NFT’s: why should you keep an eye on them?
Investors are increasingly expanding their horizons into the world of digital finance. Along with this comes an interest in digitally native goods. What are digitally native goods you may be wondering? These are goods or items created solely to be used in a digital environment. Its applications would purely be focused on the web. Your computer or your smartphone. Why you should invest in NFTs you ask? well, the world is becoming increasingly digitized with almost all industries having a blueprint for digitized services.
It’s not a secret that the world was moving into a digital economy even well before the pandemic. The inevitability of less human interaction due to the viral outbreak only increased the pace at which we are going all-in on this.
With the expanding digital economy comes new types of investments. In this article, we will try to understand 5 important reasons why you should invest in NFTs. Or at least seriously consider.
But first, let’s have a quick outline of the digital economy. It will greatly benefit to understand the rough history and evolution of the digital economy as this new wave created with the rise of cryptocurrency is the latest phase (or leap – more suitably) in the e-conomy.
The evolution of the digital economy
The digital economy refers to the economic activity that is made out of billions of everyday online connections by people, businesses, services, companies, devices and data. It is the worldwide network of economic activities. It is business transactions and consumer interactions that are powered by Information Communication Technology (ICT). Since the dot com bubble burst and subsequently recovered to a plateau more and more businesses have expanded online. Thus, more consumers are seeking various goods and services from the safety of their homes.
Now more than ever, people are working from their homes, in a coffee shop or from a nice tropical island in flip flops. The pandemic really changed the way we approach our everyday professional activities and helped hasten the transition to a digital economy. Remote working means businesses have fewer overheads. This means they could offer their products and services for better prices. Which leads to consumers benefiting with a better bang for their bucks. Which evidently creates a healthy cycle of more business and satisfied stakeholders all around.
What does all this have to do with NFTs? and why you should invest in NFTs? well with the accelerated expansion of the digital economy, demand for digitally native goods are also increasing. Music, books, online courses, movies and games are a few digitally native goods we are already accustomed to. NFTs are here to take this to the next level with its innovative new backbone technology.
How will NFTs contribute to the digital economy
With increased accessibility and distribution comes an increased risk of piracy. There is nothing stopping you from sharing digital music or movies that you own you own with your friends. Once a file becomes available on the internet, it will spread like a virus. it’s impossible to trace the path that it took from its origin and ended up on a billion devices around the world.
NFTs are built around a strong technology called the blockchain. The blockchain is easily understood if you think of it as a ledger or an accountant. This accountant keeps track of every single transaction and/or movement a digitally native good makes. What’s more is that once an entry is made on the said ledger, it can NEVER be changed. Nor can it be tampered with or deleted. The decentralized nature of blockchain technology makes it almost impossible to hack.
This creates vast new opportunities for how we distribute digital goods. Together with the smart contracts NFTs are geared with, opens up the doors to whole another dimension in the digital economy.
With technologies such as AR, VR & virtual worlds being expanded, such tools will be in the hands of the mass market in the upcoming years. Each person will have a separate digital avatar (personality) of themselves represented online. Such a person could end up owning various digital assets like clothing, land, currency & many more, in the digital realm.
Scarcity – Are NFTs scarce?
The primary aspect an item would need in order to be conceived as a collectable would be rarity. A limited number of items means more people would want to get their hands on the said item. This increased demand for an item naturally creates increased value. NFTs are non-fungible in the sense that any NFT is completely unique. They cannot be traded or exchanged with another item that is of identical nature. Every NFT is one-of-a-kind.
Think of trading cards such as Pokemon. As a kid, me and my brother used to be obsessed with the world of Pokemon. We used to watch all the movies, play games and collect trading cards in the Pokemon universe. Little did we know that we had in our possession, a few Pokemon cards that would amount to thousands of dollars 10-20 years down the line.
NFTs possess this very same nature. With the increased ability to be proven as genuine and exclusive (thanks to the blockchain), NFTs are assets that thrive on scarcity.
Ranking by scarcity alone definitely makes a good argument as to why you should invest in NFTs.
Collectability – Can NFTs be collectable items?
As kids, we used to bring our Pokemon cards to our friend’s houses and play a few games of cards and also trade with one another. If a friend had a card of a rare pokemon (a Mew or a Charizard) we would somehow try to trade with him even by offering multiple cards of Pokemon to get that prize card.
NFTs also possess this same behaviour as NFT owners can trade or auction whatever they own in the marketplace. Similar to art. But what’s more, is that now we can do this by ourselves without the help of middlemen to facilitate. We can simply auction the assets at our discretion. We can do all of this by ourselves thus retaining a higher margin as a result of this.
