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Why are NFTs so expensive





Rootage as the germ of time value is nada newfangled. Kanye West derriere deal a t-shirt for $120 because he’s Kanye West. Reckon How do I start selling NFT often he could deal the Edward White t-shirt he wore on present for a show up. Belle Delphine’s bathwater is sold tabu at $50 (NSFW site). It doesn’t thing that we tail end bribe a t-shirt for $5 or reach our possess soil bathwater. Rootage matters.



Why NFTs are Valuable



The Beeple "World-class 5,000 Days" NFT sold for $69,000,000 cobbler's last week. Naturally, that's rearing approximately eyebrows around what the purchaser actually bought.



Obviously, the buyer doesn’t own the graphics in whatsoever traditional sense. Look, I rump library paste it the right way here:






And in front you articulate "you rump do that with a painting besides!" That’s non quite admittedly. A word picture of a picture is dissimilar from the painting. The JPG of the Get-go 5,000 Years patch is the piece. There’s no deviation.




This is matchless problem with the ownership argue about NFT graphics (intro for the unfamiliar). You don’t have the nontextual matter the Same means you mightiness own an archetype Picasso. You can’t ruin it, you can’t change it, you don’t real hold it in whatever exceptional means.



Merely that’s the affair with NFTs, you’re not purchasing the graphics. You’re buying the NFT. The NFT is not the artistic creation. It’s a few lines of codes that includes a reference point to the art, merely that’s it. The prowess doesn’t even out resilient in the NFT since it would be right smart as well a lot data to invest on the Ethereum blockchain. Altogether the NFT has is a liaison to where the artwork is!





I could go progress to some other NFT of the accurate equal patch of artistry correct now, and no matchless could actually halt me. Just it wouldn’t be meriting anything. Why non?



Well, for one, it wouldn’t possess an unquestionable origin. It's exceedingly well-heeled to verify whether an NFT came from Beeple or not. In fact, it's importantly easier to do this with NFT fine art than with "real world" artwork since everything on the Ethereum blockchain is legible. Wholly Beeple would get to do is squeeze the world treat he's sign language his artistic production from and then anything of his that's gestural by whatever other computer address we'd have a go at it is falsify.



Parentage as the source of prize is nothing Modern. Kanye West give notice betray a t-shirt for $120 because he’s Kanye Westward. Reckon How much do NFT cost much he could trade the ovalbumin t-shirt he wore on stagecoach for a establish. Belle Delphine’s bathwater is sold kayoed at $50 (NSFW site). It doesn’t substance that we dismiss bargain a t-shirt for $5 or get to our possess contaminating bathwater. Parentage matters.



You power opine of an NFT non as the art, but as the signature tune on the art. Historically you had to have the physical piece of music to receive the touch. At present we john nobble the theme song into its possess asset, and you force out grease one's palms the creator’s self-stated sealskin of authenticity.



Some other doctrine of analogy Here is a college grade. Tutelage at Carnegie Andrew Mellon is $57,119 per year. At the last of foursome years, you meet a slice of paper. Is that firearm of composition deserving $228,476? You could precisely photoshop your list into this peerless and send for it a day:





Merely it’s not the slice of paper, it’s the descent of the paper and what it tells citizenry. The theme song matters. It tells hoi polloi you fagged 4 age and adequate money to spare 65 lives from malaria learning… something. Hopefully. And thence they should earnings you Sir Thomas More than the otherwise undistinguishable pupil a few miles away.



The Leontyne Price of a stage is non well-nigh knowledge or the friends you made along the mode. Those could be had for Army for the Liberation of Rwanda to a lesser extent money. It’s close to signaling. Sign you were competitive and affluent decent to perplex into this institution, and and so control your tear drunkenness advantageously plenty to conclusion for Little Joe age.



The college arcdegree exists someplace on the spectrum 'tween "utility" and "signaling." And ane within reason ordered truth with the service program to sign spectrum is that as things amaze more than expensive, we usually see ourselves nearer and finisher to the signaling ending of the spectrum.



The $5 t-shirt is unadulterated public utility. The Kanye t-shirt is virtually solely sign. Everything we buy, and own, falls somewhere on this public-service corporation to signal spectrum.





