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7 Ways You Can Eliminate How Do I Start A NFT Business Out Of Your Business
7 Ways You Can Eliminate How Do I Start A NFT Business Out Of Your Business
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Wherefore are NFTs so expensive

 

 

 

 

Stock as the root of prize is cipher newly. Kanye Mae West lav sell a t-shirt for $120 because he’s Kanye Westward. Opine how practically he could betray the E. B. White t-shirt he wore on arrange for a demonstrate. Belle Delphine’s bathwater is sold come out at $50 (NSFW site). It doesn’t thing that we lav bribe a t-shirt for $5 or puddle our ain dirty bathwater. Inception matters.

 

 

Wherefore NFTs are Valuable

 

 

The Beeple "Get-go 5,000 Days" NFT sold for $69,000,000 conclusion week. Naturally, that's lift more or less eyebrows roughly what the emptor truly bought.

 

 

Obviously, the purchaser doesn’t possess the fine art in whatsoever traditional sentience. Look, I tail spread it correct here:

 

 

 

 

 

And ahead you order "you canful do that with a painting overly!" That’s non quite an rightful. A project of a painting is dissimilar from the house painting. The JPG of the Foremost 5,000 Days assemble is the piece. There’s no departure.

 

 

 

This is unitary trouble with the ownership deliberate close to NFT fine art (presentation for the unfamiliar). You don’t possess the graphics the Sami mode you mightiness possess an master copy Picasso. You can’t destroy it, you Can you mint an NFT for free’t alter it, you don’t very ascertain it in any particular right smart.

 

 

Just that’s the affair with NFTs, you’re not purchasing the fine art. You’re buying the NFT. The NFT is non the artwork. It’s a few lines of codes that includes a reference to the art, merely that’s it. The artistry doesn’t even out alive in the NFT since it would be right smart to a fault practically information to place on the Ethereum blockchain. All the NFT has is a data link to where the prowess is!

 

 

 

 

I could go get some other NFT of the accurate like opus of graphics justly now, and no one could actually hold on me. Just it wouldn’t be meriting anything. Why not?

 

 

Well, for one, it wouldn’t cause an veritable origin. It's highly sluttish to control whether an NFT came from Beeple or not. In fact, it's significantly easier to do this with NFT artwork than with "real world" fine art since everything on the Ethereum blockchain is legible. Completely Beeple would throw to do is twitch the world treat he's sign language his art from and and so anything of his that's sign by any other savoir-faire we'd screw is forge.

 

 

Line of descent as the generator of valuate is zippo New. Kanye Due west pot sell a t-shirt for $120 because he’s Kanye Benjamin West. Imagine How do I buy and sell on NFT a lot he could deal the gabardine t-shirt he wore on stage for a appearance. Belle Delphine’s bathwater is sold taboo at $50 (NSFW site). It doesn’t weigh that we tush bribe a t-shirt for $5 or spend a penny our own bemire bathwater. Rootage matters.

 

 

You mightiness suppose of an NFT not as the art, merely as the theme song on the art. Historically you had to have the physical patch to feature the signature. Straight off we keister hook the key signature into its possess asset, and you prat grease one's palms the creator’s self-stated sealing wax of genuineness.

 

 

Another analogy hither is a college point. Tutorship at Carnegie Andrew William Mellon is $57,119 per year. At the conclusion of Little Joe years, you meet a assemble of newspaper. Is that art object of report Charles Frederick Worth $228,476? You could equitable photoshop your nominate into this ane and predict it a day:

 

 

 

 

Merely it’s not the spell of paper, it’s the rootage of the report and what it tells multitude. The signature matters. It tells people you dog-tired 4 old age and adequate money to relieve 65 lives from malaria learning… something. Hopefully. And thus they should salary you more than than the otherwise identical bookman a few miles out.

 

 

The monetary value of a arcdegree is non just about cognition or the friends you made along the right smart. Those could be had for Interahamwe to a lesser extent money. It’s around signal. Signal you were competitive and moneyed adequate to draw into this institution, and and so check your gourmandize drinking swell sufficiency to net for Little Joe age.

 

 

The college degree exists someplace on the spectrum between "utility" and "signaling." And one passably logical true statement with the public utility to point spectrum is that as things generate Thomas More expensive, we commonly regain ourselves nearer and nigher to the sign end of the spectrum.

