NFTs-Are NFTs a digital bubble in making?

This GIF of a Nyan cat with a rainbow casting feline had been a viral meme back in 2011, which was sold at an online auction for 300 ETH, the cryptocurrency that powers the Etherium Network, in February 2011. That was equivalent to 600,000$ at the time.

You may be asking how someone can own the unique copy of a GIF that was universal around the internet. Its because it was sold as an NFT or non-fungible token which acts like a digital certificate of an authenticity.

The market for NFTs ballooned in 2020, climbing to a market cap of at least 338 million dollars from about 41 million dollars in 2018. But skeptics question whether these assets are really worth the price tag for them, especially if all they have to have is an internet connection to view them.

To understand how NFTs work, you first have to understand what a fungibility is. Fungibility refers to the ability of an asset to be bartered or substituted with alike assets of the equal value. A simple example of a fungible asset is currency.

For example, you have five one dollar bills in your wallet. You may not want to carry so much change with you. So you exchange these with a single five-dollar bill. The value of your money is still five dollars, regardless of the fact that it is now in a different form.

https://upload.wikimedia.org/wikipedia/commons/thumb/9/99/
Gioconda_%28copia_del_Museo_del_Prado_restaurada%29.jpg/1200px-Gioconda_%28copia_del_Museo_del_Prado_restaurada%29.jpg

Non-fungible possessions are the reverse. Each one is unique and cannot be easily substituted for something similar. Think of the “Mona Lisa”. It is a one-off piece of art. It couldn’t not be bartered for a “Mona Lisa” portrait from a gift shop. Because the poster does not have the same value.

The idea behind NFTs is that you have this digital signature in the way that a great work of art might bear the signature of the person who created it. So you can always go and see the original one and say, "Yeah, it's real. It's authentic."

NFTs are cryptocurrencies but unlike fungible cryptocurrencies like bitcoin, they are completely unique. They exist as a series of numbers and letters stored in the blockchain ledger. This information may include who owns the digital asset, who sold it, and when it was sold. This information is also encrypted to ensure the correctness and authenticity of the NFT. By doing so, they are solving a difficult problem for online digital creators: how to make their creations rare and therefore more valuable.

One of the early applications of creating the scarcity was the digital collectible game ‘crypto kitties’ which emerged in 2017. Consumers have been able to purchase, trade and breed digital kittens. Each new cat was an NFT, confirming its authenticity and ownership. Since then, NFTs have been applied to video games, digital arts, and sports memorabilia.

One example is NBA Top-Shot, which allows users to procure a collection of digital basketball highlights, like a video clip of posterizing dunk. All the highlights are NFTs and it has become a great company. By mid-March, NBA Top-Shot had clocked in over 338m$ in sales since it went live in October 2020.

Non-fungible tokens are making their way into the mainstream art world too. Auction have Christie’s opened bidding for its first purely digital art NFT. Bids reached millions of dollars.

With all the hype surrounding NFTs, experts have raised some concerns. One problem is that not all NFTs confirm that the seller of digital art is the original creator. This is especially difficult in online marketplaces.

One of the concerns is that anyone can go on a lot of these marketplaces and say, “I am the person who created this token” and this can be truly difficult to confirm that, especially if you don’t know who they actually are or they are saying someone they are not.

Some suspect that ownership alone makes digital assets valuable. When it comes to digital art, a buyer owns the original digital painting but the person can’t keep others from copying the image and sharing it or changing it online.

Therefore, you have a lot of scams in cryptocurrencies just historically and so the concern is that, people are hyping this up. They're saying, "Go, purchase these NFTs. That's cool." But in reality, there is always got to be a buyer for there to be a seller and people might decide all of a sudden, “Let me cash in my profits” and someone is going to be stuck holding the bag.

Supporters are optimistic about the potential for NFTs but criticizers are suspicious that it may be a digital bubble in the making.