In mid-2017, a collection of 10,000 NFTs called CryptoPunks was released on the Ethereum blockchain. Bitcoin was around $5,000 at the time and the entire concept of NFTs was a mystery, even in the crypto community. Four years later, the NFT market was booming and CryptoPunks NFTs were selling for millions of dollars.
The surge of NFTs’ popularity is attributed to CryptoPunks NFTs, but people haven’t realized yet that NFTs are much more than just pixelated jpegs. An NFT, or a non-fungible token, is a blockchain-based digital token that represents physical assets such as artwork, real estate, music, movies, and virtual assets such as in-game items.
Global recession and the beginning of a bear market may make it seem like people have lost interest in NFTs, but in the first half of 2022 alone, over $2 billion were spent on minting them.
But why do people buy NFTs and what’s the reason behind their popularity? Let’s dive right in.
People Buy NFTs as Digital Art Collectibles
Digital art has been around for a long time, but NFTs have changed the way we interact with it and transformed the very idea of digital ownership. Remember Pokemon cards and how crazy everyone was about trading them back in the early 00s? That’s what certain NFTs are like for most crypto enthusiasts today.
NBA Top Shot is a good example of an NFT marketplace. NBA Top Shot is an online marketplace where people can buy and exchange NBA videos called “moments.” It is the result of a partnership between Dapper Labs, the team behind CryptoKitties, and the NBA.
These NBA “moments” are sold in the form of digital trading cards, and they’re exactly what they say they are—NBA moments that show famous NBA players in action. The platform didn’t become as successful as NFT projects such as Bored Ape Yacht Club or CryptoKitties, but it still has NFTs that sell for thousands of dollars.
People who like to collect NFTs aren’t in it for the money, and they don’t expect to make a profit out of their NFT purchases. These people just like the joy of having digital collectibles.
People Believe in the Underlying Technology and the Idea of Owning Digital Assets
Some people buy NFTs because they truly believe that the underlying technology of NFTs is revolutionary and will completely transform the digital asset landscape. Currently, it may seem as if NFTs only exist as Twitter PFPs or pixelated jpegs of stoned monkeys, but the blockchain technology behind NFTs has tons of applications that haven’t been fully explored yet.
We’re on the cusp of Web 3.0 and NFTs will be central to the transition. Creators and buyers alike have faith in the technology, which is why they choose to purchase NFTs.
The idea that people can own a unique digital asset isn’t new, but the advent of NFTs has changed the way we do it and this is particularly great for artists who want to have complete ownership over their work.
While NFTs aren’t copyright protected, they do have a distinct identification code that distinguishes them from fakes such as screenshots, preventing other people from selling them. Speaking of which...
NFTs are Unique
Another major reason why people put millions of dollars into these digital collectibles is because NFTs are designed to create digital scarcity. NFTs have unique characteristics that make them more valuable than others.
Moreover, they are unique and don’t belong to anyone else. All NFTs have a unique ID that anyone can verify by looking it up in the blockchain ledger.
Yes, you can take screenshots of NFTs, but they wouldn’t be anywhere near as valuable as the original counterpart, mainly because their ownership can be verified.
There’s something exciting about buying something that only you own—in the truest sense of the word. While the average person can’t afford to buy a CryptoPunks NFT now, there are still thousands of other NFT collections that people can buy and own.
Artists get the most value out of NFTs in their current form as they can claim ownership of their artworks with the help of the technology.
NFTs Give People Exclusive Benefits and Privileges
Another reason why people buy NFTs is because holding one means they get to be a part of a very exclusive group. This is one of the reasons why Bored Ape Yacht Club (BAYC) exploded into popularity and is held by so many celebrities today.
Bored Ape Yacht Club’s Discord is only open to people who hold an NFT from the collection. Holding a BAYC NFT is a status symbol now. It’s made over $1 billion in sales since its launch in April 2021 and is currently being held by well-known celebrities such as Eminem, Snoop Dogg, Justin Bieber, and Jimmy Fallon.
Image source: Medium.com
Being part of the BAYC group also means that you get to attend exclusive meet-ups and get NFT airdrops. The glamor that comes with being part of an NFT collection as big as BAYC or CryptoPunks is just too good to pass up for those who can afford it.
NFT collections also give people a space where they can connect with other NFT enthusiasts. Johnny Depp, for example, created an NFT collection earlier this year to create a community of artists. The collection received so much positive reception that its Discord server crashed just a few hours after being launched.
