WHY ARE NFTS SO EXPENSIVE?

NFTs have been making lots of headlines in the mainstream media over the past year. Digital artists and investors around the globe are excited about the new crypto craze that everyone is talking about. 

Non-fungible tokens are units of data that are stored on a blockchain. Each one contains information that can verify the NFTs owner and its creative history. In the traditional art world, people are given an authenticity certificate, which is similar to an NFT, the main difference is that these are digital assets, not physical ones. Although there are plenty of folks that claim NFTs is just another fad that won’t last, others are convinced that NFTs are the future of the way we buy, sell and collect art. Without a doubt, NFTs have incredible potential, and they have encouraged lots of people to get involved in the blockchain industry.

If you purchase an NFT, you won’t be able to put the digital asset on display above your mantlepiece. They are digital tokens, but because people can’t duplicate or copy the NFT, each digital asset is one-of-a-kind. Human beings have been collecting things for as long as we have been on this planet. Rare items often sell for a lot of cash. Unfortunately, fraud in the traditional art world has been a major problem, and with technology improving, it is getting even harder to differentiate an original from a duplicate. Proving ownership of an NFT is easy, which is one of the reasons why the NFT craze might prove to be a big player down the line. 

Okay, you might have come across NFTs that have sold for millions of dollars and thought to yourself that you could easily create or duplicate the image. What’s stopping you from taking a screenshot on your phone and telling people it is yours? This is where NFTs come in. Investors who purchase an NFT are given the rights to the NFT. The owner is the only person who can redistribute or sell the digital asset. Of course, you can still view the image, music clip, video, etc. on the web for free, but you can’t resell it unless you own the original NFT. Secondary NFT marketplaces, like Rarible, are working hard to create DMCA processes that will help remove unauthorized NFTs from their network.

Some people have made millions of dollars selling a single NFT on a secondary marketplace or auction, but nobody has come close to the amount of money Mike Winkelmann made from selling his piece, The First Five Thousand Days. The well known digital artist created a piece of art every single day for thirteen years and shared each image to a social networking platform. Some were funny hand-drawn drawings, while others were incredible 3D pieces of art. After 13 years, Winklemann created a collage and sold it in one of the most famous auction houses, Christie’s, for over $69 million. 

A fierce bidding war took place for the incredible collage, and after 180 bids it was eventually sold at the last minute to the winning bidder, Metakoven, a well known figure in the crypto community. The amount of money a person is willing to pay for digital artwork shocked the world. At the end of the day, it’s not like the new owner could put the collage on display anywhere apart from the internet, but it showed that the blockchain industry should be taken seriously by artists all around the globe.

One of the reasons NFTs were created was to help artists make a living. During these unprecedented times, traditional artists have found it difficult to find areas to display their work. With Covid-19 restrictions in place all around the world, art galleries have been forced to shut their doors to help reduce the number of people contracting the virus. People can log onto the internet and look at NFTs without having to step foot outside.

Before NFTs, artists were worried about posting their work online, because anybody could duplicate them and claim them as their own. Smart contracts will show details about the creator. So even if the artist sells their work, they can attach a royalty “rider” onto the contract. With this contract, the artist will get compensation for their work if another person resales their work down the line. The blockchain will verify the authenticity of the NFT, so others are unable to change the NFT or replace it. 

There are several reasons why collectors invest in NFTs. Some want to create a portfolio of digital artwork, others are looking to make a profit, while some look to support the artistic community. 

Anyone can tokenize digital art, whether it’s a video clip, an image, a GIF, etc., and sell it as an NFT, but not all NFTs sell for a lot of money. There is often a lot of hype surrounding NFTs that sell for large sums of cash. In fact, there are millions of NFTs being minted, which are flooding the marketplace. Well-known creators often sell their work for a lot of money because of their reputation. 

A lot of NFT creators and owners will go online to try to pump up the price. They will talk about their collection on different social media platforms and online forums to create a buzz. Although pump and dump campaigns are illegal in the stock market, crypto markets are not relegated in most countries, so it’s not surprising there are a lot of NFT owners promoting their collection on the web. If nobody has heard of the creator, or people haven’t heard about the NFT, then the likelihood of it selling for top dollar is slim. For more details about investing in NFTs, check out  NFT Wolf.

Of course, there are plenty of people who have made a fortune from buying and selling NFTs, but because the market is difficult to predict, investing in NFTs can prove to be extremely risky. Because it is an emerging market, it’s impossible to guarantee market stability. We are still in the early days of NFTs, and people are unaware of where the market is heading, which makes investing in them risky. New investors are advised to experiment by purchasing small amounts of NFTs. Even with the cryptocurrency market growing fast, it’s still hard to tell whether or not NFTs are a good long term investment. If you have invested in a non-fungible token, and people on the internet start to lose interest, then it might be worth nothing when you try to sell it. 

With cybercrime on the rise, NFT owners must be careful. There are cyber criminals successfully stealing NFTs, so it is vital that owners create a strong password. If the NFT exchange the owner is using doesn’t use two-factor authentication, then hackers will be able to steal the digital asset. If you have purchased an expensive NFT, then you should consider storing it in a secure location offline. Also, invest in a reputable antivirus software package, and consider employing a quality VPN service.