Mike Winkelmann sold his JPG college for a whopping $69 million. The Canadian musician Grimes has recently sold a bunch of NFTs for nearly $6 million. And NFT of LeBron James making a historic dunk for the Lakers garnered more than $200,000. NFTs are now being sold for astronomical amounts. But it’s still very difficult to predict whether this trend will be sustainable? In today’s article, we’re going to explain what NFTs are, look at the major problems with NFTs, and try to answer the question of whether or not they truly are a fad.
A Few Words About NFTs?
For those of you who have never heard of NFTs, NFTs are short for non-fungible tokens. As its name suggests, NFTs cannot be exchanged for another item of equal value. An NFT represents a digital asset that can be purchased and sold online, normally with cryptos. Most NFTs are part of the Ethereum blockchain. In contrast to Bitcoin, Ethereum blockchain supports NFTs, which store extra information.
NFTs can be literally anything digital, including drawings, GIFs, photos, video clips, animations, songs, and the like. The original creator of an NFT gets a royalty every time it’s sold. And the person who bought it gets a part of the royalty. And this process continues throughout the blockchain.
NFTs are essentially a new take on an old idea where people like to keep original versions of their memorabilia. This concept has been around for centuries. For example, Leonardo da Vinci’s Salvator Mundi sold for $450 million in 2017. Edvard Munch’s The Scream sold for $119 million in 2012. And baseball cards with the portraits of ‘Honus’ Wagner routinely sell for over $1 million.
But there are undeniable problems with NFTs, as contrasted to physical memorabilia.
1. Whoever can acquire your physical memorabilia can actually appreciate it as a physical object. But with digital art, a copy is literally as good as the original. Taking your phone out to show someone the original piece of digital art is almost the same as showing them a copy.
2. NFTs are now being sold for insane, and they may not have long-term value in comparison to traditional artworks. Most NFTs seem to lack novelty, scarcity, and other factors that would enable them to maintain value for the next 10, 30, or 80 years. It’s not likely that people will care about the video of Logan Paul unboxing a Pokémon card 500 years from now. And they’re not going to care about an X-ray of William Shatner’s teeth.
3. There is the risk that, in at least some cases, the purchase of over-valued NFTs is a tactic to avoid taxes and launder money, that is, to conceal the origins of the funds obtained illegally.
4. The computing power required to operate the blockchain systems of NFTs is truly enormous. According to Time Magazine, Ethereum mining consumes about 27 terawatt-hours of electricity a year, which is nearly as much electricity as a small European country consumes.
Are NFTs Here to Stay?
According to blockchain experts from Sirinsoftware, one of the leading embedded software companies in the market, it’s more than likely that NFTs are here to stay. The rare digital collectibles will always be in demand, just like their physical counterparts. However, the extreme prices at which NFTs are currently being sold will probably normalize to the levels more comparable with physical memorabilia.
That being said, we want to be frank with you and emphasize that the future is impossible to predict because the value of any NFT is very subjective. So, it’s up to you to decide whether this or that piece of digital art is worth your hard-earned dollars.