Are NFTs here to stay?
Non-fungible tokens (NFTs) have gained popularity over the last few years. They are digital assets or tokens on a specific blockchain that provide secure storage and proof of ownership. NFTs are not meant to be used for trade or exchange and are, therefore, very different from cryptocurrencies.
The most expensive NFT to date was created by Mike Winkleman, also known as Beeple. His digital art, “Everydays: The First 5000 Days”, was auctioned for $69 Million In 2021. Such high valuation for digital art is making people wonder if they are missing out on the opportunity. Many believe that NFTs are overhyped while others argue that NFTs are valuable assets that will become mainstream.
Why spend so much to acquire a digital asset that can easily be downloaded and circulated over the internet? Advocates of NFTs argue that anyone can download digital art, but they won’t have ownership over the original asset. Having a replica of the Mona Lisa, the famous painting by Leonardo da Vinci, is not the same as owning the original masterpiece. The value of art is subjective, and, therefore, skepticism around the valuation of NFTs is justified.
Since NFTs are at a nascent stage, people must approach them with caution. This market is not regulated and will witness “pump and dump” schemes to dupe unsuspecting buyers. The Greater Fool Theory argues that even in an overpriced market, one fool can make money by selling it to a bigger fool at a higher price. Similar to the Dotcom boom, NFTs will first witness a bubble that will burst at some point before becoming stable as an asset class.
The application of NFTs goes beyond digital art/collectible. NFTs could be used to verify the identity of individuals or securely save property documents. Moreover, they can enable us to create digital assets in games or store valuable digital memories. For companies, NFTs can help create loyalty programs or verify customer transactions. More applications of NFTs will be uncovered with the wider adoption of blockchain technology.
One of the biggest obstacles today for NFTs is the cost incurred to store them on a blockchain. The storage also adds to the carbon emissions and is detrimental to the environment. Estimates indicate that the Ethereum blockchain, widely used for storing NFTs, consumes as much electricity as the country of Libya. However, with new blockchains and improved versions of existing blockchains, the energy costs will decrease significantly. Once the energy utilization is optimized, the growth of NFTs will be exponential.
With the next stage of evolution in Augmented Reality, Virtual Reality, or Metaverse, NFTs will become mainstream. Additionally, new use cases for NFTs focusing on utility than digital art/collectible will enable wider adoption. We are not very far from the day when most of us will own NFTs.
By Harish Srigiriraju
(The writer is a Principal Engineer at Verizon. He has expertise in leveraging advanced analyt cs and machine learning to improve software products. )