What is an NFT and why are they so popular? This is a question many investors looking for a new asset class have asked at one point or another. Understanding the investment world can be challenging, especially with so many asset groups, fund systems, and tax-advantaged vehicles easily accessible. When previously unfathomable situations, such as a global pandemic and negative interest rates, are added, the complexity grows exponentially.
It does not end there. Mobile payment applications, peer-to-peer lending platforms, robo-advisors, and blockchain-based databases are revolutionizing the way we do business, manage financial transactions, and invest.
The NFT market is booming, with record-breaking sales, transaction numbers, and consumer interest making headlines daily. With increasing interest from outside the crypto world, the future of non-fungible tokens (NFTs) appears promising. NFTs (non-fungible tokens) use the immutability of blockchain technology to demonstrate asset scarcity. Since each NFT is unique, the value of these digital assets can vary greatly. While for some, NFTs are simply a way to own a cool piece of digital art, the technology has numerous applications.
In this article, we will look at why NFTs are so popular and some trends that we expect to see for the remainder of 2022 and going into 2023. However, before we do that, let us try to understand what they are and why they have become important over the last few years.
What is an NFT?
Non-fungible tokens (NFTs) are blockchain-based cryptographic assets with unique identification codes and metadata that distinguish them from one another.
They cannot be traded or exchanged like cryptocurrencies. This is in contrast to fungible tokens, such as cryptocurrencies, which are identical to one another and can thus be used as a medium for commercial transactions.
Before we go any further, let us deconstruct term “fungible.” A fungible asset is one that can be easily exchanged for another of the same type and value. For example, a US dollar bill is fungible. You can exchange one for another and get exactly the same value. You can do the same thing with a cryptocurrency like Bitcoin. A single Bitcoin is worth the same as another.
A non-fungible asset, on the contrary hand, is one-of-a-kind. It is unique, incomparable, and unchangeable. Diamonds and original works of art are two examples. Each of these assets has distinct characteristics that cannot be replicated authentically. Every diamond, for example, has a unique cut, color, size, and grade. No two diamonds are the same, just like no two human fingerprints are the same.
As mentioned previously, NFTs have the potential for a variety of applications. They are an excellent vehicle for digitally representing physical assets such as real estate and artwork, for example. Given that NFTs are built on blockchain technology, they can also be used to eliminate intermediaries and connect artists with audiences, as well as for identity management. NFTs have the potential to reduce the need for proxies, simplify transactions, and develop new markets.
The current market for NFTs is dominated by collectibles such as digital artwork, sports cards, and rare items.
NFTs change the crypto paradigm by making each token unique and irreplaceable, making it impossible to compare one non-fungible token to another. They are digital representations of assets that have been compared to digital passports. This is because each token contains a unique, non-transferable identity that allows it to be distinguished from other tokens. They are also extensible, which means that enthusiasts can combine one NFT with another to create a third, distinct NFT.
Why are NFTs important?
To reiterate, non-fungible tokens are an evolution of the relatively simple concept behind cryptocurrency. Modern finance systems are made up of sophisticated trading and loan systems for various asset types, such as real estate, lending contracts, and artwork. NFTs advance the reinvention of this infrastructure by enabling digital representations of physical assets.
Now, neither the concept of digital representations of physical assets nor the use of unique identification is novel. However, when these ideas are combined with the advantages of a tamper-proof blockchain of smart contracts, they become a powerful force for change.
The most obvious advantage of NFTs is market efficiency. Converting a physical asset to a digital asset streamlines processes and eliminates intermediaries. NFTs on a blockchain representing digital or physical artwork eliminate the need for agents and allow artists to connect directly with their audiences. They can also be used to improve business processes. An NFT for a wine bottle, for example, will make it easier for multiple people in a supply chain to interact with it and will help with tracking its provenance, production, and sale throughout the entire process.
Non-fungible tokens are also great for managing identities. Consider the case of physical passports, which must be produced at every point of entry and exit. Individual passports can be converted into NFTs, each with its own unique identifying characteristics, allowing jurisdictions to streamline entry and exit processes. Expanding on this use case, NFTs can also be used for identity management in the digital realm.
Additionally, by fractionalizing physical assets such as real estate, NFTs can also democratize investing. A digital real estate asset is much easier to divide among multiple owners than a physical one. The creation of new markets and forms of investment is the most exciting possibility for NFTs. Consider a piece of real estate that has been divided into multiple divisions, each with its own set of characteristics and property types. One division may be near a beach, another in an entertainment complex, and yet another in a residential district. Each piece of land is unique, priced differently, and represented by an NFT based on its characteristics. The incorporation of relevant metadata into each unique NFT can simplify real estate trading, which is a complex and bureaucratic affair.
