Why are NFTs Valuable?

crypto investment ebook

In March 2021, a self-styled “digital art” collective called Bitfinex launched an auction for a piece of artwork titled “Gone With the Wind.” It was intended as a token of appreciation to its users after they had helped bail out the exchange during the COVID crisis. At $2 million dollars, it set a new record for digital collectibles at that time.

Since then, we’ve seen several other auctions on platforms like OpenSea where artists or organizations sell their work via blockchain technology. And now, even celebrities are jumping into the game with their own unique take on what is known as Non-Fungible Tokens (or NFTs).

So how exactly do these tokens function and why are people so interested in them? Are NFTs worth all this hype? Let’s explore why are NFTs valuable?

Are NFTs worthless?

A lot has been said about whether NFTs are actually real works of art—artists and critics alike have questioned if they’re really worthy of such high prices. There is no doubt that many pieces sold through auction houses are indeed original creations by talented individuals who put their heart and soul into making them. But there are plenty of others which were not.

It should also be noted that most of the time, you cannot tell if something is fake just based on pictures alone. Even when using advanced machine learning techniques, computers may still fail to identify fakes accurately enough. This means that while collecting these tokens might feel rewarding, it would probably only make sense to buy originals instead.

Another argument against NFTs being actual artworks is that most items don’t offer any insight into the artist’s thought process behind creating them. As already mentioned, collectors often find themselves unable to determine if they got the better end of the deal since NFTs look identical online.

On top of that, some people argue that because most NFT creators aren’t famous artists, their talents shouldn’t matter much. After all, you’ll never see someone selling tickets to a concert, hoping to generate interest from fans. So why bother paying money for something that doesn’t offer anything special compared to existing alternatives?

But even though none of those arguments hold water, they’re mostly irrelevant anyway. What matters more than aesthetics is utility. That’s why people will pay hundreds of thousands of dollars for rare albums, movies, games, etc., simply because they enjoy listening to them or playing them.

What makes NFTs interesting isn’t necessarily what made them popular initially, but rather how they fit into our current society and culture. For example, one could say that buying a ticket to concerts does provide some sort of entertainment value. However, it’s debatable whether this is true given that live music events typically involve standing outside in freezing temperatures.

NFT value framework and opportunities

To understand why NFTs are becoming increasingly important, let’s first talk about value itself. While it seems obvious to everyone that physical objects have intrinsic value, it is less clear when it comes to intangible assets. If I created my own brand name and registered it under my own name without ever putting up a product, would that give me ownership over it? Or would trademarks protect me?

The same goes for intellectual property rights. Even if I create something myself, does that mean I’m entitled to exclusive use of it? Is it possible to profit off another person’s creation without permission? These questions haven’t received definitive answers yet, leaving room for ambiguity.

That brings us to NFTs, whose very nature allows them to exist beyond traditional notions of ownership. They’re a way of representing nonphysical entities within the realm of cryptocurrencies. Unlike tangible goods, they are impossible to replicate due to the lack of copyable properties.

Thus, unlike owning land, cars, or clothes, owning NFTs essentially gives you access to content. You can share it freely with anyone else, including yourself, without having to worry about theft.

This aspect of NFTs opens up exciting possibilities both for users and developers. Instead of building apps around specific models like Instagram or Facebook Inc., for instance, companies can build products that cater to every type of user imaginable.

For example, imagine a platform where users can upload custom avatars, change colors and fonts, add stickers, edit backgrounds, and perform simple actions. An app developer can focus solely on designing and improving features specifically tailored to each individual’s needs.

Similarly, NFTs allow programmers to experiment with various concepts without worrying too much about security. Developers can build complex systems with little risk of losing control over data.

Finally, NFTs allow entrepreneurs to launch projects directly into the market with minimal resources. Since they don’t require extensive distribution networks, marketing costs can stay low. This adds to why are NFTs are valuable.

why are NFTs valuable
why are NFTs valuable

How NFT collections Accrue Value

Now that we know what NFTs represent, it’s easier to wrap your head around why they become more valuable over time. To recap, NFTs are basically virtual representations of nonphysical assets. When it comes to ownership, this means that they are inherently inferior to physical ones.

