We’re at a defining moment in digitalisation—on the cusp of notions like the decentralised web and Web 3.0. That’s exactly what makes NFTs such a compelling investment right now. Born in 2014, NFTs started gaining popularity by the beginning of 2021 when the much-renowned now digital collage by Beeple was sold for a whopping $69.3 million. Since then, NFTs and NFT marketplaces have only seen growth at a gigantic rate. If you still think it’s a silly idea, consider the facts. Dappradar’s 2021 industry report shows that in one year, from 2020 to 2021, the NFT market rose from $100 million to $22 billion, which is an increase of 220 times. Does that make you curious enough to know more about these assets? Then keep reading.
In case you’re not clear, let’s learn what NFTs are
NFTs, or non-fungible tokens, are the antithesis of fungible tokens, which essentially are exchangeable tokens, i.e., tokens that can be fractioned and/or replaced with the same tokens. Money, gold, etc. are examples of fungible tokens. NFTs, on the other hand, are unique assets that cannot be broken down into pieces or swapped. A blog post, a music single, trinkets, or digital goods in video games such as weaponry, upgrades, etc. can all be considered NFTs.
NFTs are built on blockchain, a shared database technology-based decentralised economic institution. Anyone with entry to the network’s ledger can use it to trade, loan, sell, and invest in; and all such transaction data is visible to the entire network in an encrypted format. When an asset’s worth is digitally signed, the registry records who holds it. In NFTs’ case, they, themselves, are those assets. The advantage of these assets being created on a blockchain technology is that not only can each object on a blockchain platform be directly detected back to its original source, but they are also protected very well from cybercriminals.
How is the value of an NFT decided?
The interesting thing about NFTs is that they are valued only on the basis of what somebody is willing to spend on them. The net worth of NFTs depends on the combination of the factors below. An experienced NFT consulting firm will be able to guide you through each step of how to decide the price of your NFTs, and how and when to increase it for better ROI.
- The originality of an object increases its worth, but the price climbs even higher if a single item can be used in multiple situations.
- A dominant ownership history also raises the price of NFTs. If the source object belonged to a distinguished creator, a star, or a well-recognized private label, it could be sold and resold for a premium price.
- Furthermore, both valuation changes and future revenue are used to estimate an NFT’s long-term worth. Once there is enough demand generated for an asset, even speculative trading can be used to increase its value.
- Also, the more liquid an asset is, the higher value it will have.
Now, what are viable long-term assets?
To begin with, let’s understand what an asset is since anything and everything cannot be considered an asset. An asset is a good that is held and controlled by a person, a company, or a nation; that has an economic value (as in, it brings either financial or other benefits for the owner); and has a plausible future return on investment. This ROI can be anything—generating tangible money, decreasing expenditure, paying off liabilities, or even a rise in merchandise value.
Long-term assets (aka non-current assets) are assets that will generate profits even after one year from acquiring the object. In the most general cases, these cannot be immediately sold, but after a few years, they will rise in value a lot more than at the time of their purchase.
How do NFTs fit into this category of viable long-term assets?
As mentioned earlier, Non-fungible tokens, or NFTs, are one-of-a-kind virtual assets representing unique tangible or intangible commodities. NFTs can be employed to produce digital treasures, digital ownership, as well as other distinct digital assets due to their unusual features. This natural uniqueness and potential multiyear value, by definition, make NFTs long-term assets. Even though it may be more secure than physical art, digital art is still an unconventional investment, which may make seasoned investors fidget. However, remember, as mentioned earlier, it’s only been a year since the first NFT became hugely popular, and within this short duration, NFTs have increased so much in value that the most expensive NFT was sold for an approximate $91 million.
There are many reasons behind this apparent unbelievable growth, which also makes NFTs a very important long-term asset:
- Passive income source:
There are multiple reasons why NFTs are becoming so popular, especially among Gen Z, in this declining state of the economy. For a regular asset, once the asset changes hands, so do its ownership and rights. NFT marketplaces don’t work that way. For these assets, blockchain makes sure that the entire ownership history remains transparent on the network, and smart contracts can ascertain that the original owner retains the copyrights to the NFTs even after their sale and resale. This way, not only can the original owner keep earning royalties from the same NFTs, but he can also manufacture more NFTs related to the same work.
- Influence in the gaming world:
Even though the video game industry is one of the most profitable businesses out there, video games have brought more bane than a boon to their users, as for the most part, they have been consuming time and money, giving almost nothing in return. NFTs have transformed this equation. Assets earned or bought in an NFT-game provide the players with ownership rights for them. These assets can either be traded in the NFT marketplace or used in other games of similar themes. What’s more, nowadays there exist a huge number of NFT-games that offer opportunities for the players to earn in-game as well as increase the long-term worth of the NFTs they hold through upgrades, wins, purchasing game items, and a lot more.
- Easy distribution:
Until NFTs came about, artists had to book expensive galleries to showcase their artwork, and even then, it was difficult to reach a wide audience. Creators from all industries face similar issues. Now, with this revolutionary technology of NFTs, reaching the right audience has become much easier. The creators and traders of NFTs form a massive community that is in touch with each other on various occasions. So, if you’re already in the NFT business, your new artwork or music album automatically reaches a large community. You can even collaborate with others to increase your visibility. Plus, with NFTs being digital, the scope of your audience expansion suddenly works on a global level. The blockchain removes all intermediaries too, resulting in the creators bagging the majority share of the profit.
No matter what traditional investors like Warren Buffett feel about NFTs, their appeal is incontestable. NFTs make it possible to commercialise distinctive commodities in ways that were unprecedented even a few years ago. Plus, they maintain the users’ privacy and bring huge returns on investment. It’s a win-win all over. With big names like social media company Meta, gaming company Roblox, and many others putting billions into the idea and its applications, it is safe to say that NFTs are not only here to stay, but they might even rule the finance world very soon.