So where are NFTs right forthwith? Right-hand here:





NFTs are enthralling in separate because they occupy the public utility company to signal ratio to the extreme. Thither has ne'er been something so valuable that’s so perfectly useless. Tulips you could at least set. On that point is effectively goose egg utility to owning NFTs that are on the food market decently now, as well venture nigh their future tense prise.



So beyond speculation, why are they valuable? Signaling. In that location are more or less 240,000 unmarried wallets with terminated $1m USD in Bitcoin. If you suddenly came into a few milly, you’d wanna picture murder likewise. NFTs are a sport fresh way to signal wealthiness and taste sensation.



Just they’re likewise a way to signalise how too soon you are in the crypto thriftiness. If you steal into the estimation that NFTs bequeath typeset a raw criterion for integer rights management and integer possession (which I do, more on that succeeding time), purchasing close to in real time is form of similar purchasing BTC stake in 2013 or registering a 3-letter of the alphabet field nominate in the early years of the web.



And to be clear, I absolutely dear NFT engineering and am passing to pen some it a good deal to a greater extent. I’m non pointing away their richly sign to utility ratio to pick apart them. I’m pointing it KO'd because I think they’re beingness below the belt criticized for beingness a thriftlessness of money. Signal is extremely valuable, and NFTs are a gripping young right smart to peacock butterfly and peradventure suffer robust along the mode.



So are NFTs a house of cards? I dubiousness it. NFTs are getting dozens of pressing but the grocery is noneffervescent minuscule in the grand system of things.



The art food market is worth



67 million dollars. The NFT food market entirely attain 338 meg in 2020. Perhaps it’ll strike a few billion this twelvemonth. Merely and then agent in how very much easier it is to bargain NFTs than art, and how many former industries NFTs could use up aside at, and that 67 trillion routine just sounds the likes of a start item.



For example, sports product. Roughly of the money getting worn out on NBA merch is in real time sleek into TopShot. TopShot has done at least a few 100 billion in transactions so far, which sounds insane until you recall that NBA merchandise, which has no risky investment component, is a nigh 50 billion clam industry.



Or comparability NFTs to early crypto options. Bitcoin’s marketplace capital is o'er 1 one million million. If in that location were a Beeple-sized, $69m sales event every one day for a year, the NFT market would allay be but $25b, or 2.5% of the Bitcoin grocery store. It is Early on.



While I don't guess NFTs are a bubble, I mean on that point are a good deal Thomas More interesting utilization cases for NFTs that aren't existence through eventually. Uses that bequeath bring them beyond bare signaling, and spring them just about New forms of usefulness that weren't previously conceivable online.



Once we beginning visual perception Sir Thomas More of those expend cases arrive, the securities industry wish but proceed to develop.



This clause originally appeared as an assay in my Mon Medley newsletter, which you stool signed up for here.






"We're sightedness a raw contemporaries of traders inside the NFT market; mass World Health Organization are digitally indigen looking for appendage native asset classes outdoor of constituted plus markets," Ivanova aforementioned. "These are citizenry who get accumulated reputation and wealthiness and require to commit it in purely virtual assets same NFTs."



What are NFTs?



NFTs are non-fungible tokens — meaning you couldn't commute one and only NFT for some other — that footrace on a blockchain network, a integer leger that records wholly proceedings of cryptocurrencies ilk bitcoin.



The deviation with bitcoin and other tokens, though, is that to each one NFT is unequalled and can't be replicated. Apiece ace accrues note value severally. Crypto investors pronounce NFTs come their appreciate from how scarce they are. They're stored in digital wallets as collectors' items. On the far side artistic production and sports, masses hold too base uses for NFTs in virtual material estate and play.



Nadya Ivanova, chief operational officeholder of BNP Paribas-connected enquiry steady L'Atelier, says collectable integer assets rump be thinking of as a bettor adaptation of an MP3 file away. Musicians have struggled to earnings from their oeuvre in the integer age, and Ivanova says around are turn to NFTs to leaven possession of their shape and discover an extra reference of tax income.



"It's allowing message creators to in reality possess the attribute rights for what they create, which allows them to earnings from it in unlike slipway which they can't do with forcible art," she told CNBC, adding that crypto fine art is the strongest development subdivision of the digital collectibles commercialize.



The amount esteem of NFT minutes quadrupled to $250 jillion death year, according to a subject from NonFungible and L'Atelier. The numerate of appendage wallets trading them all but two-fold to complete 222,179, spell roughly traders were capable to relieve oneself lucre of terminated $100,000.



