With Beeple’s Everydays: The First 500 Days selling at the staggering rate of $69 million, along with other major headlining million-dollar sales, everyone wants a taste of NFT. Who wouldn’t? Buying NFTs has quickly become the order of the day.
With the explosion of NFTs, there have been art sales of several digital assets and collectibles that brought in millions of dollars in the NFT market bubble.
Jack Dorsey, Twitter CEO, got $2.9 million for his first tweet ever in the form of an NFT. That’s huge, right? Several other non-fungible tokens have been sold for large sums of money, especially those from high-end online collections. But even your run-of-the-mill NFT can bring in a few dozen bucks.
The question now is, are they worth it? Beeple’s art and Jack Dorsey’s first tweet were sweet NFT gains, but does that mean everyone should be investing in NFTs?
A little about NFTs
Before we dive in, let’s take a look at what exactly a non-fungible token is. In a nutshell, NFTs show the authenticity of collectibles in digital form. The paper certificates prove that the piece of digital art you own is authentic, not a knockoff. An NFT also presents itself with a digital certificate on the blockchain.
NFTs prove useful in the sale of other items, such as homes, but they’re mostly used for digital collectibles such as images, video clips, or songs. They’re also showing up in the world of video gaming, with platforms such as Wizardia selling NFTs of playable characters that double as an investment.
Why Would Anyone Buy NFTs?
Image source: Unsplash.com
People have different reasons why they would invest in NFTs. Let’s take a look at some of them:
1. Collectability
NFTs are like trading cards for the digital age, similar to how people swap sports trading cards. It’s not about the cards, as they don’t have any intrinsic value. They inherit their value from what the market assigns them.
Nonetheless, their shifting value, which is not definite, makes collecting and trading them simultaneously lucrative and risky.
Some people want to own multiple pieces of a certain collection, while others are happy just to get one piece of digital art in a sought-after showcase. For example, artists who’ve been able to amass major followings, such as Beeple, Pak, and Larva Labs, can spark fierce competition when they release new digital artwork.
This competition and creator name recognition can oftentimes catapult the value of digital assets, making them increasingly valuable, much like physical art.
2. Scarcity
NFTs give a sense of scarcity that piques the buyer’s curiosity and desire to own them. Much like original physical artwork, no one else in the world owns that same item. It’s fascinating!
Every limited-edition NFT collectible has only one owner, instilling a strong sense of uniqueness and relative scarcity. The fear of missing out drives potential buyers to want to own that particular piece before any other buyer.
Imagine finding a product you really want to buy, but the store tells you it’s the last one. The sense of scarcity moves you to get the product instantly, even if you didn’t plan to get it at that instant. The same holds true for digital artwork in the NFT space.
3. Passive Income
Another reason NFT owners choose to invest in these digital goods is the potential for creating a passive income stream. This is partially what drives NFT sales on play-to-earn (P2E) platforms like Wizardia.
When you buy an NFT on one of these platforms, you’re getting your own character that can be used in gameplay while the underlying asset can also be used to generate income.
How Wizardia NFTs work is that players have several options for amassing additional income from their initial investment that don’t necessarily involve playing the game and winning $WZRD tokens. For example, they can upgrade their Wizard NFTs and sell them on the marketplace for a tidy sum, or they can rent out their characters to other players.
The latter is a win-win situation, as NFT owners get the benefit of rental income while novice players have a chance to access powerful characters without investing large amounts of money upfront.
Proof of Work vs. Proof of Stake
Most NFTs exist on the Ethereum blockchain. The energy used for Ethereum operations is quite energy-efficient, called "proof of work," but not the best. It’s one of the negative sides of taking part in NFTs, although this should be changing in the near future. But let’s take a look at what these consensus mechanisms are all about.
Let’s start with what they have in common. Proof of work and proof of stake are both consensus models used to keep blockchain networks secure. Their mechanisms differ, but their fundamentals are absolutely the same. They work by permitting only specific valid users to add to the blockchain.
So what are these consensus models?
What is Proof of Work
Proof of work is a consensus model that utilizes computers or nodes to find solutions to complex mathematical problems. The node or computer that first gets the solution to the problem is permitted to validate the next block in the chain.