Perpection – How do people perceive NFTs?
Owning a Mercedes Benz is making a statement. Same with a pair of Nike trainers. Even if you’re getting a cup of coffee from Starbucks over your local coffee shop, you’re making a subconscious statement. Now more than ever, with the hyper-connected economy we live in people are driven by maintaining a persona they want to create for themselves.
In the same sense, it is important to be aware of how the entire Crypto space (NFTs to be more specific) is being perceived by a larger audience. Being a part of the emerging ecosystem of Web 3.0 really helps this. Users who are interested in the latest developments regarding the metaverse & VR innovations (among others) are naturally inclined to look towards NFTs. This also works the other way around.
Since NFTs are still in the early stages of its lifecycle, only a handful of enthusiasts are perceiving them as viable investments. This may explain the highly inflated prices some of the works are currently being valued at. (because early innovators are naturally inclined to see their interests succeed rather than fail)
When the market is more mature, with more people coming into the NFT space (both to participate & to observe) the way NFTs are perceived too will evolve to a more matured sense. Initially, the prices of most NFTs will most likely drop. They will rise again to more realistic and sustainable figures with more and more people being interested in the market.
Thus it is important to be aware of the changing sentiment of people as this has a direct impact on the highly dynamic nature of NFT valuations.
Acceptance – Are NFTs accepted?
Any investment must be accepted by a majority of investors for it to be viable. There are thousands of NFT trades happening on various marketplaces daily. Although the investor base for NFTs is quite a niche as of now, it’s growing in popularity at a rapid pace.
Popular brands like Nissan, Coca-cola, NBA & TIME Magazine are working on their own NFT projects. Thus increasing the awareness about the concept of NFTs. Resulting in higher acceptance.
It’s not just brands that are experimenting with NFTs. Celebrities like Paris Hilton, John Cena & Snoop Dogg are a few personalities who have already launched their own projects.
With the increasing awareness NFTs gain, its acceptance among investors too will increase. Currently, it’s just a small bunch of people who are actively engaged in this domain. But the acceptance of NFTs as a viable investment option is on a steady rise.
We just have to give it some time to grow and prosper.
Accessibility & Security
Accessibility – Are NFTs accessible to the mass market?
Investing in classic cars is a highly profitable investment. Roughly a 90-100% return can be expected in about 10 years, compared to the 30-50% return real estate usually yields. What these OG investments lack is benefiting from the hyper-connectedness of the digital economy. This is what enables investors to make dramatic decisions from their fingertips without ever physically examining their investment.
NFTs are accessible to anyone from anywhere around the world, and there are no currency barriers nor are there any major domestic legislation they are controlled under. This makes it a viable option for the global investor of the future to be part of a truly global market.
Accessibility will only grow for the NFT domain as more people are educated and aware of the subject.
Security – How secure are NFTs?
Any investment needs to be secure for the investor to get a good nights sleep. Any physical asset (apart from land) comes with its inherent quality of depreciation. This means that you have to further invest in maintenance to keep the asset in its prime form in order to benefit from the price inflation that takes place over a period of time.
Even with real estate, there are so many uncontrollable variables that of physical nature for an investor to be aware of. Who owns the adjourning land, what constructions are going on in the vicinity and so on.
Although both classic cars and real estates are highly secure, thus valuable investments for the long term player, both of them have associated physical anomalies that are inherent.
NFTs being built on the backbone of a decentralized eco-system is controlled by its community. Whatever direction the market goes, is determined by how the majority of the community acts & reacts.
The nature of the smart contract NFTs are geared with is highly secure from any tampering or fraudulent activities. Since the blockchain operates on multiple databases compared to a centralized one, it is also has a very low risk of hacks and cyber attacks.
The blockchain is nothing but highly secure. Even in the early stage, we are in right now, it possesses an extremely secure system of processes.
NFTs are an exciting new domain for investors to be aware of. It contains the 2 primary aspects of any worthwhile investment of being scarce and collectability.
The perception of NFTs along with how a majority of investors will accept it as a viable investment for their portfolio is yet to be seen. But looking at the current trend of high profile brands & celebrities entering the market clearly creates more confidence in the market.
There is an associated risk with NFTs for the now due to the highly volatile nature caused by the ever-changing sentiment of people. This plays a major role in this fluctuating nature for now due to the active number of players in the market being a small group of people. (compared to other forms of assets where millions of people & businesses partake).
Looking at growth trends we can safely assume that the number of investors will only continue to grow. along with this, the current volatile nature will also settle down.
NFTs are definitely something that should be within the scope of any future investor. Even if you’re not willing to take the risk right now, pay very close attention to what goes down in the upcoming months.
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