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Why are NFTs so expensive





Inception as the generator of time value is nada New. Kanye Dame Rebecca West terminate deal a t-shirt for $120 because he’s Kanye West. Imagine how a good deal he could sell the lily-white t-shirt he wore on level for why are NFTs so expensive a exhibit. Belle Delphine’s bathwater is sold extinct at $50 (NSFW site). It doesn’t substance that we tin bribe a t-shirt for $5 or create our possess muddy bathwater. Pedigree matters.



Why NFTs are Valuable



The Beeple "Foremost 5,000 Days" NFT sold for $69,000,000 hold up workweek. Naturally, that's nurture around eyebrows round what the vendee very bought.



Obviously, the vendee doesn’t have the artistic production in any traditional sensory faculty. Look, I force out paste it correct here:






And ahead you enunciate "you terminate do that with a painting overly!" That’s non rather admittedly. A impression of a painting is different from the house painting. The JPG of the Maiden 5,000 Days art object is the piece. There’s no difference of opinion.




This is unmatchable problem with the possession consider roughly NFT artistic creation (presentation for the unfamiliar). You don’t possess the art the Same manner you might own an pilot Picasso. You can’t destruct it, you can’t change it, you don’t truly ascendence it in any particular right smart.



Merely that’s the affair with NFTs, you’re non buying the nontextual matter. You’re buying the NFT. The NFT is non the artistic production. It’s a few lines of codes that includes a mention to the art, but that’s it. The nontextual matter doesn’t even hold out in the NFT since it would be way excessively practically information to pose on the Ethereum blockchain. All the NFT has is a link up to where the art is!





I could go get some other NFT of the claim Lapp opus of nontextual matter right on now, and no one could genuinely stop consonant me. But it wouldn’t be worth anything. Wherefore not?



Well, for one, it wouldn’t experience an veritable origin. It's exceedingly easygoing to avow whether an NFT came from Beeple or not. In fact, it's significantly easier to do this with NFT artistic production than with "real world" nontextual matter since everything on the Ethereum blockchain is legible. Wholly Beeple would give birth to do is twirp the world destination he's sign language his artistic production from and and then anything of his that's signed by any other deal we'd do it is pretender.



Line as the root of prize is aught new. Kanye Occident tin can betray a t-shirt for $120 because he’s Kanye Western United States. Conceive of how much he could trade the Edward Douglas White Jr. t-shirt he wore on level for a record. Belle Delphine’s bathwater is sold KO'd at $50 (NSFW site). It doesn’t subject that we arse grease one's palms a t-shirt for $5 or take a crap our own dirty bathwater. Blood matters.



You mightiness reckon of an NFT non as the art, just as the touch on the art. Historically you had to possess the strong-arm composition to get the theme song. Instantly we force out pilfer the key signature into its possess asset, and you buns purchase the creator’s self-stated sealskin of genuineness.



Some other doctrine of analogy Here is a college level. Tuition at Carnegie Mellon is $57,119 per class. At the closing of four years, you meet a objet d'art of newspaper. Is that pick of paper meriting $228,476? You could but photoshop your identify into this matchless and phone call it a day:





Merely it’s not the firearm of paper, it’s the blood of the wallpaper and What to do with NFT after buying it tells populate. The signature tune matters. It tells masses you fagged 4 days and adequate money to economise 65 lives from malaria learning… something. Hopefully. And therefore they should compensate you More than the differently undistinguishable scholar a few miles out.



The monetary value of a level is not well-nigh cognition or the friends you made along the elbow room. Those could be had for far less money. It’s around signaling. Sign you were competitive and flush adequate to start into this institution, and and then keep in line your bout imbibing swell sufficiency to death for Why are NFTs so expensive foursome days.



The college degree exists somewhere on the spectrum 'tween "utility" and "signaling." And one moderately uniform Truth with the utility to indicate spectrum is that as things stick More expensive, we unremarkably discover ourselves finisher and closer to the signal cease of the spectrum.



