Non Fungible Token : Digital Asset or Digital Liability?

Yay or Nay?

In the revolution of the Web 3.0 era, it seems that Non-Fungible Token (NFT) or you may say digital asset is gaining its popularity, and owning it gave the highest pride to the owner, well at least to us as crypto-geeks. Regardless of its function, utilities, some of us are willing to sell our kidney's to obtain it. Here is an interesting move, a twitter user claims that he sold his kidney just to obtain a Bored Ape NFTs. Whether its true or not, it shows the length that a person might be resolved in order to owning an NFT. Is it worth it? If we go about in many perspectives, i.e. monetary values, utilities, the pride of owning it, is one confirmed that it is a digital asset?or just another liability that disguised itself as an asset, being a perfect bait to those who have FOMO (Fear-Of-Missing-Out) syndrome?

A person claimed sold his/her kidney for NFT

Perhaps we can roll-out the term and see if it still fits. The basic crypto terms have been shared in the previous article (Crypto 101: Basic of Crypto and Blockchain),  but let's digest it further for deeper understanding. It is undeniable that Non-Fungible Tokens (NFTs) are unique cryptographic tokens that exist on a blockchain and cannot be replicated. Here’s the lowdown:

So What Are NFTs?

It is commonly known that NFTs represent assets like art, digital content, or videos that have been tokenised via a blockchain. Essentially, they’re digital certificates of ownership. Unlike cryptocurrencies (which are fungible), NFTs are non-interchangeable. Each NFT is distinct and has its own unique value. Imagine tokenising a smiley face drawn on a banana. Whoever holds the private keys to that NFT owns the rights associated with it.

How NFTs Work: The Minting Process

NFTs are created through a process called minting. Here’s how it works:

1. The asset’s information (metadata) is encrypted and recorded on a blockchain.
2. Validators verify this information.
3. The NFT is then minted, and the connection between the token and the asset is established.

Voilà! It's a three simple steps and you’ve got yourself a one-of-a-kind digital asset.

NFTs Use Case: Beyond Art

While NFTs gained fame through digital art, their applications extend far beyond that which include:

• Gaming: NFTs can represent in-game items, skins, or even entire virtual worlds. (I am practically fascinated and hooked into this)

• Collectibles: Think of them as digital baseball cards or rare stamps.

• Real Estate: Tokenising property ownership.

• Identity: NFTs can represent individuals’ identities or social profiles.

• Music and Entertainment: Musicians, filmmakers, and content creators are exploring NFTs as a way to engage fans and monetize their work.

History and Record Sales

NFTs have been around longer than their recent hype. The first NFT reportedly sold was “Quantum” in 2014.

In early 2021, digital artist Beeple made headlines by selling an NFT collage for over $69 million. It was a compilation of his first 5,000 days of work.

The Ups and Down

We have established the definition on NFTs, let's look on the reality of NFTs if it befits with its definition. While some NFTs can be seen its value in terms of its backed asset such as Real Estate, or real world asset, other type of NFTs might not have the same characteristics; i.e digital art with no utilities and usage. This causes the value of the NFT drop down like falling from a cliff.

Here are some NFTs that have seen a significant drop in value over time:

• Bored Ape Yacht Club (BAYC): Once highly sought after, the value of BAYC NFTs has decreased significantly.
• CryptoPunks: Another popular collection that saw a dramatic drop in value.
• Doodles: Initially very popular, but the value has decreased over time.
• Azuki: Experienced a decline in value despite initial hype.
• Axie Infinity: A gaming NFT collection that lost value after an initial surge from then with an average of $300-350 dollars to now $2-5$

These examples highlight the volatility of the NFT market. It's important to do thorough research and consider the long-term potential before investing in NFTs. 

The drop in value of many NFTs can be attributed to several factors:

• Market Saturation: During the NFT boom, many new artists and creators flooded the market, leading to an oversupply.
• This diluted the value of individual NFTs.
• Economic Uncertainty: The broader economic conditions and instability in the crypto market have affected NFT prices.
• Speculation and Fear: Many investors bought into the hype, leading to inflated prices.
• As skepticism grew, fear of a bubble led to mass sell-offs.
• Lack of Innovation: Some NFTs failed to stand out or offer unique value, leading to a decline in interest and value.
• Bad Actors: Instances of fraud or bad intent by creators have also contributed to the loss of trust and value in certain NFTs

These factors combined have led to the significant drop in value for many NFTs that were once highly sought after. However, this does not means that its all gloom and doom for the Crypto space. Some NFT maintain their high value, and some rises back from the ashes after their pit drop. NFT with backed-asset usually able to retain their values.

In the end, the investors must think clearly whether they want to embark in investing in Crypto space and having NFT as their belonging as it could be a worthy asset, or it could be a painful liability. As a wise quote from Benjamin Franklin, “An investment in knowledge pays the best interest.” It's best to dig up deep knowledge before deciding on your investment placement