People Think of NFTs as an Investment Opportunity
Just like cryptocurrencies, NFTs are also subject to extreme volatility. Just to give you an example, the total volume of NFTs went down by 50% in May, 2022. When Bitcoin crashed to $20,000, many cryptocurrencies that are associated with NFT projects, such as the P2E game Stepn, decreased by 80% in a matter of days.
Despite the volatility, there has been an increase in the number of users on NFT marketplaces, indicating that the bear market hasn’t stopped people from investing in NFTs. This extreme volatility is a double-edged sword, and it’s one of the reasons why the whole world is attracted to NFTs.
The Relation Between Risk and NFT Investments
It comes as no surprise that most people who invest in NFTs are young males between the ages of 18-35, i.e. Gen Z and Millennials. With high volatility comes high risk and the most risk-tolerant people are found among the youth.
The reason why the NFT market is so volatile is because there are no regulations. There are no anti-market manipulation laws, and the lack of a central authority means no one can interfere when volatility gets out of hand.
Owing to the volatility of the NFT market, people often flip NFTs for profit. They buy an NFT at a low price and sell it for a higher price. These people are always on the lookout for the next blue-chip project. Flipping NFTs is incredibly risky, which is why it’s important that you do thorough research before you invest in any project.
If you’re young and risk-tolerant, you’re more likely to invest in NFTs because you can afford to take the risk that comes with buying one. If you’re an older person, then you’re not as likely to buy NFTs because you’re risk-averse.
Risk-tolerant people throw their money at NFTs hoping that their prices will go up in the future so they can sell them for profit. They put hours of research into this whole process, examining multiple factors before pulling the trigger.
You can probably see now why people think of NFTs as a long-term investment. When BAYC was launched, its floor price was $190. Today, it’s $136,028. Holding on to an NFT you believe will go up in value could lead to significant gains. For instance, an investor bought an NFT video for $67,000 in October 2020 and later sold it for $6.6 million.
Keep in mind, though, that since the market is so volatile, buying an NFT could just as easily result in a loss, so always do your own research before investing in an NFT.
People Buy NFTs to Raise Money for Charities
NFTs have received plenty of opprobrium in the past two years and people have leveled many accusations against the technology. It’s common to hear things such as, “NFTs that run on the Ethereum blockchain are bad for the environment,” “NFTs have no use case,” and, “The technology is just a fad that will die in a few years.”
While it’s true that Ethereum-based NFTs are bad for the environment, there are other blockchains that are eco-friendly, cheaper, and faster than Ethereum, and many of them are used by NFT projects to bring a positive change in the world.
For example, a 14-year-old artist created a Solana-based NFT project called Belugies to save the beluga whale from extinction. The project has made over $1 million in NFT sales. Abigail, the artist behind the project, has donated over $100,000 to groups that are involved in protecting beluga whales.
Belugies NFTs’ creator Abigail.
Image source: CoinDesk.com
Another example is how Ukraine used NFTs to raise money for its war efforts. Mykhailo Fedorov, Ukraine’s Minister of Digital Transformation, launched a collection called “Meta History: Museum of War” showcasing important events that have taken place so far during the war.
On the launch day, the Ukrainian government sold over 1,000 artworks and made over $500,000 in sales.
NFTs Allow People to Support Their Favorite Creators and Celebrities
This is especially common in the sports and entertainment industries where a large portion of people buy NFTs to support artists, sports teams, actors, and musicians. By buying NFTs created by artists and sports teams, people are presented with tons of new ways to support them. Some NFT collections even allow holders to attend meet & greet sessions.
American DJ Steve Aoki recently sold some of his NFTs for thousands of dollars. In 2021, Linkin Park’s Mike Shinoda also released a mixtape as an NFT collection on the Tezos blockchain. The entire collection sold out a few minutes after it was released.
Linkin Park’s Mike Shinoda.
Image source: Twitter.com
Many sports NFTs have been sold for millions of dollars. Along with NFTs, sports teams also create fan tokens which let people get access to exclusive benefits such as athletes’ autographs, game tickets, the right to vote on club activities, and other limited-edition items.
As you can tell, NFTs are hugely popular in the sports and entertainment industries. It’s a way for NFT enthusiasts to support their favorite creators and teams.
People Have Become Disillusioned with Fiat
After the pandemic began, it became clear to people around the world that their fiat currencies and their fiat-backed investments will continue to depreciate and as a result, they’ll keep losing their money. People lost trust in banks and government institutions and they found refuge in cryptocurrencies and NFTs during the pandemic.
