Why Is Everyone Suddenly Interested in NFTs? …and how long can the hype last?
Photo via INSIDER
The pandemic has brought on iconic moments, such as Lizzo’s 2020 Grammys’ performance, the ice coffee trend, the BLM movement, Taylor Swift’s latest albums, and NFTs. The emergence of NFTs has led to a lot of excitement among young investors who are searching for untraditional investment methods. However, the question remains: are NFT’s worth the hype?
The acronym NFT stands for "non-fungible token" and these unique “tokens” are a unit of digital data. NFTs are currently used as digital art, and they are traded on the Ethereum blockchain, although other similar platforms support them. The first NFT was created on May 3, 2014 by Kevin McCoy. According to Alternative Press, he created a hypnotic octagon which was later sold for over $1.4 million in November of last year. From 2015-2016, NFTs switched to the Ethereum blockchain from the Counterparty platform. The next year, “CryptoKitties”, another type of NFT, exploded on social media. However, the defining factor in their rise to trendiness was when other blockchains like Solana and Flow began to implement their own NFTs in 2021.
Anyone can create their own NFT and sell it. The buyer purchases the original work, but anyone can download a copy of it. The creator also receives royalties and a percentage of each transaction even after they are not the seller anymore. Buyers profit from selling their NFTs for more than they originally paid for as a financial investment.
Most of the hype surrounding NFTs comes from the influx of celebrities who sell or buy them. Melania Trump’s interest in NFTs incited her to launch a “POTUS NFT Collection” which will feature about 10,000 of these tokens. According to Forbes, each token highlights “iconic moments from the former [US] president’s administration.” Logan Paul, a YouTube influencer, is another celebrity selling his own NFTs. He created a Pokémon card of himself which sold for about $17,000. On the theme of trading cards, the Canadian actor William Shatner sold NFTs that contained an X-ray of his teeth. Even Jack Dorsey, the creator of Twitter, jumped on the trend and sold his first tweet as an NFT for roughly $3 million. Non-fungible tokens are slowly following the same popularity path as cryptocurrencies did. In November of last year, El Salvador’s president, Nayib Bukele, announced his plans for a “Bitcoin city” at the foot of the Conchagua volcano. In a BBC article covering the news, the president said that everything in the city will be dedicated to Bitcoin. Businesses will have to accept the cryptocurrency as payment, all for the purpose of generating revenue for the city.
When asked if something similar might happen with NFTs on a smaller or bigger level, Kayrod Niamir, business and marketing professor at Dawson College, said that NFTs are too volatile and will sooner or later go out of trend. This will ultimately lead to many structural problems and too much instability. Although M. Niamir concedes that some investors will make money out of these tokens, basing a whole economy or organization on such volatility can only lead to difficult organizational problems.
A major problem NFTs are currently facing are environmental issues. Despite these cryptocurrency tokens being relatively new and having little expert-reviewed data about their greenhouse emissions, some digital artists such as Memo Atken have put out estimates. According to an article published by The Verge, Atken estimated that the famous “Space Cat” NFT (see picture) leaves a carbon footprint “equivalent to an EU resident’s electricity usage for two months”. Additionally, blockchains like Ethereum “[use] about as much electricity as the entire country of Libya”. The entire planet is facing global warming and many believe that an increased interest in cryptocurrencies and digital art like NFTs will only accelerate the problem. However, others argue that NFTs do not occupy that much space on a blockchain, making their emissions not drastically harmful. The safest bet would be to keep an eye on them to prevent a rapid pollution problem arising from NFTs (and cryptocurrencies).
Non-fungible tokens are definitely an interesting emerging market. Their popularity, accentuated by celebrity contributions, are driving prices up. However, their threat to the planet’s health should act as a forewarning for sellers and buyers alike that NFTs’ longevity is questionable.
As always when dealing with financial investments, please do your research and/or consult a professional before investing. This article is informative and does not provide any legal financial advice.