Why are NFTs valuable?

January 16, 2022 12:34 AM AEDT | By Ankit Sethi

Why are NFTs valuable? — Image source: Pixabay.com

NFTs biggest USP – blockchain

Blockchain-based digital currencies have initiated a financial evolution that sometimes seems to be challenging the hegemony of central banks and fiat currencies around the world.

The concept of decentralized money has grabbed the attention of retail investors, leading to a massive inflow of funds in cryptos. Influenced by the idea of quick gains, which is often deemed a characteristic of cryptocurrencies, investors pay little heed to these assets’ hyper-volatile nature.

Also read: The top crypto gainers of 2021, and a couple of underperformers

The underlying purpose of cryptocurrencies is to revolutionize the global payments system. NFTs came up as digital collectibles with the record of ownership stored in blockchain, in most cases Ethereum. It was a great draw for enthusiasts that were looking for alternatives to crypto assets (which are fungible).

Expensive NFTs sold in 2021

Problem with NFTs

The only problem with the NFT market is that many participants are just falling for the 'blockchain-based proof of ownership' narrative.

Can this one element – recording of sale on decentralized ledger – be enough to make anything and everything worth millions of dollars? The point is are we considering this ownership record more valuable than the underlying art itself? By this measure, Leonardo da Vinci's most famous paintings can have a lesser value than any random digital art just because the record of ownership of the latter is on blockchain.

Long-term sustainability of anything relies on fundamentals.

Also read: Top cryptos by market cap that ruled in 2021

Not every digital art selling as an NFT is overrated, for example, maybe someone saw value in Beeple's artwork and shelled out millions. But at the same time, the reckless launch of anything and everything as NFT is what ails the space. For now, the craze for blockchain, fueled by cryptos like Bitcoin and Dogecoin, is what has made every NFT such a hot deal. With the passage of time, dust might settle.

Bottom line

NFTs must be seen as a representation of the underlying artwork. If that digital asset is really unique, like physical artworks of some famous painters, the NFT’s high valuation is justifiable.

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