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The NFT market: promise or speculation? | by Boopathi Krishnan | Dec, 2022

What makes something coveted?

In general, one of the factors that gives the most value to something is its exclusivity. After all, according to the Law of Supply and Demand, if everyone had gold bars at home, this asset would certainly not be as coveted as it is. Imagine, then, that it is possible to acquire something unique, certified in a way that it cannot be exchanged for something equivalent and, furthermore, that this resource exists, most of the time, only in the virtual environment, being able to extend from buying a tweet from a celebrity to a digital artwork or “moments” from a basketball game. All of these examples are encompassed within the NFT market, whose growth has been increasing exponentially in recent months, guaranteeing high returns for investors. Although, Could it be that all this fever is just another speculation about a new market? Or is it, in fact, a promise and a symbol of the digital revolution that will change the current transaction model?

A new definition of exclusivity

The “NFT”, an acronym for “Non-fungible Token” or “Non-fungible Token”, works as a kind of digital authenticity seal based on cryptocurrency technology, the blockchain . This technology can be understood as a ledger that registers transactions carried out in a public, transparent and decentralized way and that is constantly growing as new blocks are added. Thus, each transaction is added to the block and each block is an immutable record, that is, eternally printed and impossible to copy, which guarantees the security of this transaction model.

The term “non-fungible”, in turn, refers to exclusive items that cannot be replaced by others of the same kind, both in quality and quantity. In contrast, fungible items, such as the dollar or Bitcoin, can be traded or exchanged, given that they have a generic value linked to all of their kind. In other words, it makes no difference whether an individual has two $50 bills or one $100 bill, as it is fungible. However, if a person owns two different works of art, however much their sum may result in the value of another, it is not possible to exchange them, as they are unique and non-fungible, as are the NFTs in the middle. digital.

Among the advantages and motivations for acquiring NFTs, it is possible to mention the issue of greater security in transactions, since the encrypted technology behind the market was precisely created to prevent fraud, which makes the owner of an asset very hard to get hacked and have your NFT stolen. Another positive point concerns the eternal durability of the item, something impossible when it comes to physical goods. A third advantage is linked to the ease of carrying out transactions, which can be carried out by means of a few clicks and do not require a high bureaucracy for its completion. Moreover, for the seller, it means an opportunity to profit through his creations and, for the buyer, the value of the good is protected and can be seen as a way to speculate in the market,

In this way, this current high speculation is able to move users who, tempted by the possible gains, start to risk even more and contribute to the vertiginous growth of the market. In the first quarter of 2021 alone, the sector grew 131 times when compared to the same period of the previous year, transacting US$ 2 billion, according to NonFungible , a company that monitors the branch, with a large part of this amount involved in transactions of virtual works of art .

And the market takes off

Since mid-2012, the concept of NFT marketplace was already present in the market, but it was only recently that the fever exploded, mainly due to the rise in the cryptocurrency market and the growth of blockchain — based fintechs . Furthermore, this rise was also largely due to the hype movement and a change in mentality that led to changes in consumption exacerbated by the pandemic: people now yearn for the possession of unpublished products.

Thus, it was in March 2021 that the subject became more popular, with the sale of a work of art by artist Mike Winkelmann, known for Beeple , for US$ 69.3 million, a transaction that made it the third most face of a living artist. Although there are several images of Beeple ‘s creation on the internet, ownership is conferred on those who bought it and the others would only be imitations, so that there is only one registered owner of the asset, although anyone can view replicas of the work itself.

From this exorbitant sale, the market, which was already becoming popular, took off. Several assets began to be traded in NFTs, some bordering on the unbelievable, such as a column from “The New York Times”, a tweet from the founder of Twitter and posts that became popular on the internet, such as the GIF of a cat tracing the rainbow and the “meme” of a child in front of a burning house, this one sold for about $480,000.

With the advancement of the market, several platforms were created for trading NFTs. Among the most notorious, NBA Top Shot stands out , which makes it possible to collect remarkable scenes from American basketball games. Created by the North American basketball league in partnership with the startup Dapper Labs , NBA Top Shot transforms the so-called “moments” of games into non-fungible tokens, which are traded by users in the form of packages, whose direct purchase amounts on the platform vary between US$ 9 and US$ 230, depending on the number of scenes purchased. In this way, depending on what comes in the package, it is possible to sell for much more than the purchase price, which can give users high returns.

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