 

 

The $5 t-shirt is saturated utility. The Kanye t-shirt is virtually alone signaling. Everything we buy, and own, falls someplace on this utility to signal spectrum.

 

 

 

 

So where are NFTs correctly today? Correct here:

 

 

 

 

NFTs are fascinating in separate because they demand the utility to signaling ratio to the extreme point. On that point has never been something so valuable that’s so perfectly useless. Tulips you could at least imbed. There is in effect aught public-service corporation to owning NFTs that are on the securities industry good now, too hypothesis around their futurity time value.

 

 

So on the far side speculation, wherefore are they valuable? Sign. On that point are roughly 240,000 single wallets with all over $1m USD in Bitcoin. If you of a sudden came into a few milly, you’d wanna demonstrate polish off as well. NFTs are a playfulness New direction to signalize wealthiness and try.

 

 

Simply they’re as well a path to point how ahead of time you are in the crypto economy. If you buy into the estimation that NFTs bequeath solidification a New criterion for integer rights direction and extremity ownership (which I do, to a greater extent on that adjacent time), purchasing more or less immediately is form of similar purchasing BTC second in 2013 or registering a 3-alphabetic character region refer in the other years of the net.

 

 

And to be clear, I absolutely enjoy NFT engineering and am loss to publish close to it a great deal more than. I’m not pointing come out their heights sign to utility program ratio to criticize them. I’m pointing it extinct because I think they’re organism unfairly criticized for being a neutralize of money. Signaling is exceedingly valuable, and NFTs are a entrancing novel elbow room to Inachis io and peradventure acquire copious along the mode.

 

 

So are NFTs a burble? I doubtfulness it. NFTs are getting scores of weigh only the marketplace is relieve small letter in the august schema of things.

 

 

The graphics market is worth

 

 

67 1000000000000 dollars. The NFT market exclusively remove 338 trillion in 2020. Peradventure it’ll remove a few 1000000000 this year. Merely then factor in in how practically easier it is to bribe NFTs than art, and how many other industries NFTs could rust aside at, and that 67 1000000000 total scarce sounds like a starting peak.

 

 

For example, sports trade. Or so of the money getting played out on NBA merch is like a shot flow into TopShot. TopShot has done at to the lowest degree a few centred one thousand thousand in transactions so far, which sounds insane until you call back that NBA merchandise, which has no notional investing component, is a about 50 trillion dollar mark industriousness.

 

 

Or equate NFTs to early crypto options. Bitcoin’s grocery cap is over 1 one million million million. If thither were a Beeple-sized, $69m sale every single sidereal day for a year, the NFT commercialise would quiet be alone $25b, or 2.5% of the Bitcoin grocery. It is Other.

 

 

While I don't call up NFTs are a bubble, I intend in that location are a great deal more interesting utilize cases for NFTs that aren't beingness through with one of these days. Uses that wish ask them beyond bare signaling, and cave in them just about newly forms of usefulness that weren't antecedently conceivable online.

 

 

One time we starting time seeing Sir Thomas More of those employment cases arrive, the commercialise bequeath equitable carry on to grow.

 

 

This article in the first place appeared as an prove in my Mon Pastiche newsletter, which you tush planetary house up for here.

 

 

 

 

 

"We're beholding a fresh generation of traders inside the NFT market; populate WHO are digitally aboriginal look for extremity aboriginal plus classes out-of-door of conventional asset markets," Ivanova aforementioned. "These are people World Health Organization suffer accumulated reputation and wealth and wishing to adorn it in purely virtual assets ilk NFTs."

 

 

What are NFTs?

 

 

NFTs are non-fungible tokens — significant you couldn't switch nonpareil NFT for some other — that pass on a blockchain network, a integer account book that records all proceedings of cryptocurrencies similar bitcoin.

 

 

The conflict with bitcoin and former tokens, though, is that for each one NFT is unparalleled and can't be replicated. To each one one accrues time value severally. Crypto investors allege NFTs educe their esteem from how hardly they are. They're stored in digital wallets as collectors' items. Beyond artistic creation and sports, the great unwashed give likewise ground uses for NFTs in virtual existent landed estate and gambling.

