Are NFTs a fantastic investment or a silly fad?

They sell for millions. NFTs became investments that tempt collectors, confuse almost everyone else, and entertain the netizens. Are these crypto collectibles a wise investment? 

When you made it to Saturday Night Live, you made it, period. While politicians and celebrities are regulars in the cult TV comedy show, last week’s sketch targeted the newest crypto craze. NFTs (non-fungible tokens) are everywhere, so of course, they also became the butt of never-ending jokes that set the internet alight. Unsurprising, considering that collectors are suddenly paying millions for memes, tweets, and whatever they label digital art or a rare, precious item. 

A tweet can be an NFT investment

The New York Times made an NFT as a joke, and it sold for more than $560,000 in 24 hours. Elon Musk created a techno song about NFTs and briefly considered selling it – as an NFT. Twitter CEO Jack Dorsey sold his first tweet for an astonishing $2.9 million. That same tweet you could just look up on Dorsey’s account that says “just setting up my Twitter”. Except now, the buyer, Sina Estavi, the CEO of Malaysian blockchain service Bridge Oracle, owns the only digitally autographed version that will ever exist. It will never be mutually interchangeable or hackable.

Still don’t get it? Saturday Night Live (SNL) explains NFTs in Eminem Style.

Behind the NFT hype

All jokes aside, the NFT market is becoming too exclusive to not take it seriously. The latest numbers from show an insane number: all-time transactions have reached more than $560 million. When writing this article (March 31st), 3106 transactions took place, and their total value was more than $4.8 million. That’s not exactly mainstream as the media frenzy would have you believe, but it’s certainly no joke. 

First of all, the bottom line: NFT is technically a unit of data stored on a blockchain. This unit represents a valuable digital item, such as Dorsey’s tweet and Musk’s song. Such a mechanism guarantees uniqueness and is perfectly safe, so it suits the needs of new-age collectors. Especially now, when they’re even more eager to overcome the limitations of physical collectibles.

NFTs have been around for a couple of years, but the wide public interest only came recently. Why? Perhaps the unique pandemic situation was the trigger, and lockdown boredom combined with the rise of cryptocurrencies did the trick. If you think it’s time to get on board and invest now, visit an NFT auction market, make your pick, and purchase it with cryptocurrency. 

What could you buy and proudly own stored in your digital wallet? The deeper you’ll dig, the more confusing it will be. A bulletproof definition of what constitutes a valuable collectible doesn’t really exist, and the wild, unpredictable world of these tokens just keeps expanding. The universal market rule still applies: scarcity sells. 

CryptoKitties and scarcity

Scarcity on the internet, where everything is accessible and downloadable, sounds almost like an oxymoron. Well, not necessarily, thanks to blockchain.

One of the oldest blockchain games, CryptoKitties, lets players purchase digital kittens who possess various traits and looks. Some are rare, some not so much. The game runs on ethereum’s blockchain, and the kitty market is enormous. If you’d like to play with crypto cats and breed them, you will need some ethers and a digital wallet. You’ll pick the pet closest to your heart, and you’ll typically pay somewhere around $60. Each kitty is an NFT, and if you choose wisely, it could be a great investment. Top venture capital firms like Andreesen Horowitz and Union Square Ventures certainly thought so.

How is that possible? Well, when scarcity comes to play, the value skyrockets. There can only ever be 50.000 Gen-0 cats, who are the ancestors of every single cat bred in the game. They are being released gradually, and the lower their unique number, the more valuable they are. If they are in mint condition (they didn’t breed other kitties), the value rises again. Their price tags depend on supply and demand, and currently, they reach hundreds of thousands of USD. So far, the highest price ever paid for a CryptoKitty was 600ETH (around $172,000). Plot twist – Dragon, “who once bit Rebecca Black,” wasn’t even one of the Gen-0 cats, and the reasons behind the purchase remain a mystery. So much for the definition of value. 

The tokenization era and investment in NFTs

There’s a whole other playing field beyond gaming where seemingly anything can be tokenized. Besides what we’ve already mentioned, collectors pay insane amounts for NFTs they deem a good investment. The owner of Dorsey’s tweet believes that one day, people will realize “the true value of this tweet, like the Mona Lisa painting.” 

With this philosophy, NBA partnered with Dapper Labs, the makers of CryptoKitties, to see if they can turn trading cards into something exclusive – and expensive. Did it work?

Their game Top Shot has generated more than $230 million in gross sales so far, and it mostly sold out. This February, someone bought a LeBron James “Moment” that records his dunk for $208,000. Yes, a short clip that anyone could watch now officially has an owner. And it’s pretty realistic that one day, it will be worth millions. 

As Tom Richardson, a digital media professor at Columbia University’s sports management program, explained for CNBC, the psychology behind NFTs makes sense. “One of the things that have defined the digital era is we’ve moved from a world of scarcity to a world of abundance with all kinds of media assets and products,” he said. 

With blockchain, you can defy this and turn digital objects into a rarity. This is how NBA managed to transfer old-school card trading into the new era. “(Dapper) created these NFTs with the idea of scarcity combined with authenticity because of the way the blockchain works,” he concluded. 

So are NFTs a short-lived bubble that will burst or a wise investment for visionaries? That depends. Since we’re talking about crypto, the volatility seems inevitable. However, supporting authentic creators and identifying NFTs with a real artistic or cultural value might be the future of collecting.

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