Looking from the outside, into the Cryptocurrency ecosystem it’s difficult to understand the value being created. People don’t see what everyone on the inside is so excited about, but they see money flying around. Then they incorrectly assume the whole thing is a big bubble. To be fair, it’s not all logic and a crash is not impossible. Still, it’s far from the Tulip mania people claim it to be.
What’s an NFT?
NFTs (non-fungible tokens) are one of these things. The gist of the idea behind NTFs is creating one of a kind digital collectibles. At the most basic level, these are the equivalent of digital baseball cards. They are unique and limited in supply. If a lot of people want a particular collectible, that makes it valuable and makes the price goes up.
At the simplest level, it just exists for bragging rights to say that you own something rare. At a more complex level, there are whole games (like Cryptokitties) created around collecting and discovering NFTs. The difference between seeing NFTs as something dangerous or innovative depends on your perspective.
How are NFTs Dangerous?
Looking at it from a purely financial perspective, the only thing that makes an NFT valuable is being able to sell it to someone else for more. There is no underlying value to it besides being desired by others. Unlike a token, there is no business behind an NFT that creates more value. It is what it is and nothing more or less. That’s not the type of thing that you would want to invest in to retire on. Like baseball cards, you should buy them because you’ve got an intrinsic fondness of them.
NFTs are dangerous for someone who is putting their money in with the expectation that they’ll sell it to someone else for higher. Anyone can create an NFT. Naturally, someone will create one just to seperate money from the hands of foolish investors.
Also, being a digital object, there is nothing stopping people from copying your NFT. Just like you can get a print of the Mona Lisa, but that doesn’t mean you own the original copy. Owning an NFT means you can prove that you own the original copy. Whether that is important to you or not, is another story. Unlike a physical item, a digital copy is just as good as the original is. Therefore, the differentiating factor is how important it is for you to be able to prove ownership
How Are NFTs Good?
It’s a long established thing that people value owning an original of something. People still go to museums despite pictures and virtual tours. People still buy collectibles. People still buy original paintings when prints exists. For many people out there it is valuable to be able to say “I own this“. NFTs have allowed this to be done digitally in a way that can’t be tampered with.
It‘s also that desire of owning something that puts food on the table for artists. Digital art is often not valued the same as traditional art because it‘s so easy to replicate it. The whole medium of photography is prints. There isn‘t an original like there is with a painting. Representing ownership with a provably rare NFT helps put money back into the hands of artists. Artist have long been underpaid and undervalued. Regardless of what you think about the idea, it’s legitimately empowering for some people.
NFTs can also be presented in the form of games. In CryptoKitties, you can breed your NFTs. The new kitty has physical features of both the parents as well as pedigree. Because it’s on the blockchain, you can easily map the whole family tree of your kitty
NFTs provide proveable, untamperable, scarcity. It’s not something all that new. That’s something available to physical objects like an autograph (it’s provable and untamperable because it’s physically there, it’s rare because not everyone has one). It’s just that we’ve now begun to represent digitally. Whether or not that is valuable to you personally, it’s still an innovation that has improved a lot of peoples lives.