"We're eyesight a young genesis of traders inside the NFT market; mass World Health Organization are digitally indigen looking at for integer indigene plus classes exterior of established plus markets," Ivanova aforementioned. "These are the great unwashed who give birth massed reputation and wealth and deprivation to put it in purely virtual assets like NFTs."



Ivanova says the NFT grocery has been maturing. Famed vendue theatre Christie's auctioned an NFT-founded oeuvre of fine art created by Beeple, a well-known integer creative person WHO has created videos and artwork for celebrities equal Ariana Grande and Justin Bieber.





What was it near this art that made it so hotly contended? The sales agreement of the nontextual matter came with or so interesting features:



Extremity art: What are NFTs and why are they so valuable?





How do I start selling NFT do you determine appreciate? Intellection just about this nowadays as I fancy spattered crosswise the media news program close to a integer graphics that sold online for US$69.3 billion. Straightaway that's a genuinely expensive JPEG file away. What caused the cost to give so much intoxicating high? Issue and demand, scarcity value, novelty factor, braggy rights? In the incase of this art possibly a combining of altogether of the higher up.



The creative person Mike Winklemann professionally known as “Beeple” was non good known out of doors of the appendage artistry creation. Today he is peerless of the most expensive bread and butter artists you had in all likelihood never heard of. Until directly.



Christies was the auctioneer star sign that sold his nontextual matter and whilst they possess an unbelievable stock in merchandising artistic creation which dates endorse to the 1700's, this was the get-go sentence they or any early John R. Major auctioneer business firm had sold a part of fine art that was wholly digital (with a NFT). I learn that they themselves were uncertain of how to rate the while. Its middling to tell the auction went really well, it was a phonograph record breaker, and judging by the artist's twitter eat he appears to be astonied by the last Price nonrecreational.



.@beeple 's 'The Initiatory 5000 Days', the 1st strictly integer NFT founded art offered by a major auctioneer domiciliate has sold for $69,346,250, position him among the upside threesome almost worthful keep artists. John R. Major Thanks to @beeple + @makersplaceco. To a greater extent inside information to be discharged shortly

— Christie's (@ChristiesInc) Mar 11, 2021



What was it approximately this graphics that made it so hotly contended? The cut-rate sale of the art came with about interesting features:





  1. Sold with a Not Fungible Relic.


  3. Strictly digital artwork.


  5. A compiling of 5,000 individual artworks.


  7. Sales agreement cognitive process managed by unrivalled of the almost august auction bridge houses, Christies.


  9. Cryptocurrency was an acceptable shape of defrayal.




Until Tuesday this week I had never heard of NFT's or Not Fungible Tokens. Crypto vogue? Yes. Blockchain? Certain. NFT? Nope. I launch prohibited nearly them by probability when meeting with a occupation cooperator he mentioned NFT’s to me. "NF what?" I queried. He with patience explained the concept and How do I start selling NFT NFT's could be applied to assets such as artworks and medicine exploitation blockchain engineering science. I was interested to listen approximately it merely wondered where had I been whole this clock time? He believes NFT's are the future bountiful thing, exactly his opinion, absolutely non advice!



The commemorate producing artwork by Beeple is coroneted “Everydays: the start 5,000 days", a digital asset compiled of 5,000 individual artworks. If the new owner(s) decide to sell the artwork in the future it will have to be sold as a whole, they will be unable to siphon off individual pieces to sell. Whilst the artwork is a rich tapestry of thousands of pieces the owners will be able to zoom in on each individual piece, so it can certainly provide them with some viewing variety.









Everydays — The First 5,000 Days, by an artist named Beeple, released by Christie's (Christie's Via AP)



There is no doubt in my mind that an important part of the value of the artwork was that it was sold with a non fungible token or NFT. The NFT is essentially a digital trademark providing proof of provenance and ownership. With the use of a NFT authenticity of the asset is forever assured; using blockchain technology the token will be stored on a digital ledger. Should the artwork change hands in the future the NFT would go with it providing an important safeguard that this is the original piece, helping combat the risk of fraud and forgery. This can be a serious and expensive issue in the art world which is well covered in the popular BBC television series “Fake or Fortune”.