That tokenization ethic does not have to be limited to real estate; it can also apply to other assets such as artwork. In this case, a painting does not always have a single owner. Its digital counterpart can have multiple owners, each of whom is responsible for a portion of the painting. Such arrangements could boost its value and revenue.
Why are NFTs so popular?
1) Offers alternative ownership
This is one of the most obvious reasons for the popularity of NFTs. People want to own something unique and different from what a traditional asset can provide. For example, if someone wants to invest in gold, they will purchase a bar or coin that represents their gold investment. However, when it comes to crypto assets, there are more options for what a person can own. Crypto tokens are much more than mere pieces of metal. They enable people to diversify their investments by purchasing NFTs with various market attributes and values, including arts.
Since people only need one wallet to store their digital assets, they are easy to manage. They don’t have to be concerned about losing their gold if they keep it in a secure location. However, with cryptocurrency, they must be cautious about where they keep their tokens because they are digital and can be hacked if not properly stored
2) Not easily replaceable
A traditional asset, such as gold, can always be sold to someone who wants it. The same is true for other commodities like oil and water. NFTs, on the other hand, are more difficult to replace. This is because each token is unique and has a market value. If a person misplaces their token, there is a good chance they will never be able to recover it.
This is one of the reasons why security is so crucial when it comes to NFT ownership. People must ensure that they are using a secure wallet and that their tokens are kept in a secure location. Otherwise, they risk losing everything they’ve invested in.
3) Perfect for collectors
Another reason NFTs have grown in popularity is that they are ideal for collectors. There are numerous types of tokens available on the market, each with its own set of characteristics and features. This means that when it comes to collecting NFTs, there is something for everyone.
They can be collected based on their design and appearance, as well as their technical attributes and features. People can also collect them based on the industry in which they work. The possibilities for collecting NFTs are limitless, which is why so many people enjoy this hobby today.
4) Can be used for gambling
Gambling was one of the first industries to use cryptocurrency tokens. It is easy to see how so many online casinos and other gambling platforms use NFTs because they provide numerous opportunities for enjoyment.
One of the most significant advantages of using tokens for gambling is the ease with which they can be transferred from one player to another. This is far more convenient than attempting to send a bet through a traditional banking system. It also enables players to conceal their bets from the casino, giving them an advantage over the house.
5) They are here to stay
There are numerous reasons why NFTs have grown in popularity in recent years. Amid these reasons, one thing is certain: they are here to stay. The demand for these digital assets is growing on a daily basis, implying that the industry will continue to expand in size over time.
If people want to get involved in NFTs but don’t know where to begin, there are numerous platforms available that allow people to buy tokens with their credit card or bank account. This is the best option for them if they want to get involved easily.
6) Not just another crypto coin
One of the most important things to remember about NFTs is that they are not the same as traditional crypto coins. They represent much more than just a digital currency, which distinguishes them from other tokens in this space.
This is one of the reasons why so many people enjoy collecting and owning these assets, as they are only available through an auction-style system. There is no way to create new tokens or increase their value after they are purchased, making owning NFTs a truly unique experience for both owners and collectors.
7) Backed by real assets
One of the most appealing aspects of many crypto tokens today is that they are backed by physical assets such as gold and other commodities. This means that their value is determined by speculation as well as the asset’s actual value.
This is why many people think of NFTs as a good investment. They allow holders to invest in digital assets while also being exposed to physical commodities. This is unlike any other investment opportunity on the market right now. Everyone benefits from this situation.
8) Available for all interested investors
One of the main reasons why NFTs are so popular is that they are affordable to anyone who wants to buy them. They do not require any additional resources or knowledge to own and use, making them a viable investment option for anyone.
They also have a fixed supply that does not change based on demand, so the value of these tokens will only increase over time. This is one of the main reasons why they are so popular among both new and experienced investors. They provide a way to participate in the cryptocurrency market without taking on too much risk.
NFT trends to keep track of in 2022
You’ve probably heard of the sale of an NFT titled “Everydays: The First 5000 Days” by digital artist Beeple for $69 million (€608 million) through Christie’s in March 2021. News about this sale sparked a rush for non-fungible tokens across marketplaces like OpenSea (whose transaction volume increased by more than 600% in 2021) and Rarible, as well as play-to-earn games, most notably Axie Infinity.
