It’s early 2021, and social media is flooded with digital paintings of funky monkeys. These paintings are the new ‘rad’ entities to have. Buyers are paying thousands of dollars to claim ownership of these artworks. Cut to the present, these are now rightfully tagged as the buyer’s remorse.
Let’s talk about NFTs, or non-fungible tokens, and their spectacular crash as an asset in history.
The Principle
As the name suggests, NFTs are not fungible. To put it more simply, they cannot be exchanged for one another. Commodities like gold, oil, and currency are fungible; you can exchange a 100-gram gold bar for another one that weighs the same. In the case of NFTs, each token is distinct, and it cannot be exchanged on a one-to-one basis with another token.
This is because each NFT is linked to a unique identification code based on metadata. The token is stored in the blockchain, the same technology used in crypto for effective encryption. So, an NFT is much more than a JPEG image; it is a uniquely owned asset. This asset can only be bought through cryptocurrency as it uses blockchain technology. So, a crypto wallet is a must before buying an NFT.
In short, you can buy or sell an NFT with formal procedures for changing ownership, but you can’t simply exchange it like a dollar bill. The tradable feature of NFTs should not be confused with the non-fungible one.
The Vision
NFTs were all set to revolutionize the spheres of digital art and cryptocurrency. Anything can be turned into an NFT—a digital painting, a song, a write-up, a domain name, or gaming items. The founder and former CEO of Twitter (now X), Jack Dorsey, sold his first tweet as an NFT for a whopping $2.9 million. NBA sold basketball video clips as digital collectibles through its marketplace called ‘NBA Topshot’. These things defined the pinnacle of NFT mania.
Content creators and digital artists were savoring this historic opportunity. For centuries, physical artwork has always been a valuable commodity traded through auctions. Partially, an effort was made to give digital art a similar status as conventional, physical art.
What Went Wrong?
Since its inception, the very idea of NFTs has met with massive opposition. The hype cycle of 2021 has seen it all—the scams and disguised money laundering schemes behind NFT transactions. Perhaps the idea was not solidified enough for such a surge, because almost all investments made in NFTs are now absolutely worthless. Almost like an Instagram trend, it came by and went. But fetching nothing but failed purchases. The blind faith that people put in these added to the NFT mania. Remember Dorsey’s $2.9 million tweet? Yeah, it’s probably not even worth 10 bucks now.
Many factors contributed to this dramatic decline. Primarily, it was the fact that digital art doesn’t provide the same tangible experience as physical art. Active interest and enthusiasm are what drove the NFT market, and eventually, people got bored.
In the era of environmental activism, NFTs are being scrutinized for their carbon footprint. Ethereum is the most commonly used cryptocurrency for buying and selling NFTs; its mining consumes a significant amount of energy and emits greenhouse gases.
The realm of cryptocurrency and NFTs is still in the developing stages. So let’s not forget that NFTs are not all bad. NFTs have provided a new way for creators to monetize their digital content and for collectors to own and trade unique digital assets.
The future affairs of crypto may open new doors for NFTs again, till then, R.I.P NFTs: Gone and Also Forgotten.
When it comes to investing, nothing will pay off more than educating yourself.