Ruchir Sharma, former chief global strategist at Morgan Stanley Investment Management, said, “rising global distrust in traditional currencies could fuel the growth of digital assets.” And this has been true so far. Bitcoin, BAYC, and CryptoPunks all rose in value after the pandemic began.
NFTs Allow People to Earn Passive Income
There are so many ways to make money through NFTs that it would be impossible to list all of them here. One of the most popular ways you can earn passive income is by staking. Staking is used in blockchains that have a proof-of-stake (PoS) consensus mechanism. It lets NFT holders “lock” their NFTs in a decentralized finance (DeFi) protocol and get yield in return. Many NFT collections have their own staking calculators to figure out how much profit you can make by staking.
Artists can also earn royalties through their NFTs. NFT marketplaces let users set a royalty fee so that every time an NFT is sold on a secondary marketplace, the original creator gets paid for it.
Another way to earn passive income through NFTs is by playing play-to-earn (P2E) games like Wizardia. P2E games became immensely popular after the launch of Axie Infinity and they’re so integral to the entire NFT space that NFT projects feel incomplete without one.
To be able to play an NFT P2E game, you have to buy an NFT first. Once you’re in the game, you can start playing it and making money. Most NFT P2E games are still not as good as Web2 games, but that’s what Wizardia has set out to change.
Some NFT P2E games also give you the option to rent out your NFTs, which is another great way to earn passive income.
You can rent out your in-game NFT items such as skins, weapons, and trading cards to other users while still retaining ownership of your NFTs. Note that this is still a developing trend in the NFT space and there aren’t too many P2E games out there currently that give users the option to rent out their NFTs.
Even if you believe NFTs are nothing more than a passing trend, you would have to admit that these are all good applications. The main goal of cryptocurrencies and NFTs have always been to help people attain financial freedom, and who wouldn’t want to make money while they’re sleeping?
People Buy NFTs to Flip Them for Profit
Some people don’t care about being a part of a community or the idea behind the technology, they simply want to make a quick buck out of something they see as a fad. There are new NFT projects coming out every day, which gives people a lot of opportunity to flip them for profit.
There is a considerable amount of risk associated with flipping NFTs, so there are plenty of factors you have to take into account before buying one. Things such as utility, the team behind the project, and the art are some of the things that people consider before purchasing an NFT.
Many NFT projects release their NFTs at a very low price. In most cases, they give away NFTs to their most loyal supporters as a reward for believing in their project. This creates an opportunity for holders to sell them at a higher price.
For example, Goblintown NFT is an NFT collection that was released right after the 2022 market crash. The team allowed people to mint the NFTs for free and it sold out minutes after it was launched. And just a few days later, the floor price spiked to $2,500 and holders started selling their NFTs for thousands of dollars.
Image source: OpenSea.io
As mentioned above, flipping NFTs for profit is something that’s most likely done by people who are young and risk-tolerant. It does seem like a good way to make short-term gains, right?
Conclusion
All in all, NFTs, non-fungible tokens, seem to have ushered in a new era of digital monetization. People can earn money from playing games, staking their digital assets, flipping them for short-term profits, and using them as a long-term investment. NFTs have revolutionized the way artists share and monetize their work and there’s no doubt that they’ve benefited the most from the technology.
All NFTs are distinct from one another and their uniqueness lends value to the technology. They create digital scarcity and have been touted as a hedge against inflation.
It’s hard to say what NFTs and their underlying technology will become in the next few years, but it’s clear that they’re not just a fad and they’re here to stay. The technology has too many utilities for it to just be forgotten in a year or two.
FAQs
What is the point of buying NFTs?
Buying an NFT means you have a unique digital asset that only you own. This sense of ownership is what compels people to buy NFTs. It also means that you support the creator and believe in their vision. You could also flip NFTs for profit as the market is very volatile and can give significant gains.
What makes NFTs so special?
While digital assets have existed for a long time, it is the underlying technology of NFTs that makes them special. Every NFT has a unique identification code that distinguishes it from other NFTs. This allows creators and buyers alike to truly own their digital assets.
Is buying NFTs a good idea?
As with any investment, you have to first understand the risks associated with it. The NFT market is highly volatile, which means there is a sizable risk that comes with investing in it. We are not in the position to give investment advice and we recommend that you consult a professional.
Hamza Tariq
Hamza is a freelance writer who enjoys creating meaningful content. He's a crypto/NFT enthusiast who's been involved in the space for over a year and when he's not working, you'll find him reading books or watching food videos on YouTube.
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