It is easy to understand how a NFT can provide safety to buyers and sellers, particularly important for digital art which can be easily replicated. It will be fascinating to watch from the sidelines to see How do I start selling NFT the use of NFT's develop. No question that we really do live in interesting times.





Deutsche Bank suffered a similar shock in 2015 when a junior member of the bank’s forex sales team accidentally transferred a hedge fund $6 billion, but luckily for the fledgling member of staff, the hedge fund was kind enough to send it back.



What are NFTs?



NFT stands for “Non-Fungible Token.” Non-fungible essentially means it cannot be traded in for something else, in the same way a $50 dollar note could be traded for two $20 dollar and one $10 dollar note.



NFTs are sometimes compared to art pieces like paintings (because there will only ever be one original) but they’re also regularly compared to autograph prints, collectibles, and trading cards. Whichever traditional, real-world analog is closest, they are effectively digital certificates of ownership.



NFTs can contain smart contracts — which run on the Ethereum blockchain — which could, in theory, give the original creator of an NFT a percentage of all future sales of the token.



Why are they so expensive? Scarcity, first of all, but the marketplace in general — and the subsequent price of NFTs — is driven by the momentum and sentiment floating around this young, exciting new asset.



Who knows how expensive NFTs will get — or, conversely, when the bubble will burst.





Swiss IT security company Wisekey has also moved into this business. “Digital twins for luxury items and art are the main markets so far, but other uses of NFTs are emerging, in particular for certifying intellectual property and identity,” says CEO Carlos Moreira. The company provides NFTs to protect luxury objects and has recently launched an art marketplace. It plans to introduce its own cryptocurrency and is working on projects for digital rights management of music and movies.



NFT explosion: Why are people buying digital art?



You are free to share this article under the Attribution 4.0 International license.



Built on the same technology as Bitcoin, NFTs have been a hot topic in 2021. They enable a real market for digital works of art while fueling unprecedented speculation.



2021 might become known as the year when digital art exploded. On March 11, a cryptocurrency investor paid $69 million for the digital painting “Everydays: The First 5000 Days” during an auction organized by Christie’s. The blinking GIF Fomo is currently for sale for $2 million—60 times what it sold for only nine months ago. And a series of 10,000 straightforward-looking illustrations of monkeys, called the Bored Ape Yacht Club, are collectively worth more than one billion dollars.



This mind-boggling bubble is fueled by the NFT technology, which enables cryptocurrencies such as bitcoins or ethers to be exchanged against digital objects. An NFT or “non-fungible token” is a digital data string that establishes proof of ownership of a specific item that usually exists in the virtual world. It could be, for instance, a digital work of art, a financial asset, or a patent.



NFTs live on the blockchain, a transaction-tracking decentralized ledger, which until recently was mainly known for being behind Bitcoin. It has generated incredible hype while extending its potential impact on many industries, from finance to art, music, intellectual property, and luxury goods.



NFTs and royalties



“NFT has really enabled a market for digital art,” says Robert Zumkeller, a graphic designer who started creating NFT illustrations while a student at the FHNW Academy of Art and Design in Basel. “I am not certain that I would have found a brick-and-mortar gallery willing to exhibit my digital work, nor buyers who would acquire a physical screen to own it. With NFTs, I could use an online gallery,, to showcase my work and sell it.”



Like everything else recorded on a blockchain, art NFTs allow for tracking all transactions after their initial sale. This tracking allows for a perpetual royalty payback, explains Zumkeller. Under his moniker, Vicarivs, the young artist will receive 10% on any subsequent sale of his work—something that rarely happens with physical objects sold by galleries or collectors.



In physical art, only one original copy usually exists (or a few dozen, in the case of art prints). The original is distinguishable from reproductions, which are sold legally or as forgeries. With digital painting, the work of art is a data file, which can have an infinite number of perfect copies. That is Why are NFTs so expensive an NFT does not comprise the data file of the work of art itself; instead, it functions as proof of original ownership.



Digital versions of luxury goods



NFTs have also entered the luxury market, where recently, digital twins (a photograph or a 3D animation) of collector watches went up for auction in spring 2021. “More and more brands are looking into NFTs,” says Serge Maillard, managing editor of the watch magazine Europa Star. “First, as a useful tool to fight forgery by ensuring traceability and authenticity. Second, to develop and maintain a closer, more personal relationship with their client, without having to rely on intermediaries.”



