NFTs are rapidly gaining a lot of traction in the decentralised economy, primarily for the wrong reasons, most of which cast doubt on the technology’s long-term viability.
For some reason, many early adopters see NFTs as a quick money scheme, which is evident in the recent flood of investment in the space despite the fact that several projects have little or no use cases. More so, NFTs are still relatively new in the decentralised economy and, without doubt, still very much undergoing early-stage development.
On the other hand, there are other people who are looking on the bright side. Specifically, this set of people are looking beyond monetary gains, but how they can leverage the new technology while exploring underlying potentials.
While there has been a mixed reaction to the reception of NFTs in the decentralised economy, this article examines the budding industry and considers if it has a future as a sustainable venture in the modern economy. Just before we go further, let’s take a look at NFTs; what they’re all about and the progress made so far.
What is an NFT?
To understand what a non-fungible token (NFT) is, one must first have an understanding of how cryptocurrency works.
In simple terms, a cryptocurrency is a form of digital currency where a record of transaction is recorded on a decentralised system using cryptography (a way of storing transaction data on a blockchain system).
By employing cryptography during the storage of transaction data on the blockchain, cryptocurrency is able to eliminate interference from a centralised authority which marks the biggest difference between centralised and decentralised finance.
Additionally, cryptocurrencies, like fiat currency, can be swapped and replaced among themselves because their worth can be measured against one another, implying that they are fungible.
An NFT, on the other hand, describes a unique object or digital commodity that, unlike a fungible item, cannot be used interchangeably even with something of the same form.
The reason for this, however, is straightforward – an NFT carries a unique digital signature (or encryption) which, in addition to affixing a special value, also contains unique information about the digital asset.
That said, NFTs can be anything ranging from artwork, music, video clips, memes or collectables, among other digital assets which otherwise are a representation of real-life objects.
There is still a lot to learn about NFTs – follow this link to learn about how they work, their notable characteristics, why they are valued as high as $69 million per piece, and so much more. Moving forward, let’s attend to more pressing concerns about NFTs.
Why are NFTs likened to get-rich-quick schemes?
Earlier in this post, we mentioned that the reception of NFTs in the decentralised economy was met by a mixed reaction from enthusiasts and investors alike. We also mentioned that NFTs have quickly gained more traction in recent time with the budding industry currently valued above $7 billion. So why the sudden surge in interest from investors?
It is important, at the point, to describe a get-rich-quick scheme. According to Wikipedia, this aims to obtain high rates of return for a small investment. Often, the term is used to describe a shady business, although sometimes, they are made to look so legitimate you wouldn’t have any reason to doubt the viability.
Likewise, not all get-rich-quick schemes are illegitimate. In fact, it all depends on how people are made to see it sometimes. NFTs are one of those which are not necessarily valued based on true worth. Instead, they are valued based on the attributed worth.
For context, the most expensive NFT, a digital collage of images by Beeple, sold for $69.3 million at a Christie’s auction in March 2021. At the same time, the least expensive NFT could sell as low as $100, $50, and even $10. The flip to this, however, is that if a buyer buys an NFT at the base price of $5, it could end up being sold for as high as $1 million.
A relatable case was when Kelvin Roose, a prominent New York Times journalist sold a picture of a framed column for a whopping $560,000.
“I set the auction’s minimum price low — 0.5 Ether, or about $800 — and was nervous I might not get even that much. Instead, the auction became a circus,” Roose explained in a publication, adding that the piece was eventually sold to a winning big of 350 Ether (or approximately $560,000).
The most interesting part of this is that Roose is just one of several people who bought or auctioned an NFT piece for a ridiculously low price, and ended up gaining more than they bargained for profit.
That said, are NFTs get-rich-quick schemes? Absolutely, especially if as a seller, you are able to find the right buyer for your digital artwork, memes, etc. By finding a buyer, we mean a person who finds your piece valuable enough to buy it for as high as $69 million as in the case of the digital collage of images by Beeple. Beyond being likened to a get-rich-quick scheme, are NFTs a sustainable project for the decentralised economy?
Are NFTs a sustainable project for the decentralised economy?
So, if the idea of NFTs is to make quick money based on how they are viewed by the majority, what does this indicate for the future of the technology? More so, where scalability is concerned, how can the NFT project erase the quick-money scheme perception/stigma over time?
To begin with, whether NFTs have a sustainable future depends on quite a number of factors ranging from the underpinning technology, to use cases, and mainstream adoption.
In terms of infrastructure, NFT just like most crypto assets is based on blockchain technology which is a secure, immutable, distributed ledger.
Blockchain, regardless of the type, is decentralised, implying that the network is not subject to a centralised body or governing authority. Instead, it is managed by a group of nodes operating multiple computational facilities within the network, thereby ensuring decentralisation at all time.
That said, NFTs, being hosted on various blockchain networks, can tap into the aforementioned attributes of the blockchain which further makes it as sustainable as the technology on which it is built.
Regardless, NFTs have proven useful and highly lucrative in a number of areas including the gaming industry, decentralized finance (DeFi), and the rapidly-growing Metaverse space to name a few.
For instance, NFTs have improved the dynamics of in-game items as people can now maximise their gaming potential by leveraging profitable opportunities that NFT can afford users in and out of the gaming space.
Prior to now, most game titles do not offer real value to their users even after purchasing in-game items, whereas, the developers on the other hand are making huge monetary gains. However, with NFTs in place, gamers can own the right to their in-game purchases, export them off the gaming network, and profit from resales.
NFT are also used for collateralisation in the DeFi space. There are several NFT-collateralised loan platforms like Arcade where NFT holders can have access to a pool of crypto loans using their NFT piece as collateral. In other cases, NFT holders can also provide liquidity for lenders by staking or locking their NFT artworks, memes, and other collectables.
Finally, mainstream adoption is another crucial component in determining whether NFTs will have a sustainable future. Although adoption by the majority is mostly based on use cases, NFT adoption by the majority could signal a sustainable future for the technology as it sparks a variety of different applications over time.
In conclusion, NFTs are essential to the future of a decentralised economy, and even though, it is relatively new to the space, the possibilities are limitless.