NFTs – The Case Of A Multibillion-Dollar Craze
In 2021, non-fungible tokens or NFTs apparently ballooned into a $40-billion-dollar market.
That’s what the Financial Times revealed, and in another revelation from another credible source, there are more users of an old online game than NFT owners.
Analyst and author Wagner James Au brought up the issue about this difference in his culture and metaverse news blog New World Notes on January 3, 2022.
Compared to the 360,000 NFT owners, based on the figures provided by the Financial Times, there were approximately half a million owners of “unique virtual items in Second Life,” Au disclosed.
It seemed that Au found it a bit bizarre for a “supposedly hot” market such as NFT to have a smaller “virtual economy” than Second Life, the online game referred to earlier.
Au pointed out that there’s this market worth billions of dollars and it’s the NFTs, but it’s “relatively small,” as tweeted by Dare Obasanjo, Meta’s (the former Facebook) lead product manager.
Perhaps Second Life just happens to remain popular despite having been around since 2003, but the enthusiasm towards NFTs stays on, too. Let’s find out why.
While The Verge debated over whether to identify NFTs as “art form” or “platform,” NDTV was certain to call them “digital assets.”
The cause of indecision, explains The Verge, is that as an art form, NFTs can be “anything digital” (from music to artworks). Now as a platform, people can use NFTs – the technology involved in it – to market and sell those various digital arts.
Take the following two incidents as examples:
Animator and graphic designer Beeple – Michael “Mike” Joseph Winkelmann in real life – created a collage of 5,000 images he called “The First 5000 Days.”
In March 2021, it sold, via the British auction house Christie’s, for a cool $69.3 million, reported CNN.
Canadian musician Grimes (born Claire Elise Boucher and has a child with Ellon Musk) became $6.3 million richer for her digital artworks collection.
Though people have been trading NFTs since 2017, according to NDTV, it’s only in 2021 that NFTs gained huge popularity. No wonder CNN described NFTs as “the latest cryptocurrency phenomenon.”
The website of the cryptocurrency Ethereum offers details about NFTs. After all, it’s part of its blockchain, according to The Verge.
Ethereum.org defines NFTs as “tokens that we can use to represent ownership of unique items.”
By unique, it means non-fungible.
When a thing – a book, a drawing, a song, for example – is non-fungible, it means it possesses “unique properties,” according to Ethereum.org, and therefore “not interchangeable for other items.”
Investopedia describes stocks as fungible because whether they're owned by Warren Buffet or by an ordinary investor, they remain as such.
Other examples of NFTs, as enumerated by Ethereum.org, are domain names, essays, and real estates.
So, with the above-mentioned examples, NDTV clarified that NFTs are not limited to digital arts.
CNN reported that Beeple labored for 13 years to complete that collage that made him an instant multi-millionaire. Will it still be valued as much if it’s not sold in the form of NFT?
Yahoo! Finance explains that for being non-fungible – that is, being unique and not interchangeable – NFTs command a high price, which makes them an ideal investment.
The uniqueness of NFTs easily make them “as a collector’s item that cannot be duplicated,” added Yahoo! Finance, and for that, it concluded that they “are here to stay.”
As for investment site Motley Fool, it said that it would be sensible for collectors and for people with “an eye for art, music, etc.” to invest in NFTs.
It cautions, though, that the value for any digital art can be “uncertain” and can rise or fall depending on the demand. Still, those who can spot potential NFT trends could enjoy a financial reward, as Motley Fool indicated that there were digital arts which were initially bought for minimal amounts but later got sold for several “thousands of dollars.”
Finally, Motley Fool advises anyone who will invest in NFTs to “tread lightly” because even though they are “promising,” it can still be risky to invest in them.
In its effort to explain what an NFT marketplace is, Harvard Business Review (HBR) compared it to two popular brand names: Netflix and Spotify.
Whereas those two companies give “unlimited digital content” to their subscribers, an NFT marketplace offers “scarce” digital content. Their limited availability is what makes buying NFTs, according to HBR, significant.
HBR identified two kinds of NFT marketplaces or NFT platforms, namely:
(A) Streamlined Platforms
Similar to e-commerce sites (e.g., eBay; Etsy; Mercari), they “support a broader range of NFTs,” according to HBR, which, in turn, attracts diverse users.
In addition, these platforms aim for efficiency when it comes to operations and dealing. One proof of this is reflected in their payment systems. People buying in streamlined platforms can pay with their Bitcoin or Ethereum or through a credit card.
(B) Augmented Marketplaces
As streamlined platforms welcome a wider range of NFTs, augmented marketplaces set their attention to “narrower niches.” Also, between these two marketplaces, the latter offers more services, including but not limited to:
(3) minting (the process of converting a digital file into a digital asset or NFT)
(4) pricing suggestions
(5) tracking portfolio
With NFTs belonging to the Ethereum blockchain, people can buy and sell them in an NFT marketplace that’s Ethereum-based, according to Ethereum.org.
The Ascent, a site under Motley Fool, listed the following marketplaces in an updated article published in January 2022:
(b) Axie Infinity
(c) Larva Labs/CryptoPunks
(d) NBA Top Shot Marketplace
In his article published in Medium in December 2021, crypto analyst Oliver Alan picked the following NFT marketplaces as the best ones out there:
(b) Axie Infinity
(e) Super Rare
Several other sites – Benzinga, BlockSocial, Decrypt, Influencer Marketing Hub, Widewalls – all listed OpenSea at the top spot.
As of January 2022, Wagner James Au wrote that Second Life has “about 500,000 to 600,000” active users – called “residents” – per month.
That’s lower compared to the estimated 900,000 mentioned by Linden Lab CEO Ebbe Altberg in an interview with VICE News published in November 2020, according to QRCA Views.
Launched in June 2003 by Linden Lab, Second Life is a multi-user online game. Au stated in New World Notes that Los Angeles-based private equity and asset management company Waterfield Group (est. 1928) bought Linden Lab in 2020.
The virtual money Linden Dollars ($L) is used to buy and sell virtual goods and services in Second Life, according to Investopedia. Second Life users can get Linden dollars by using real money to buy them and by trading virtual goods and services.
Modern tech site MakeUseOf noted that Second Life benefits from a “loyal user base.” In an article published in December 2021, it listed the following reasons why Second Life remains to be popular:
(a) It’s “an immersive model.”
(b) There’s “no storyline to follow.”
(c) The Second Life economy allows users to buy, rent, and/or sell virtual goods and services.
(d) It has “a safe environment to socialize.”
Though Yahoo! Finance and Motley Fool recommends investing in NFTs (still with words of caution from the latter), there are still experts who remain unsure about it, reported CNBC.
From $100 million back in 2020, according to The Guardian, NFT trading peaked at $22 billion in 2021.
The CNBC report said that people should not allow themselves to get caught up in the “hype,” and should instead buy NFTs out of genuine interest or love for digital arts.
Well, when people get crazy over something, they tend to spend a crazy amount of money on them. The same thing applies to NFTs.