Non Fungible Tokens (NFTs) are probably the most divisive topic in crypto these days. As with most new technologies, we have diametrically opposing views about them. On one side, some think it's the future of digital property and be a trillion-dollar industry, while on the other, some are completely dismissive of its potential and cannot comprehend why pixelated digital jpegs of rocks and monkeys are being sold for millions of dollars. The truth, as always, is somewhere in between.
First, let’s make sure we all have a shared understanding of what NFTs are. NFTs are non-interchangeable digital assets. In finance and cryptocurrencies, all things are fungible, i.e. interchangeable. For example, when I buy shares in a company, or when I buy bitcoin, it doesn't matter which unit I buy, they are all the same and hold equal value to each other, i.e. fungible. NFTs are the opposite because they are unique digital assets that are not interchangeable, i.e non fungible.
In 2021, NFT sales volume totaled $24.9 billion (some estimates have it at $40 billion), compared to just $94.9 million the year before! 2022 also seems to be off to a blistering start as January set an all-time record of over $7 billion NFT sales. To make sense of these figures we have to zoom out and consider the overall trend of us shifting more of our lives online. The shift towards online was underway, but then Covid came and accelerated this trend. Ask yourself, how many hours a day do you spend online? How many virtual meetings do you attend compared to in-person meetings? To many of us, our online avatar interacts with a lot more people than we do in “real life”.
The question everyone is thinking of now is: “yes but why would anyone pay so much money for a jpeg that can be downloaded for free?”. I'm going to answer this question with a question. Why would anyone buy an expensive watch or car or clothes or painting etc.? Mostly it's about status. We are social creatures and our possessions are one way of communicating something about ourselves. Now apply that to your digital avatar. Since we spend the majority of our time online, owning an NFT and displaying it as your profile picture is comparable to owning a nice painting and displaying it in your house. Or you’re simply buying it as an investment.
We are still in the very early stages of NFT adoption. As the industry grows, I expect more practical use cases for NFTs will evolve beyond Bored Apes and Rock jpegs.