The complex mathematical problems entail adopting cryptographic principles which need powerful computers to tackle the problems in a timely fashion. It implies that the more powerful your computer is, the more mathematical problems you can take on.
This process is called "mining," and those involved in the activity are known as "miners." Proof of work has been in existence for around 30 years, but Satoshi made it more prominent with the invention of Bitcoin.
However, most blockchains have stepped away from PoW except for a few, including the two largest, Bitcoin and Ethereum, together with Litecoin and Dogecoin.
The main advantages of PoW take care of crucial factors for a reliable blockchain network. The pros include security, decentralization, and a low barrier of entry. The disadvantages of the proof of work consensus model have to do with its energy-intensive usage, 51% attack, and its slow throughput speed.
Proof of work expends a great amount of energy to carry out critical computational tasks and transaction verification. Energy expenditure is a core part of PoW consensus models and also contributes to what gives value to cryptocurrencies like Bitcoin.
The same goes for Ethereum and other blockchains, but there are issues with emissions and negative effects on the environment because of the very high energy usage. All these play a part in how NFTs affect our environment and whether they’re worth it in the end.
What is Proof of Stake?
Proof of stake became widely adopted mainly because of the energy expenditure and low TPS of the PoW model. PoS consensus model uses a process known as staking, which replaces the miners in the PoW model.
Proof of stake picks the block creator who gets to create a new block in a clear and specified way by using algorithms. The more money you stake, the better chance you get to be selected as the creator of a block. Those who create blocks are known as Validators.
The block creators get their rewards in the form of cryptocurrency combined with network and transaction fees paid to their digital wallets.
Proof of stake has quite a few advantages over the proof of work model. Unlike the PoW consensus model, PoS makes a 51% attack pointless. It is less energy-intensive without requiring as much energy anywhere near that of PoW.
Proof of stake blockchains consume much less energy and make possible a greener and better environment. Since there are no complex mathematical problems to solve, the TPS of a PoS blockchain is evidently faster.
For example, Solana runs on proof of stake and records between 1000 to 3000 transactions per second at any given moment. Now imagine the staggering comparison to Bitcoin, which records 7 transactions per second. The difference is clear!
So, Are NFTs Worth the Investment?
Image source: Unsplash.com
Yes, a lot of interesting things have happened in the NFT space, and people are buying digital images and collectibles. But you’re probably wondering whether they’re worth your time and money. The tales of caution from the dot com bubble of the late 1990s are enough to make even seasoned investors think twice about investing in this new form of blockchain technology.
Every investment has its pros and cons. The same goes for investing in a non-fungible token. Consulting with a financial advisor or cryptocurrency expert can help guide your decision, but that decision is ultimately yours to make.
It is worth noting that no one determines the value of an NFT artwork other than the collectors. So what would make a collector interested in a particular NFT?
It’s a difficult question to answer because much like physical objects and art, beauty and value are in the eye of the beholder.
It really depends on what you’re looking to gain from your NFT. You might really love a piece of art and want the original. You may have stumbled upon a free crypto airdrop and ended up with a potentially valuable piece of property.
Or you may be looking for a P2E crypto game that has the benefits of providing royalties through your own character.
Not all assets are equal, and you should consider your financial goals before committing to any NFT project.
FAQs
Are NFTs a good investment?
Investing in NFTs could be a smart investment if you have a good understanding of what NFTs are all about. Also, there are longer-term benefits if you invest in NFTs, which guarantee a more satisfying return on investment.
Why should you consider buying an NFT?
The first and foremost reason for buying art is to appreciate the work of the artists, but it can also deliver great returns. There are many other reasons why people buy NFTs, depending on their use cases and other features.
Can you make money off NFTs?
Yes, you can make good money off NFTs but not all the time. Many creators mint their NFTs solely for the purpose of making money off of them. Even as a collector or investor, you can list your NFT at higher prices than what you bought them for.
Will NFTs go up in value?
Although it’s impossible to say for certain, what can be said is that there is much yet to be explored in the NFT industry. With the help of blockchain technology, there will be more outstanding ideas and use cases for NFTs beyond just ownership and investment.
Kayode Iwamoyo
Kayode Iwamoyo is a Web3 SEO Copywriter whose vision is to help people get the best out of blockchain technology. He educates, excites, and enlightens with his posts.
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