Spend any amount of time talking to someone about investing opportunities, or browsing around social media platforms like Twitter, and you’re bound to come across the topic of NFTs.
Non-fungible tokens saw an explosion in popularity in 2021, though they’ve been around since 2017.
But what are NFTs? In short, they are unique digital assets.
Unlike crypto, pounds, or euros, which are interchangeable, NFTs are not. Each one has a unique token ID that lives on the blockchain, which allows users to verify who owns a specific asset.
They are digital collectables and artwork. And they allow artists and creators to make more money from their work than ever before. While most NFTs are worthless, some have gone on to be worth hundreds of thousands of dollars, and in some cases, millions of dollars.
But what is driving the growth in the adoption and value of NFTs? Keep reading to learn all about this digital asset class.
1. NFTs explained: Blockchain technology is everything
One of the biggest reasons that NFTs are blowing up right now is because of the technology that empowers NFTs. What is the tech behind NFTs? And what is the true meaning of NFTs?
Every NFT is a virtual token that lives on the blockchain. The most popular network for NFTs right now is Ethereum, so NFTs are Ethereum-based tokens.
The blockchain is a distributed ledger that everyone has access to. That means there is no central authority that governs or facilitates transactions. This creates a trustless, decentralised network.
If you own an NFT from a valuable artist, anyone in the world could view that token on the blockchain and see that you own it. Likewise, they can see who originally created the artwork. This helps ensure authenticity and avoids scams.
NFTs are also powered by smart contracts. This is essentially code programmed to execute certain actions when specific conditions are met.
One of the most important uses for this code is to automatically pay royalties to the original artist. Each time an NFT sells on the secondary marketplace, the artist receives a royalty payment automatically.
No wonder so many artists, big and small, are moving into the NFT space.
2. NFT collections are limited
Most of the popular NFTs right now, such as CryptoPunks, Bored Ape Yacht Club, and Cool Cats are released as collections. Rather than individual pieces of art, an entire collection is released, containing anywhere from 1,000 to 10,000 individual NFTs.
Most NFT collections aim to release 10,000 individual artworks. But as a collection gets more and more popular, demand for a limited asset drives up the price.
Because there will only ever be 10,000 CryptoPunks, and millions of NFT investors want one, the collection becomes more and more valuable, creating increased demand.
3. Social signalling with a profile picture
So, what do people use these NFT collections for? They are most commonly used as profile pictures. Millions of people on Twitter, as well as other social media platforms like Instagram, choose to use one of their NFTs as their profile picture.
But by doing this, you signal to the rest of the world that you own a particular NFT.
Some people do this as a form of social signalling. If they have a particular NFT, such as a CryptoPunk or a Bored Ape, both of which are extremely valuable, using it as a profile picture is a form of bragging.
Others simply choose an NFT that they feel reflects their values and personality. In either case, using NFTs on social media in this way is becoming more and more common and is driving much of the adoption we are seeing right now.
4. Celebrities are buying, too
It’s not just crypto investors who are interested in NFTs. There are many celebrities and professional athletes who are giving in to the NFT craze, as well.
So who are these superstars that are buying NFTs, often for hundreds of thousands of dollars? Many are musicians.
Justin Bieber, Snoop Dogg, Post Malone, Eminem, and Steve Aoki have all flexed their NFTs on social media. Professional athletes including the likes of Neymar Jr, Steph Curry, Serena Williams, and countless others have joined in on the hype as well.
As more and more big-name personalities share their recent NFT purchases on social media, they continue to introduce newcomers to NFTs, increasing adoption at a rapid rate.
5. Big brands are entering the crypto and NFT space
It’s not just individuals who are investing in NFTs. Some of the world’s biggest brands understand that NFTs are helping to shape the future of culture. And they want to be part of it.
Disney has announced plans to release NFTs in the future. Adidas has already launched its first NFT collection. Nike recently acquired an NFT brand.