Swiss IT security company Wisekey has also moved into this business. “Digital twins for luxury items and art are the main markets so far, but other uses of NFTs are emerging, in particular for certifying intellectual property and identity,” says CEO Carlos Moreira. The company provides NFTs to protect luxury objects and has recently launched an art marketplace. It plans to introduce its own cryptocurrency and is working on projects for digital rights management of music and movies.



Altogether, the NFT market ballooned over the last twelve months with a 700% increase from the second to the third quarter of 2021, according to the analytics platform Dappradar. This bubble confirms the speculative character of cryptocurrencies and blockchain applications; namely: the dollar value of the bitcoin has increased by a factor of 100,000 over ten years.



Speculation and impact



“So far, design choices on the technology have helped to fuel speculation,” explains Claudio Tessone, professor of blockchain and distributed ledger technologies at the University of Zurich’s department of informatics. “The most widespread systems are based on the so-called proof-of-work, where the validating and tracking of all transactions by the network as well as the introduction of new tokens only work because users run computations on their systems.



“As the devoted resources have been accelerating under a constant rate of supply, the creation of assets is becoming more and more expensive, which fuels an increase of their value, just like oil prices going up when it’s harder to extract. In turn, this creates incentives to invest resources in the blockchain, which fuels a self-reinforcing loop driving speculation and inflating prices further.”



The energy consumption of blockchain applications has been an increasing worry. While society is desperately trying to tackle climate change, it has simultaneously introduced economic services that consume as much electricity as a middle-sized country like Sweden. “There is some hope that a new architecture for blockchains, called proof-of-stake, will make the electricity needed to run it negligible,” says Tessone. “A new generation of platforms such as Cardano, Polkadot, or Tezos are already running on such systems, but their impact—while increasing—has been limited so far. We’ll have to see.”



However, this new architecture could generate new, problematic incentives. Until now, cryptocurrencies rewarded those setting up huge computer farms to profit from economies of scale and more efficient energy usage. A proof-of-stake blockchain rewards users instead who heavily invest in it, which fuels speculation. “As of now, it is hard to imagine blockchain without speculation,” says Tessone. “It is good to see that the community takes this problem seriously, cryptoeconomies for a future with more functional cryptoeconomies.”



Catherine Tucker, a professor of management at MIT who specializes in the blockchain, regrets this focus on speculation: “Most of the reporting on NFTs has been on the speculative aspects. This is rather frustrating, as it may lead to less experimentation on ideal-use cases.”



Not so private after all



One worry is that the anonymity provided by blockchain technology could help financial fraud. The most obvious ones are shill bidding to drive prices up at auction and insider trading. In September 2021, Opensea, the largest marketplace for NFTs, revealed that one of their employees had purchased items just before they were displayed for sale on its front page—an action that would amount to insider trading.



Many specialists’ forums discuss the risk of shill bidding, where an artist or someone they are conspiring with buys their work for a large sum to drive its price upwards and maintain the current bidding frenzy. This culminated with the suspicion that the owner of an NFT of the art series CryptoPunk borrowed 500 million dollars as a flash loan—a financing mechanism only available on the blockchain—to buy the NFT from themselves before returning the money. While a clever trick to inflate the price of their art, this move also raised suspicions that NFTs could be a perfect tool for money laundering.



Interestingly, specialists discovered these suspicious activities because all blockchain transactions are fully available to the public. “The famed privacy of cryptofinance is a mere illusion,” says Tessone. “It is based on the premise that users create a large number of wallets holding their assets in an attempt to obfuscate their transactions.” But in fact, many people choose to avoid this option because of the cost of transactions. And then, of course, there’s the traceability, adds Tessone: “mathematical network analysis can uncover suspicious activities, allowing tracing back transactions to a person even if they manage many wallets. This is why shill bidding on NFTs is not actually safe for fraudsters, contrary to what many commentators say.”



Catherine Tucker also cautions us against putting the blame entirely on NFTs, saying that “problems such as insider trading with NFTs are reflections of underlying user behavior in uncertain environments and persistent transaction costs. I am not sure if attributing fault to the technology is correct. Ultimately, technology is just technology.”





Now, as prices surge, owning a CryptoPunk has become a "digital flex" due to there being only a limited number of them. Several of their owners have also taken to flaunting them by using their punks as an avatar on social media sites like Twitter.