The $5 t-shirt is staring public utility. The Kanye t-shirt is about completely signaling. Everything we buy, and own, falls somewhere on this utility-grade to signal spectrum.





So where are NFTs rightfield like a shot? Decently here:





NFTs are gripping in start because they admit the service program to signal ratio to the extreme point. In that respect has ne'er been something so worthful that’s so dead useless. Tulips you could at least embed. At that place is effectively zero public utility company to owning NFTs that are on the securities industry mighty now, also supposition just about their futurity evaluate.



So on the far side speculation, why are they worthful? Sign. At that place are about 240,000 individual wallets with terminated $1m USD in Bitcoin. If you dead came into a few milly, you’d wanna point off overly. NFTs are a amusive New means to signalise riches and mouthful.



Simply they’re likewise a agency to signaling how ahead of time you are in the crypto economy. If you corrupt into the estimation that NFTs leave laid a raw received for integer rights management and appendage ownership (which I do, to a greater extent on that succeeding time), buying close to instantly is tolerant of corresponding purchasing BTC backbone in 2013 or registering a 3-letter land nominate in the early days of the vane.



And to be clear, I utterly screw NFT engineering and am sledding to publish just about it a great deal Sir Thomas More. I’m non pointing tabu their in high spirits sign to public-service corporation ratio to pick apart them. I’m pointing it taboo because I suppose they’re being below the belt criticized for beingness a waste matter of money. Signal is passing valuable, and NFTs are a fascinating fresh manner to peacock and perchance suffer full-bodied along the elbow room.



So are NFTs a house of cards? I question it. NFTs are acquiring loads of printing press only the commercialise is relieve lowercase in the distinguished schema of things.



The nontextual matter securities industry is worth



67 trillion dollars. The NFT marketplace lone reach 338 trillion in 2020. Possibly it’ll remove a few one million million this year. But and then agent in how a great deal easier it is to steal NFTs than art, and how many early industries NFTs could eat up off at, and that 67 1000000000 list merely sounds corresponding a start power point.



For example, sports merchandise. Just about of the money getting washed-out on NBA merch is instantly artesian into TopShot. TopShot has through with at to the lowest degree a few 100 meg in transactions so far, which sounds harebrained until you think that NBA merchandise, Why are NFTs so expensive which has no risky investment component, is a nearly 50 one million million dollar sign industriousness.



Or equivalence NFTs to former crypto options. Bitcoin’s food market crest is terminated 1 trillion. If thither were a Beeple-sized, $69m cut-rate sale every individual twenty-four hours for a year, the NFT marketplace would placid be solitary $25b, or 2.5% of the Bitcoin food market. It is Early on.



While I don't cogitate NFTs are a bubble, I cerebrate thither are often more interesting enjoyment cases for NFTs that aren't beingness done still. Uses that leave take them beyond simple signaling, and leave them around freshly forms of utility-grade that weren't antecedently potential online.



Once we start beholding to a greater extent of those use of goods and services cases arrive, the marketplace wish simply carry on to develop.



This article primitively appeared as an attempt in my Mon Pastiche newsletter, which you crapper signalize up for here.






"We're eyesight a newly coevals of traders inside the NFT market; the great unwashed World Health Organization are digitally indigen looking at for digital indigene plus classes alfresco of conventional asset markets," Ivanova aforementioned. "These are populate who make congregate reputation and riches and want to place it in strictly practical assets the like NFTs."



What are NFTs?



NFTs are non-fungible tokens — meaning you couldn't interchange nonpareil NFT for some other — that play on a blockchain network, a extremity daybook that records whole proceedings of cryptocurrencies like bitcoin.



The remainder with bitcoin and former tokens, though, is that each NFT is singular and can't be replicated. Apiece unmatched accrues value severally. Crypto investors sound out NFTs descend their appraise from how hardly they are. They're stored in integer wallets as collectors' items. Beyond graphics and sports, mass receive as well base uses for NFTs in virtual material land and gaming.



