Five factors that boost NFT markets
Is NFT a scam or something big? Will it be as successful as the mRNA vaccine or decompose as an ICO? Will the NFT market replace the traditional market or will it burst like a bubble?
The answer is … no one knows for sure. But there are some signs we can see right now. Let’s start with the basics we know.
First, there is the NFT market and people buy and sell NFTs. The biggest deal came on December 4, 2021, when anonymous digital producer PAK sold NFT Artwork ‘The Merge’ for $ 91.8M, and in 2021 the trading volume crossed $ 23B.
NFT is not at zero. NFT is the only record in the digital ledger. It’s not a file or something you can effectively “save” or separate with Ledger. This means that if anything happens to a ledger, the same goes for the NFTs issued in it.
NFT also has no copyright. There is no copyright protection law and there is no liability or restriction on “casting” NFTs.
NFTs are not unique by nature. Yes, it is a non-fungal token, meaning it cannot be easily replaced with another. But nothing prevents an artist from issuing two NFTs and adding the same artwork except in their good faith.
Why is NFT different?
In the real world, property rights are well defined and essential to everyday activities. Imagine that crazy world where no one knows what assets are and you see random people taking valuables out of their hands.
But with the advent of the digital world things have changed. Now, a random person can visit your profile on a social network, copy your avatar and use it yourself. All can be copied, copied and distributed at no cost.
Now, NFTs are here to fix it and add real-world features to digital assets.
What is the value of NFT?
There is a good article titled Understanding the Value of Non-Fungal Tokens (NFTs) posted by Hugo Chang with a good explanation of the main concepts. In short:
NFT Value = Utility + Ownership History + Future Value + Liquidity Premium
Right now, we see a lot of NFTs being issued (or “casting” in blackchain terms) and trading, but what are the main value factors that buyers follow?
It’s easy to tell what items are not wanted:
Utility-to put it simply, there is no point in having NFT anymore. Yes, we have heard that NFTs are used in cross-game item exchange, metawares property management, etc., but not yet
Liquidity Premium – Another value that is not a priority for the majority of the market. It will never be fundamental.
So, we have two more things left:
Ownership History – I want to expand this element to a “historical” value that includes all-time events. Yes, right now, the market is not there yet
Is happy to mature and is “one of the first NFTs created by mankind”. “Same thing for one of the NFTs that Influencer has”. This piece of history may be valuable in the distant future. Future Value – This is very important for most marketers right now. Newcomers adopt NFTs and blockchains because it’s hype, and for many days we hear stories like doing boring jobs and becoming a millionaire. Undoubtedly, most people dream of the same scenario — they buy anything for a penny and in the end it is worth millions. Unfortunately, this is an unhealthy and dangerous price element, and we can only see what happens if it is only part of the price. Look at ICOs, their rapid rise and fall. What is the value of those coins now?
Today we can see the same trends. But there are also several important differences that make the NFT market less scam and more valuable.
Are NFT Markets a Scam?
I truly believe that the NFT market has great potential to bring value through utility and as a historical asset. You can tokenize and own pictures, predictions, memorabilia and many other digital assets. But any market must have reliable infrastructure. Guarantees the property not to disappear over time, ensures its uniqueness, and allows a person to own ownership from a legal standpoint.
I truly believe that the NFT market has great potential to bring value through utility and that the NFT market is a historical asset that lives with global confidence. Is it a reliable foundation? Seems. Think of a multi-billion art market or a diamond market. They have existed for centuries, but the real value of those real-world assets remains a matter of debate. If aliens contacted humanity, would they turn Leonardo da Vinci’s “Salvator Mundi” painting into a $ 450M-worthy resource? I do not think so, because it is only a piece of nut and oil on it in the sense of aliens, but why do people consider it a valuable asset? As Leonardo himself touches this piece of walnut and oil, it looks subjective and it is kind of.
The same procedure can be applied to NFT. The potential is enormous, but with the limitations of the digital world in which we live.
What is the market value of NFTs?
In the absence of a digital world all current price models are defined by leading economists. All of these do not apply to the digital world and we need to redefine them.
The best looking model is the simplest and still applies – any price is defined by the agreement reached between the seller and the buyer. This is the amount the buyer is willing to spend, and the seller is willing to accept the property in return. And this is mainly subjective in the case of NFTs.
So, is there a way to define price? Of course, there are some tricks. The easiest way here is to set the same price for the same property. Similarity can be found with other NFTs or real-world examples on the market. Let me tell you that a famous painter sells his artwork for an average of 10 thousand dollars.
The most influential factors in determining price are market demand, the reputation of the author, the history behind the property and its popularity. Elon Musk-owned NFTs are as expensive as the first NFTs sold on Sotheby’s, and all hype NFTs, such as the Cryptopunks Collection.
So, what makes the NFT market thrive?
Legal coverage. Markets rely heavily on stability and trust. And unfortunately, mankind has not found anything better than a government that protects ownership rights. We need to take action on the law, define the regulations and move digital assets from the dark area to the fully legal space. After that, large companies consider NFT markets to be recognizable.
nft cools the fever. High future value and huge return on investment are the hallmarks of financial pyramids. And we need to stay away from each other to keep the market healthy. Of course, a higher ROI increases the acceptance rate, but it also attracts scammers, fraudsters and other untrustworthy people, thereby increasing the level of fraud and lowering trust. Disseminating knowledge about NFTs and explaining all the challenges in the market is the only thing each of us can do here.
Actual NFT Implications. You could argue that NFTs have an immediate purpose, but I have my doubts. As a community, we need to try to apply the idea of digital tokens to our knowledge and business domain and see what happens. NFTs should work on logistics, certification, and artist reward programs, but this is only the beginning of the journey.
Ease of use. All of the blockchain-related issues I described four years ago are still in effect in 2022. With Opensea, MetaMask things have become much easier, but it is still difficult for an artist to issue and maintain NFTs and for collectors to enjoy their wealth.
We need to work hard and turn this into a reliable infrastructure for digital asset storage. Think Wikipedia or any other community-run space, without self-financing and corporate influence. And we have the smart contract power to automatically fund and maintain.