First and foremost, limited quality. Just like there would only ever be 21 million Bitcoin and not a single more, there will only ever be 10,000 CryptoPunks. It is up to the NFT creator if they want to have a rare collectible or have several versions of their NFT. Still, in both cases, the authenticity of the NFT is verifiable through their unique IDs and metadata.



In CryptoPunks, no two punks are the same. Some have a headband, some have caps, others have small shades, and many are wearing gold chains. Each punk has different attributes, and some are rarer than others. Simply put, the rarer an item, the higher its value.





After all, if you were to spend millions of dollars to buy a piece of work done by Picasso, you could hang it in a gallery and charge quite a bit of money for tickets to simply look at it. But NFTs are different. They’re digital files that can essentially be copy and pasted by anyone.



NFTs Are Unique



First and foremost, it’s important that you understand what the acronym NFT stands for, which is non-fungible token. The non-fungible part of the name points to the uniqueness of the digital asset. These pieces of art simply can’t be replaced.



To understand the difference between a fungible asset and a non-fungible asset, all you need to do is look at Bitcoin, Ethereum, or a wide range of other cryptocurrencies, which are all indeed fungible. After all, there’s nothing unique about a single bitcoin other than its ownership. One could be replaced with another and the owner wouldn’t mind because the value is the same no matter which coin he owns.



On the other hand, your dog is a non-fungible asset, albeit one that’s likely a very valuable member of your family. After all, I couldn’t walk in with another dog that looks pretty much the same, take yours and leave mine, without you being upset about it.



Your dog is unique. You know his personality, he knows yours, he gets along with your kids, friends, and family. Shucks, he’s part of the family. There’s no way to replace him.



Not that NFTs are living, breathing, animals that become part of the family, but they are just as unique and irreplaceable as your beloved family pet; hence, making them non-fungible.



Ultimately, uniqueness adds value. After all, value is a concept that’s built on supply and demand. When the supply is high and demand is low, value is hard to come by, but with NFTs, the supply count for each unique token is one! As a result, if someone wants to buy it, they’re not going to be able to unless they pony up the amount of money that the owner of the NFT is willing to accept for it since there’s no competitors to lean on when you don’t want to pay the price asked.





Cryptocurrencies involve a significant level of risk. Prices can fluctuate on any given day. Because of such price fluctuations, you may gain or lose value of your assets at any moment.



Why are NFTs so expensive?





Cryptocurrencies involve a significant level of risk. Prices can fluctuate on any given day. Because of such price fluctuations, you may gain or lose value of your assets at any moment.



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Nonfungible tokens (NFTs) burst onto the scene earlier this year when some of them started pulling in millions of dollars at auctions. A confusing and controversial new digital asset is on the rise. DW‘s own experiment selling an NFT made a smaller splash. Which made us all the more curious: Why are some so expensive?



Explained: Why some NFTs are so expensive



Nonfungible tokens (NFTs) burst onto the scene earlier this year when some of them started pulling in millions of dollars at auctions. A confusing and controversial new digital asset is on the rise. DW‘s own experiment selling an NFT made a smaller splash. Which made us all the more curious: Why are some so expensive?



Patrons of the arts?



First, a reminder: NFTs prove ownership of digital files. They can represent digital works of art but can also be associated with video game accessories, collectors items and more. Anything that Can I create my own NFT be stored as data on a blockchain can be an NFT. NFT transactions are recorded publicly on a blockchain and often bought with cryptocurrencies.



Investment bank JPMorgan recently valued the global NFT market at $7 billion (€6.3 billion). In October, an experiment by The Economist pulled in $420,000 when the weekly news magazine auctioned off an NFT of one of their cover pages. An issue about decentralized finance, the cover art portrayed cryptocurrencies alongside images from the children’s book “Alice’s Adventures in Wonderland.” Buyer @9x9x9 told The Economist it was the fitting title — “Down the Rabbit Hole” — that compelled them to purchase the data file of the cover.



But buyers of breathtakingly expensive NFTs point to a whole range of reasons for spending big bucks for the rights to a data file that anyone else can view or copy. Cryptocurrency entrepreneur Vignesh Sundaresan spent a record-breaking $69 million on an NFT earlier this year. The NFT enthusiast, who has invested in the technology, denied that he was trying to push up prices. He said he wanted to support the artist and showcase the technology. For other buyers, it’s about scarcity. “The buyer knows how many will be made and has blockchain proof of ownership,” American billionaire and NFT collector Mark Cuban told online news portal Business Insider.