While some may find it difficult to understand why digital assets (some more questionable than others) can be worth millions of dollars, many see it as the future of the internet, aka Web3, allowing users to prove ownership and authenticity in a ‘copy-paste’ online reality that most of us are all too familiar with.
Moreover, despite a slowdown in overall non-fungible token sales toward the end of 2021, the hype is far from over, with more money flowing into NFT marketplaces and the expected release of major NFT projects this year.
With that in mind, here are some of the top NFT trends to watch for the rest of 2022 and as we go into 2023.
Entertainment
We need to look no further than Hollywood for proof that NFTs have become the next “it thing.” For example, the highly-coveted Oscars swag bag included an NFT tribute to the late actor Chadwick Boseman at the 2021 awards. Despite its novelty, this NFT tribute appears to be a bit more normal than some goodies offered in the past.
Tinseltown has completely embraced the world of non-fungible tokens, with celebrities, sports legends, rappers, and socialites all jumping on board. That is unlikely to change this year and in years to come, as the NFT boom appears to be extending into another year.
Looking at the music scene, the technology is extremely appealing to artists, particularly indie musicians. Moreover, the industry’s acceptance of non-fungible tokens is growing. NFTs not only provide another revenue stream for artists, but they also address the issues of ownership and royalties, giving performers power they have never had before. Furthermore, these tokens allow musicians to connect with their fanbase in an entirely new way, granting fans access to exclusive content and perks.
Secondly, there’s no denying that sports fans are some of the most devout in the world. Tournaments such as the Australian Open can draw up to one billion viewers, and fans are willing to pay millions of dollars for their favorite sporting memorabilia. So it’s not surprising that the world’s biggest sports leagues have begun to use NFTs to appease fans’ appetites.
Gaming
As a result of the rapid rise in blockchain-based games, NFTs have given the gaming world a second wind (also known as play-to-earn). The business model overturns decades of dominance by large corporations and studios that, for the most part, failed to reward players for the time and effort they put into games. Play-to-earn games do exactly what the name implies: they pay players to participate. As a result, gamers are rewarded for their efforts in the form of cryptocurrency, which can then be exchanged for real-world money. This is possible because in-game NFT assets, such as avatars, skins, and weapons, truly belong to the player. When people pay for a new avatar or a new creature in a game, they own that digital asset and can sell it on an NFT marketplace. NFTs place gamers at the heart of gaming’s economic engine, ushering in a new era of entertainment.
Virtual fashion
Fashion powerhouses, as the foremost observers of global transformations, have also been paying attention to digital trends and have begun selling NFTs of their collections in metaverses such as Roblox and Decentraland – and at much more affordable prices.
Digital garments are gaining traction for both large and small brands, fueling a new multi-billion-dollar industry in the NFT space. Dapper Labs, in collaboration with all-digital fashion house The Fabricant, launched the world’s first NFT outfit in 2019. The rise of fashion NFTs has been unstoppable since then, with Nike, Adidas, GAP, and other major fashion brands jumping on board.
It’s also a win-win situation for designers, who can experiment with materials that would be impossible to use in real life, such as fire, water, or liquid gold. Fashion NFTs transcend fabric, physical constraints, durability, and many other real-world impediments, resulting in incredible garments.
When compared to the environmental cost of producing a physical garment, the fashion industry accounts for 10% of greenhouse gas emissions. Creating a piece of digital clothing is estimated to have 1/10 of the impact. As consumers’ concerns about sustainability grow, many see NFTs as a way to help reduce waste, overstocking, and mass production. The catch is, however, that the process of minting NFTs is not environmentally friendly.
Real estate
We are all aware that real estate has become increasingly expensive. It turns out that virtual estate is just as popular. Plots of land in the metaverse are now extremely valuable. For example, in November 2021, virtual estate investor Republic Realm paid $4.3 million for land in The Sandbox metaverse, while the Metaverse Group (a subsidiary of Tokens.com) previously paid $2.43 million for a digital plot in Decentraland.
Overall, real estate prices in some of the most popular metaverses have risen by 400% to 500% in recent months, demonstrating how frantic the race for virtual land has become. From house flipping to property management and event hosting, investors are turning to the metaverse for a variety of real estate opportunities.
Conclusion
NFTs are an intriguing invention that are gaining popularity as their applications grow. The eye-catching pricing of certain NFTs is only fueling the fire. However, because NFTs are highly illiquid and volatile, prudent investors should exercise caution when considering purchasing these assets. The true significance of NFTs lies in their ability to alter market behavior and improve how we handle and regulate critical data. With these digital assets, the sky is the limit.
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