Last updated on January 30th, 2023 at 08:11 am
Non-fungible tokens known as NFTs are gradually becoming a household name. The more the popularity grows, the more misconceptions and mistakes people have about it and how it works. NFTs are not as complicated as they seem and they are worth investing in.
In this post, I am going to highlight the 5 common things people get wrong about NFTs and further clear the misconceptions. Lots of digital collectibles have been traded with very huge amounts.
In 2021, NFT marketplace Opensea saw a 646x increase in trade volume according to CryptoBriefing. Some of the most expensive NFTs in 2022 include The Merge ($91.8million), The First 5000 days ($69.3million), and Clock ($52.7million).
You can already see the amount people spend on purchasing these cryptographic assets that exist on a blockchain. According to reports from NonFungible and L’Atelier, NFT transactions tripled in 2020 reaching over $250 million.
These huge amounts of money splashed in purchasing single pieces have left speculations and misconceptions among people, especially newbies about their cost and value in the market. Below are some of the mistakes I have heard about the phenomenon.
- NFTs are complicated
- NFTs apply to Arts alone
- NFT is a bad investment
- NFTs have no real value
- NFTs automatically means ownership over the piece
1. NFTs are complicated
As earlier stated, NFTs are noninterchangeable cryptographic asset that represents ownership of a digital piece. Within it is contained a record of ownership of the digital asset.
Their value comes from the fact that they are rare and for collectors, it protects their investments because only one original is available and it can be traced back to the original creator.
We can take the Nyan Cat GIF as an example which was created by Chris Torres about 10 years ago. A bidding war started when he put up a unique version of the art for sale on a foundation. A collector ended up paying about $580,000 for it.
With this asset in his possession, the collector can be rest assured that he owns the unique version of the NFT. Each NFT is a unique asset and so its value is derived from the fact of its uniqueness.
As complicated as NFTs sound, and with the mistakes and speculations, it is not. You can think of it as a museum auction where collectors attend to purchase unique art (like the Mona Lisa painting by Leonardo da Vinci). The collector who ends up paying for it has a unique and original copy of that art.
2. NFTs apply to Arts alone
This has got to be the most common mistake and misconception people have about NFTs. This could be traced to the amount of money being spent on digital arts NFTs right now. NFT arts are the second most popular category just behind collectible NFTs according to this post on Pixelplex.
Aside arts, other NFT categories include:
- Collectible items/Trading cards.
- Event tickets.
- Music and media.
- Big Sports Moments.
- Virtual Fashion.
- Real-world assets.
Categories like gaming and music are beginning to gain popularity lately. Interest rate hikes and inflation could lead to investors paying a whooping sum for a piece. One of the most expensive NFT games ever sold is Dragon – Cryptokitties. The most expensive one was sold for 600ETH which is worth about $812,526 as of the time of writing this post.
3. NFT is a bad investment
This is no new misconception. From way back, even before the invention of NFTs, people have always believed that art is a bad investment and that it is not easily converted to cash which is not entirely true.
In the art world, while some pieces experience a dramatic price increase, others experience a downward trend. The same can also be said for NFTs, there are increases and decreases in the price and value of pieces.
The best way to invest and make a sound NFT purchase is by investing in pieces that are original and has a clear place of origin and history. Just like cryptocurrencies, not every NFT asset will appreciate with time. The goal is to identify good assets with clear provenance as those are less likely to depreciate.
Some pieces in a good collection might appreciate with time, while others will maintain their value.
Check out these 6 common NFT scams and how to avoid them.
4. NFTs have no real value
People make speculations that NFTs have no true value. This is not entirely true. Typically, NFTs act as proof of ownership to an asset stored on a blockchain. So as long as that asset has value, then the associating NFT is related to that value.
You can think of it like a bill of fiat currency. The bill is only a piece of paper or plastic that on its own has no value. That bill shows the value of an asset (maybe a phone) which directly reflects the economic stability.
So NFTs can have value as in fact a digital representations representation of an asset with true value. Without the underlying asset, an NFT has no value because it is just a piece of code in itself.
In gaming, NFTs are used during active gameplay sessions and people will most likely continue to play games. So the more people play games, the more demand and value for NFTs can be sustained.
5. NFTs automatically means ownership over the piece
An NFT metadata describes and gives information about an asset. Information like the name of the asset, the asset history, and every other necessary detail of the collection.
With this information available on the metadata, there usually is a missing detail of who will carry the ownership of the asset after a transaction. This simply means that buying an NFT asset doesn’t mean you assume automatic ownership of that piece. All you have purchased is a “permanent link” to that asset unless otherwise specified.
Usually, the copyright remains with the original artiste who created the piece. You might want to include it in the terms of sale before purchasing if you are interested in the ownership and copyright of the asset.
The rise and popularity of NFTs will continue to bring more misconceptions about them. Like cryptocurrency, NFT is still young and it isn’t too late for you to get involved. As their attention grows, so will the need of correcting further misconceptions people might have.
I hope with debunking these 5 mistakes, you can make your decisions and move on to the next phase of your NFT journey.
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