Why Are NFT Collectibles Pondering
NFTs have become an investing phenomenon, with everything from GIFs to sports events selling for millions of dollars. But how much hype is this – and should we be sure of celebrity support from Logan Paul, Paris Hilton, Lindsay Lohan, Rob Gronkwoski and uh … Taco Bell ? Here’s a look at why the NFT market could crash in the near future.
What is NTF?
NFTs (Non-Fungible Tokens) use the same blockchain technology that supports cryptocurrencies like Bitcoin, with one key difference: they are not fungible and each is unique. If you buy NFT through the cryptoasset market, you can store it in your digital wallet or list it for sale on the market. When an NFT is sold, all computers on the decentralized network write the transaction to a shared ledger, which essentially creates a certificate of authenticity that cannot be changed or erased.
In theory, NFTs solve the problem of compensating digital content creators through direct sales or royalties. Of course, you can easily copy these digital objects, but part of the appeal is owning something essentially signed by an artist, like an autographed baseball card.
The NFT marketplace includes trading cards, sporting events, art, music, and even virtual assets such as property in open world video games. There has been a lot of hype and speculation around them lately, with amazing stories of selling prices in the millions. Examples include a GIF of the Nyan Cat meme sold for nearly $ 600,000 and Twitter CEO Jack Dorsey’s first tweet , which sold for $ 2.5 million.
Why the NFT market may already be bloated
One of the biggest hurdles against NFTs is that it is an artificial scarcity market as there is no limit on how many NFTs you can create – literally any bit of data can be authenticated and sold. As Charlie Lee, Litecoin creator and NFT skeptic, explains in a recent Twitter thread :
Unlike NFT, art in the real world does not require zero cost. It takes time and effort to create a piece. Essentially, this is Proof of Work. A famous artist like Picasso can create only thousands of works of art in his life. This constraint creates a scarcity that helps maintain high value.
On the other hand, NFTs create artificial scarcity. With the near-zero cost of creating another NFT, the market will eventually be flooded with NFTs from artists trying to cash in on this craze. Supply will exceed demand and prices will eventually fall.
In addition, Lee believes that for many, the true appeal of NFT lies in the Certificate of Authenticity, which will have limited value in the long run:
Much of the cost of owning a collectible is lost when you switch ownership from the actual collectible to its COA. This is basically what NFT NBA TopShot is all about. These are digital certificates for a short video clip that anyone can download. It is true that with NBA TopShot you can point to the url nbatopshot.com and proudly say that it says this moment belongs to me. However, this goes away rather quickly.
Other problems
Although NFTs offer a certificate of ownership, the creator of the NFT is not required to prove ownership of the original work. NFT marketplaces are already dealing with cases of art theft and copyright infringement. For example, according to Yahoo , the artist known as Ashtoshi says the selfie was auctioned on Rarible without her consent for over $ 1,051 worth of crypto.
And as Gizmodo points out , NTFs are built on blockchain technology, which requires huge amounts of energy. Most NFT asset marketplaces sell through Ethereum, which maintains a ledger of transactions secured through a process called mining , but the process requires a lot of energy. Ethereum used more power than Iceland in 2018, according to Bloomberg . The environmental impact will only get worse as the NFT market grows.
Bottom line
In many ways, NFTs are reminiscent of the original cryptocurrency offerings or ICOs – a speculative investment fad that faded away in 2018 despite a good start. As with NFT, ICO prices were initially grossly overpriced and the product inflated due to celebrity endorsements (DJ Khaled! Steven Seagal!). The initial frenzy did not last long, and the market shrank from $ 24 billion to $ 5 billion, according to the Wall Street Journal .
If you are thinking of buying NFT, consider if the hype is sustainable and only invest the amount you are comfortable with losing. After all, if you are not the creator, NFTs do not provide any cash flow and the only way to make money is to buy and sell more, that is, if the market crashes, bragging rights can be all you have.