NFT form.
Fast forward to 2020-2021; as the pandemic gave more people free time to explore the crypto world, NFTs surged in popularity, especially with the rise of insurgent stock-trading movements, which dabble in cryptocurrency.
How people make money from NFTs
While it might seem difficult to imagine that someone could make money off of NFTs, the truth is that NFTs make money for the same reason physical art does: it’s an investment.
It’s extraordinarily rare for any piece of art to depreciate in value, which means that, so long as the media indexed by the NFT is desirable, it will be able to sell. This principle is at play in a variety of NFT markets, such as OpenSea, where traders buy and sell NFTs on the basis of their aesthetic value and rarity.
At the same time, NFT prices are also driven by the considerable activity of NFT speculators, who buy and sell NFTs, not for aesthetic reasons but based on the wager that they will make money. For now, that wager seems to be paying off.
What are the most expensive NFTs?
When it comes to NFT prices, there’s something of an upper crust. Of the ten most expensive NFTs ever sold, five are CryptoPunks, a fact that bespeaks the project’s prestige. The most expensive CryptoPunk piece, Cryptopunk #7523, sold for $11.75 million.
But the most expensive NFT to date is Everydays: The First 5000 Days, a collage of Mike “Beeple” Winkelmann’s “Everydays” series, which sold for a staggering $69.3 million. Beeple, one of the most respected figures in the crypto-art world, also produced the respective fifth- and sixth-most expensive NFTs, Crossroad (which sold for $6.6 million) and Oceanfront (which sold for $6 million).
The NFT Bubble
However, if you’re looking into buying NFTs, then do beware: most experts predict that the NFT bubble will burst sometime in the next several years. This is largely due to the fickleness of the market and the fact that NFTs’ value depends, ultimately, on appraisals of their aesthetic value — which could very well change.
All this is to say that NFTs are an extremely tempting opportunity, but be cautious if you’re looking to get into them!