However, just because they’re not perfect substitutes, that doesn’t mean they won’t eventually replace physical versions. Like stocks or shares in general, NFTs can appreciate over time thanks to supply and demand principles.

When demand increases, prices go up as well. Similarly, when supply remains steady or decreases, prices fall down. Over long periods of time, price movements tend to follow predictable trends.

As shown above, some NFTs gained immense popularity because of their ability to solve problems inherent to modern life. Decentralized exchanges gave rise to faster trading speeds, while allowing investors to invest in projects without needing to trust third parties. Cryptocurrencies provided a secure way to store wealth, while giving regular folks the chance to earn passive income.

And finally, NFTs offered a fun way to show off creativity and personality online. Whether it’s a cute dog portrait or a funny meme, people love sharing things which bring joy to others.

This trend is likely to continue growing alongside technological advancements. We can expect to see more novel uses emerge for decentralized applications, artificial intelligence, and neural networks in particular. All of which are expected to contribute to greater efficiency and scalability.

With the right infrastructure in place, NFTs could soon reach unprecedented heights. Companies can utilize all sorts of information to increase revenues. Individuals can get rewarded for their contributions to social media platforms and similar ecosystems. Smart contracts can automate processes across multiple industries. Overall, the world could become far more efficient.

One could say that NFTs are merely a stepping stone towards achieving wider goals. Regardless, the fact that they can help solve certain issues is reason enough for people to care.

NFTs In The Metaverse

While it’s easy to dismiss NFTs as mere internet memes or gimmicks, they could potentially play an essential role in shaping future technologies. According to estimates, millions of people worldwide actively participate in video gaming communities. If only a fraction of them decided to spend their free time exploring different ways to improve gameplay, the industry could benefit greatly.

We can apply similar logic to the rapidly expanding crypto space. Many people today are familiar with Bitcoin and Ethereum, two widely used blockchains. Yet, few realize that there are dozens of additional protocols built upon them. Some of which are extremely promising.

There are entire startups dedicated to developing tools or services aimed at increasing adoption rates. Others want to develop entirely new types of currencies that will compete with currently dominant cryptos. Whatever the case is, NFTs could open doors for further innovation.

If successful, this wouldn’t only result in higher adoption levels, but also increased revenue streams for related businesses. For instance, Microsoft recently announced plans to integrate NFTs into Minecraft World Records, meaning players can acquire skins and emotes earned by completing challenges inside the game.

Of course, implementing changes like this requires careful planning. Otherwise, NFT schemes could quickly turn into massive pyramid schemes. Therefore, regulators need to carefully consider how best to regulate virtual markets before introducing any legislation.

Meanwhile, people can try experimenting with NFTs on their own. Most major cryptocurrency exchanges support trading basic tokens, although some of them charge fees depending on market conditions.

CryptoKitties, for example, lets users purchase cats straight onto the website. Other sites like CryptoPunks and Catz wallet users to receive pets automatically. Still, others, like CryptoLions and CryptoZombies, are focused purely on player vs. player combat.

cryptokitties) are great places to start. Valuable projects add to why are NFTs valuable.

Why are some NFTs expensive

Despite their potential, NFTs face numerous obstacles. One challenge stems from the relatively small number of active participants relative to total holders. Another issue relates to scalability.

Currently, it takes days or weeks for transactions to finish. During this period, traders must wait until prices stabilize once again before proceeding with trades. Until this happens, their funds remain vulnerable to loss.

Even worse, some NFT sellers deliberately manipulate prices to pump and dump. Their goal is usually to steal wallets’ funds, causing severe damages to their owners’ balances.

Yet, perhaps the biggest hurdle facing NFTs is finding widespread acceptance among the masses. Why are NFTs valuable comes down to these factors.

taxbit review

Click the image to sign-up for Taxbit and get 10% Off!