Why Buy an NFT?

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At stake

Digital friction

Nonfungible tokens (NFT) are having a moment. In recent weeks, notable investors Mark Cuban and Chamath Palihapitiya have signaled their growing interest in this corner of the crypto economy, adding fuel to a rally that was already red-hot. 

 

It's tough to measure the size of the total NFT market due to how these tokens are structured. Each NFT is a non-replicable digital asset. Because there's only ever one NFT, each asset is essentially its own market. The total value of NFT-based crypto art is now above $100 million, according to CryptoArt.io, which tracks the largest platforms dedicated to art sales.

 

The technology isn't limited to creating digital signatures on works of art, but has applications across anything online that needs to be verifiably unique from mortgages to collectibles. In fact, NonFungible.com, an industry data site, estimates that crypto art accounts for slightly less than a quarter of the NFT market, according to its latest annual report. 

 

(Though, again speaking of data issues, NonFungible.com estimates the total NFT market to be $250 million, which means "crypto art" as a sector is worth $62.5 million, far shy of the figure cited earlier.)

 

The largest market sector – the multiverse, an alternate, fully digital reality – is probably the least understood. While skeptics raise an eye when a digital portrait sells for hundreds of thousands of dollars, at least a painting is something comprehensible. 

 

In a recent CoinDesk opinion piece, Janine Yorio, head of real estate at Republic, wrote that the virtual real estate market is primed to boom. She cites the scarcity of digital land on platforms like Decentraland, the trend towards virtual socialization and the growing number of investors willing to take portfolio risk on digital assets. 

 

Of course, there have been virtual reality booms in the past that have petered out. In 2006, Reuters, the veritable news service, opened a bureau staffed by a real tech reporter in Second Life, though it closed less than two years later.

 

So what makes this time different? Has the simulation glitched, sending us through another repetition in an eternal cycle of boom and bust metaverses? That I cannot say. 

 

But there is one notable difference this time around. NFTs add friction to digital worlds. While a .pdf can be copied and pasted endlessly, there really is only one token to go around (even the image or document it represents is fully replicable).


It's this programmatic scarcity that is at least in part driving prices sky-high. Investors may be realizing the same deflationary market mechanisms that apply to bitcoin's scarcity – there will only be 21 million coins – creates similar opportunities to buy and hold NFTs on a much smaller scale. 

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Quick bites

  • A United Arab Emirates government-owned free trade zone accepts bitcoin. (CoinDesk)

  • Sweden's Riksbank is expanding its e-krona experiment. (CoinDesk)

  • CBDCs could create shadow economies. (Reuters)

  • The Federal Reservew isn't threatened by bitcoin. (CoinDesk)

  • Christie's sets $100 starting bid for historic Beeple NFT auction. (Protos)

  • 19% Of UK Private Jet Company Sales From Bitcoin (Simply Flying)

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