Why are People Paying so Much for NFTs

Non-fungible tokens (NFT) have been surging in both value and interest from the public in the last while.  The data units, often associated with digital files including audio, video, and photos, first appeared around 2014, and until about 2017 were largely unnoticed.  By early 2020, they started making serious noise as a speculative crypto asset.  The market tracker DappRadar shows that NFT sales reached in the neighborhood of $25 billion in 2021.

The huge rise in popularity and value appears to come from a number of factors.  The key reasons why people are now spending big bucks – sometimes into the millions of dollars – on NFTs:

• They consider NFTs to be an investment, which will grow in value over time
• They feel possession of NFTs equates to a type of social status, particularly in the world of crypto – a prestige factor similar to flashing a Rolex, or pulling up in a Ferrari

So let’s take a look at the factors currently driving the value of NFTs up and why NFTs are so expensive.

Why are NFTs so Expensive?

First off, it’s important to distinguish that the NFT is not the actual piece of artwork the buyer is interested in.  It is actually a piece of code on a blockchain – a digital ledger.  It shows the location of where the artwork actually resides, which is normally on another server.  These are the main aspects of NFTs which make them attractive to buyers, and also have increased their value:

Authenticity

When you purchase a piece of physical art, authentication is a requisite to ensure you are not investing in a fake or forgery.  Nevertheless, there are countless stories and examples of even experts being taken in, and authenticating them.  No such issue exists with an NFT.  The originality and authenticity of the work is built into the blockchain.  You know exactly what you are purchasing.

Scarceness 

A lot of NFT releases are rarities of one-of-a-kinds.  Anything that is demonstrably rare in the world of art, or collectibles of any kind, adds tremendously to its value. NFTs are exactly the same.

They are transferable

Being available for sale to anyone, anywhere in the world, makes the market for the sale of NFTs huge – a bigger pool of prospective buyers.

The code is immutable 

It cannot be altered or changed.  The NFT – its code and its metadata – is permanent.

Utility

There are NFTs that perform functions above and beyond just the file they are associated with.   They can also be utilized as a revenue generator, or used for exchange with physical assets.

What’s Keeping Anyone from Copying Digital Art if they Want to?

There’s nothing really stopping anyone from copying digital art.  What you can’t copy is the digital blockchain an NFT embedded on.  As the digital ledger is constantly being checked and verified by every computer which is on the same network, they are exceptionally difficult to steal and therefore copy.

That’s not to say that digital artwork can’t be copied.  Of course, it can be, and very often, artists will retain copyright control of their stuff, for just that reason – to make additional copies.  If you were to download and copy the artwork associated with an NFT, it would not be considered authentic by collectors. It would be like trying to pass off a reprint as an original.  Because the blockchain is a unique marker and is constantly being updated and verified as authentic via the digital ledger, its uniqueness and therefore value is kept intact.

Not only it is difficult to remove an NFT from the web, but the blockchain structure also ensures there is a way to trace its origin, as well as the history of any transactions involving it. Probably, that’s why nfts are so expensive.

What Do You Actually Get When You Purchase an NFT?

Essentially you are gaining the rights to the unique token of the NFT on the blockchain.  In reality, you’re not buying the content, just the token – your name is connected to the artist’s work on the blockchain.  Your NFT will remain very secure – but that doesn’t mean they will retain their value over the long term, or for that matter, over the mid or near term. 

Are NFTs Really Worth It as an Investment?

There is no question that companies, brands, and individuals are starting to embrace this technological medium for the trading of goods.  In terms of crypto art, once some of the heavy hitters in the world of art and fashion jump on board, the space will explode.  In terms of whether or not an NFT is a worthy investment and why nfts are so expensive – that depends on the underlying value of the person or the company that’s behind the release of the NFT.  There are aspects of underlying value which are both tangible and intangible.

One way or the other, blockchain technology, the backbone of NFTs, is changing the landscape of trade and how we perceive it moving forward.

NFT – What are the Risks?

As of right now, the scarcity of NFTs, which is built into the structure they reside in, is ensuring their values will stay up.  So as an investment, they appear sound at the moment, barring any sudden drop in enthusiasm and values – this is certainly possible and therefore a risk to consider before jumping in.

We mentioned fakes earlier – while an NFT is secure to the extent that the code and blockchain structure is exceptionally secure, that’s not where the fake problem exists.  There have been instances where works that resemble those of famous artists – a recent example being Banksy – were fakes, and wound up selling for large amounts of money to duped buyers.

Where NFTs Will Wind Up – Why are NFTs So Expensive?

It’s basically anyone’s guess what the future holds for NFTs.  It is fairly certain that the enthusiasm is currently bubbling under, and there will be a surge in the coming months and the remainder of the year.  Right now, on OpenSea, which is the largest marketplace for NFT trading, there are about a quarter-million people on board.  CoinBase is about to open its own NFT marketplace – and have over two million users on their waitlist.  The Robinhood platform is also planning something similar.

While there are never any guarantees, if things keep progressing the way they have been, NFTs, as of right now, appears to be poised to become a major platform for the trading of digital collectible properties; Whether the meteoric rise we’ve mentioned above, on platforms such as OpenSea and others, continues to shoot upward, or whether the popularity of NFT trading levels off and stalls – the future for NFTs looks more than promising. Only time, however, will be the final judge.