Visa spent $150,000 to purchase one of the original CryptoPunks. And the list goes on.
With each big name that enters the NFT space, trust in the technology behind NFTs increases. And the number of collectors and investors continues to climb.
6. Big time profit potential
Let’s face it, most people that are buying NFTs are hoping to make some money when they go to sell them. NFT trading is very popular and can be very profitable as well.
Back in 2017, when CryptoPunks was released, they were basically given away for free. Today, as one of the original NFT collections, each one is selling for hundreds of thousands of dollars.
Bored Ape Yacht Club launched in April 2021 for about $300 apiece. Today, the lowest you can expect to spend on one is $200,000.
While it’s unlikely that another NFT collection is going to see those kinds of numbers, the opportunity to buy low and sell high exists, which is drawing in many short-term investors and traders.
7. Real world utility
While the profit potential is real, it’s not all about the money. Many NFTs provide real utility to their owners.
For example, FlyFish Club is a collection of 3,000 NFTs. If you own one, you get unlimited access to an upscale restaurant along with culinary and social experiences in New York City. The restaurant and limited experiences are only open to those who hold the NFT, not to the public.
Many other NFT collections create their own utility, which might be accessible to future NFT collections, free merchandise, or voting rights over a community wallet.
8. Buying Non Fungible Tokens with ease
Wondering how to buy NFTs? You’re not alone. While there are thousands of NFTs for sale, buying one hasn’t always been an easy process for aspiring NFT collectors.
The typically buying process requires you to first purchase cryptocurrency, such as Ethereum, which you can then use to buy an NFT. To do that, you would first need to open an account on a cryptocurrency exchange available in your area.
You would have to verify your identity, funds your crypto wallet, and then purchase the cryptocurrency you need.
Then, you would need to download a browser wallet, like MetaMask, set that up, and transfer your cryptocurrency to that wallet. Only then could you go onto an NFT marketplace like OpenSea and make a purchase.
But today, companies like Nifty Gateway allow you to purchase an NFT directly with your debit card. Purchasing an NFT this way is the same process as ordering shoes online.
Likewise, Coinbase, the second most popular crypto exchange in the world, is launching its own NFT marketplace. They have partnered with Mastercard to ensure the process is as friction-free as possible for crypto newbies.
9. A new property rights system
Right now, NFTs are dominated by profile pictures and cartoon characters. But it’s not all about art and collecting digital assets.
The technology behind NFTs is revolutionising how property rights are managed. Ownership of a token can be confirmed by anyone who views it on the blockchain.
That means there’s no guessing. This form of property rights has the potential to shake up many industries, making certain processes much more efficient.
For example, event tickets may eventually become NFTs. Real estate is likely to intersect with the world of non-fungible tokens. And the ownership of other assets or pieces of property, like cars, can likely be tokenized.
If you’ve sold a car before, you know that the process of transferring a title isn’t very modern and efficient. But if a car title was an NFT, the process could become much smoother.
Many individuals and companies are working on the future use cases of NFTs, and we are likely to see the industry grow beyond cute art and profile pictures for social media.
10. NFT growth potential is still huge
Yes, NFTs are popular today. But most people around the world have yet to purchase an NFT. Most still don’t know what they are.
While it might seem like everyone has already jumped on the NFT train, the masses have yet to adopt this new social and technological phenomenon.
Many crypto experts expect to see increased rates of adoption over the coming years. So while it might seem like NFTs are on top of the world right now, they are only just getting started.
Protect Your Investments
Are you considering an NFT as your next investment? If so, make sure to treat it like a proper investment.
That means spending a fair bit of time researching a particular NFT before purchasing it. Proper research is essential to risk management in anything blockchain-related, such as NFTs.
And it also means contacting an insurance broker. NFTs can be a risky market since there isn’t a ton of regulation in this space yet. If you want to keep your money as safe as possible, make sure to contact us at Hayes Parsons Insurance Brokers to discuss your insurance options for crypto and any digital asset you plan on buying.