Cryptocurrency, blockchain, and non-fungible tokens (NFTs) have been three buzzwords of the internet this year. Most people do have a rough understanding of the first two terms; very few people have been able to understand why would someone spend a billion dollars for an easily available cat GIF? The answer lies in the structural foundation of NFTs.
NFTs explained
NFTs are fundamentally non-reproducible tokens. If you have bought an NFT, you cannot interchange it with anyone else. It’s you who will exercise full authority over it. If you have sold your NFT to someone then he/she becomes the owner of that very NFT. Moreover, the ownership of an NFT can be tracked by anyone as it is a piece of publicly available information on a digital ledger. A wide variety of products can be sold through NFTs. These include photos, videos, GIFs, movies, drawings, audios etc.
Why buy it when it’s available for free?
If you are a retail investor who is currently not invested in NFT, it may sound like a tricky or maybe even foolish question for you. Actually, there is a reason why people are investing in these tokens. Most rich people have a proclivity towards buying an original piece of art. If given ample money and time, they can go to a great length to buy an authentic piece. Auction rooms are great examples, where a simple painting is auctioned for millions of dollars, just because it is coming from its original painter.
Similarly, NFTs provide ownership of art to the buyer. The person who bought the NFT of the original GIF of Nyan Cat possesses the right to claim that he/she owns the original GIF. Billions of people can download this art for free, but only the person who has bought its NFT from the original creator will be able to claim ownership of the original art.
What happens to the original content creator?
Against popular understanding, the creator of art does not lose his/her right to claim that he created the art. Actually, it’s only him who can claim copyright on that product. The creator always reserves the right to create another piece of similar-looking art with the same properties and sell that as well.
What is in it for retail investors?
A retail investor has a wide array of options. If he/she wants, he can buy an NFT and wait for the demand for a particular product to go up. As soon as demand goes up, the owner of NFT can sell it at a skyrocketing price garnering huge returns.
A content creator usually creates limited quantities of NFT. When demand goes up, the availability of limited NFTs will ensure that the creator will be paid handsomely for the art.
As observed above, NFTs possess huge potential for everyone. Institutional investors can rope in smaller NFT creators, while the availability of big boys provides options for retail investors, especially young adults to garner huge profits.
On the face of it, NFTs looks like another fad that will pass. However, increasing inflation in the US is sending venture capitalists and other big investors to invest in futuristic technologies. NFTs are one of them. It is expected to work as a hedge against crashing economies in a post-pandemic world.