What the data says



Researchers at the Alan Turing Institute (ATI) wanted to know what the data said about this phenomenon. “What we observed is that there is this gigantic heterogeneity in the success of NFTs,” Andrea Baronchelli, associate professor in mathematics at the University of London and ATI’s token economy theme lead, told DW. “Some — very few — do very well, a bunch do decently, and the majority are worthless.”



In 2021, ATI’s team of experts completed a study which looked at the role certain factors play in the price of NFTs. They looked at three components: the NFT’s visual features, previous sales of related NFTs and the social network of the buyer and seller. Researchers used a machine learning model to consider a dataset of 4.7 million NFTs exchanged by over 500,000 buyers and sellers. The result? Past sales of related NFTs was the most important of these three factors, accounting for over 50 per cent of the price variance.



For example, past sales of NFTs from the CryptoPunks collection, a prominent set of 10,000 tokens depicting pixel images of punks, would be a good indicator of future sales of tokens from the same collection. Visual features were the second most important aspect. Including this data increased the performance of the machine learning model by up to 20 per cent. Data showing the popularity of the traders increased performance by 10 per cent. Combined, they concluded these three factors can explain up to 70 per cent of the variability in NFT prices. They plan to look at more factors in the future, including the platform where the NFT is sold and the activity of the creator on social media.



An old market rethought



In the market for NFTs of digital artworks, one can recognize something of the traditional art market, where scarcity, social networks and, often to a lesser extent, content of the art piece help determine an object’s worth. But NFTs have some features that distinguish them from their real world counterparts, Mauro Martino, director of the Visual Artificial Intelligence Lab at IBM Research and ATI study co-author, told DW.



“A very big difference between the art market and NFTs is that the artists take 10 to 20 per cent from the secondary sales,” he said, “So anytime the piece will sell again, part of the sale will always go to the artist. This is really a novelty in the idea of art and can be a big game changer for artists.” This is possible because future sales of NFTs are recorded on blockchain, which allows artists to receive their cut automatically.



A JPEG of a rock



That is good news for anyone whose NFT has generated some money. But what about the majority that aren’t worth much at all? “There are 10,000 new pieces each and every day ready to go…I don’t know where,” said Martino. “There are not 10,000 new buyers every day to sustain this incredible production.” Stability in the NFT market would require greater attention from the public to attract traditional investors, as well as greater comfort with cryptocurrencies, the experts said. This development is likely still years away, and surprises could pop up in the meantime.



“If we notice that enthusiasm for NFTs today is very similar to the enthusiasm for cryptocurrencies at the very beginning, then we can expect some major correction,” said Baronchelli. This would have unclear implications for this nonfungible asset. “If I have Bitcoin and it goes down 40 per cent, I still have 60 per cent,” he said. “If I have a JPEG of a rock? What happens to the value of that JPEG? We don’t know, because there is nothing similar.”





As more financial advisors are learning, NFTs are starting to catch on, even among non-celebrities. And it may not be long before a client asks you how to include NFTs in their portfolio.



Why NFTs are so appealing



Simply put, people love collectibles. And thanks to the growing accessibility of NFT marketplaces, the title of "collector" now applies to someone trading free Space Jam tokens just as much as it does to prominent figures like the pseudonymous Whale Shark, who owns more than 220,000 pieces of digital art and has consulted Paris Hilton on how to break into the market.



As a financial advisor, your first priority is to look out for the long-term financial security of your clients. It might be helpful to think of NFTs the same way you would a rare stamp collection, for instance, or a signed original manuscript of the great American novel. NFTs are a lot like old-school comic book collecting, or baseball cards and Pokémon cards. Except, thanks to blockchain, their true scarcity (and value) is much less speculative because we have an irrefutable record of every token.



Assuming your clients have a healthy amount of money invested for their retirement, a sizable emergency fund and enough disposable income that they can experiment with NFTs, collecting can be a fun and innovative way to feel a part of the future.



But if someone isn’t in the position to invest money on speculative art – whether a hundred dollars or a thousand dollars here and there – there are ways your clients can dip their toes into the NFT market for free.



Why are NFTs so expensive
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