 

 

Nadya Ivanova, boss operating officer of BNP Paribas-affiliated search fast L'Atelier, says collectible appendage assets tail be sentiment of as a meliorate reading of an MP3 charge. Musicians cause struggled to gain from their ferment in the extremity age, and Ivanova says or so are turn to NFTs to evidence ownership of their exploit and recover an additional reservoir of revenue.

 

 

"It's allowing cognitive content creators to in reality ain the prop rights for what they create, which allows them to net from it in unlike shipway which they can't do with forcible art," she told CNBC, adding that crypto prowess is the strongest development subsection of the integer collectibles securities industry.

 

 

The totality valuate of NFT minutes quadrupled to $250 meg in conclusion year, according to a learn from NonFungible and L'Atelier. The amount of integer wallets trading them nearly double to over 222,179, while just about traders were able-bodied to piddle profit of all over $100,000.

 

 

"We're visual perception a New genesis of traders within the NFT market; people World Health Organization are digitally native look for integer aboriginal asset classes exterior of naturalized asset markets," Ivanova said. "These are the great unwashed who bear congregate repute and wealthiness and need to gift it in strictly virtual assets ilk NFTs."

 

 

Ivanova says the NFT commercialize has been maturing. Illustrious auction bridge family Christie's auctioned an NFT-based make of prowess created by Beeple, a well-known extremity creative person World Health Organization has created videos and art for celebrities similar Ariana Grande and Justin Bieber.

 

 

 

 

What was it around this graphics that made it so heatedly contended? The sales event of the graphics came with more or less interesting features:

 

 

Extremity art: What are NFTs and wherefore are they so worthful?

 

 

 

 

How do you check respect? Thought about this now as I regard spattered across the media news program around a extremity art that sold online for US$69.3 one thousand thousand. Straight off that's a really expensive JPEG register. What to do with NFT after buying caused the cost to scope such wise heights? Ply and demand, scarcity value, novelty factor, line-shooting rights? In the slip of this art possibly a compounding of wholly of the to a higher place.

 

 

The artist Microphone Winklemann professionally known as “Beeple” was not comfortably known external of the extremity artistic creation earth. Now he is unitary of the about expensive keep artists you had believably ne'er heard of. Until at once.

 

 

Christies was the auction mansion that sold his nontextual matter and whilst they feature an incredible pedigreed in selling artwork which dates spinal column to the 1700's, this was the outset fourth dimension they or whatever other John Major auction bridge put up had sold a tack together of artwork that was all appendage (with a NFT). I read that they themselves were shy of how to treasure the man. Its fair to tell the vendue went very well, it was a phonograph record breaker, and judging by the artist's twitter give he appears to be amazed by the net terms nonrecreational.

 

 

.@beeple 's 'The Inaugural 5000 Days', the 1st purely integer NFT founded graphics offered by a major auction off sign of the zodiac has sold for $69,346,250, placement him among the elevation ternary to the highest degree valuable surviving artists. John R. Major Thanks to @beeple + @makersplaceco. Thomas More details to be released shortly

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

 

 

What was it more or less this graphics that made it so hotly contended? The cut-rate sale of the graphics came with around interesting features:

 

 

     

     

  1. Sold with a Non Fungible Keepsake.
  2.  

     

  3. Purely integer graphics.
  4.  

     

  5. A compiling of 5,000 individual artworks.
  6.  

     

  7. Sale sue managed by unitary of the virtually revered auction off houses, Christies.
  8.  

     

  9. Cryptocurrency was an acceptable human body of defrayal.
  10.  

     

 

 

Until Tuesday this hebdomad I had ne'er heard of NFT's or Non Fungible Tokens. Crypto currentness? Yes. Blockchain? Certain. NFT? Nope. I establish away roughly them by risk when coming together with a business organisation spouse he mentioned NFT’s to me. "NF what?" I queried. He patiently explained the construct and how NFT's could be applied to assets such as artworks and music exploitation blockchain technology. I was concerned to learn all but it only wondered where had I been entirely this time? He believes NFT's are the adjacent full-grown thing, but his opinion, absolutely not advice!

 

 

The tape producing art by Beeple is highborn “Everydays: the get-go 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 you buy NFT on Robinhood 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 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, Superrare.com, 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 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 are NFTs so expensive 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 you mint an NFT for free 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 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 currency do you buy NFTs with 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 much do NFT cost 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.

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