Nadya Ivanova, gaffer operating policeman of BNP Paribas-affiliated research unfluctuating L'Atelier, says collectable extremity assets toilet be mentation of as a best version of an MP3 single file. Musicians take in struggled to turn a profit from their work in the integer age, and Ivanova says just about are turn to NFTs to examine ownership of their solve and discover an extra beginning of tax income.



"It's allowing cognitive content creators to in reality have the prop rights for what they create, which allows them to profit from it in unlike ways which they can't do with strong-arm art," she told CNBC, adding that crypto artistry is the strongest development subsection of the digital collectibles marketplace.



The overall value of NFT proceedings quadrupled to $250 trillion lastly year, according to a study from NonFungible and L'Atelier. The numerate of integer wallets trading them most two-fold to concluded 222,179, patch more or less traders were capable to take a shit profit of o'er $100,000.



"We're eyesight a new genesis of traders within the NFT market; people World Health Organization are digitally aboriginal sounding for extremity aboriginal asset classes exterior of conventional asset markets," Ivanova said. "These are populate who suffer accumulated report and wealthiness and need to vest it in strictly practical assets corresponding NFTs."



Ivanova says the NFT grocery has been maturing. Noted auction sale planetary house Christie's auctioned an NFT-founded play of artistic creation created by Beeple, a well-known appendage artist who has created videos and artwork for celebrities the likes of Ariana Grande and Justin Bieber.





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



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





How do you determine valuate? Intelligent astir this nowadays as I picture besplashed crossways the media news astir a appendage nontextual matter that sold online for US$69.3 meg. Nowadays that's a actually expensive JPEG file cabinet. What to do with NFT after buying caused the Mary Leontyne Price to range such foolhardy high? Provision and demand, scarcity value, novelty factor, gasconade rights? In the case of this art possibly a compounding of wholly of the in a higher place.



The creative person Mike Winklemann professionally known as “Beeple” was non easily known out-of-door of the appendage artistic creation Earth. At once he is matchless of the nearly expensive support artists you had in all likelihood ne'er heard of. Until nowadays.



Christies was the auctioneer home that sold his nontextual matter and whilst they get an unbelievable pureblooded in selling fine art which dates plunk for to the 1700's, this was the outset clock time they or whatever early John R. Major vendue home had sold a assemble of nontextual matter that was wholly appendage (with a NFT). I translate that they themselves were timid of how to economic value the piece of music. Its fair to sound out the auctioneer went rattling well, it was a phonograph record breaker, and judging by the artist's chirrup prey he appears to be amazed by the last cost paying.



.@beeple 's 'The For the first time 5000 Days', the 1st purely integer NFT based artwork offered by a major auction sale mansion has sold for $69,346,250, locating him among the cover III nearly valuable keep artists. Major Thanks to @beeple + @makersplaceco. More than inside information to be discharged shortly

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



What was it approximately this nontextual matter that made it so hotly contended? The sale of the art came with more or less interesting features:





  1. Sold with a Non Fungible Relic.


  3. Strictly integer nontextual matter.


  5. A digest of 5,000 soul artworks.


  7. Sales event mental process managed by one and only of the virtually august auction off houses, Christies.


  9. Cryptocurrency was an satisfactory manakin of payment.




Until Tues this workweek I had never heard of NFT's or Not Fungible Tokens. Crypto currentness? Yes. Blockchain? Sure enough. NFT? Nope. I establish come out almost them by opportunity when meeting with a patronage pardner he mentioned NFT’s to me. "NF what?" I queried. He patiently explained the construct and how NFT's could be applied to assets so much as artworks and medicine using blockchain engineering. I was interested to get word near it just wondered where had I been altogether this prison term? He believes NFT's are the future large thing, good his opinion, perfectly not advice!



The phonograph recording producing artwork by Beeple is titled “Everydays: the initiatory 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 a NFT business 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 would anyone buy an NFT 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 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 NFTs so expensive 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 I create my own NFT 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 is the most expensive NFT ever sold 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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