During one of the worst pandemics in human history, cryptocurrencies made waves in the market. If the bitcoin saw wild fluctuations, Non-Fungible Token (NFT) was the talk of the digital ecosystem. From companies to investors to celebrities to artists, NFT has become a top investment option. As a result, its market cap grew more than 54 times from $338 million by the end of 2020 to more than $18 billion on June 9, 2021.
What is NFT?
An NFT is a metadata composition, making it one of a kind. Each NFT reflects digital ownership backed by an asset. NFT gives a digital identity to physical or digital assets. It can be associated with any form of tangible or intangible assets. Further, just like other cryptocurrencies, NFT is channeled through blockchain technology.
NFTs have been around since 2012, some built on the bitcoin network but most operating on the Ethereum network. The first-ever NFT was minted in 2014 by artist Kevin McCoy. Later, in 2017, it again came to prominence when it debuted in the Ethereum network for a digital collectible game. However, in terms of popularity, NFT remains a comparatively new entrant among other cryptocurrencies.
Why all the buzz now?
As we mentioned earlier, its market cap has grown more than 54 times since 2020. This growth has come from a series of high-end trading in NFT assets:
Exhibit 1: Major NFT Trades in 2021
Source: Counterpoint Research
NFT has now gained much prominence but the potential it holds is yet to be fully discovered. The first applications were across Metaverses, Art, Gaming, Sports, Collectibles and Utility. However, AR/VR, Real Estate, Event Ticketing, Brand Licensing and Tokenizing of real-world assets also show promise. Further, we are seeing many new players from different segments starting to invest and trade in NFTs.
Exhibit 2: Brands Entering NFT Market
Source: Counterpoint Research
What makes NFT different from other cryptocurrencies?
Though it is a decentralized form of currency just like other cryptocurrencies, NFT is different from other cryptocurrencies in the following key aspects:
- NFT opens the possibility of multiple-owner scenarios for a particular asset. Therefore, rather than being owned by one, it holds the potential to be owned by many in pieces.
- An NFT’s value is uncertain. It depends on how scarce or popular it is considered by the potential buyer.
- An NFT is not equal to any other NFT. Each token is assigned a digital hash that distinguishes it from every other NFT. Therefore, no two tokens are equal, either in value or in their properties.
- Little volume with exceptionally high value of assets.
- The secondary market is relatively less active.
During the pandemic, when most of us shifted to our workstations at our homes, the artists and art galleries were among those recognizing the urgent need for digitalization. NFT emerged as a blessing in such a scenario. Further, NFT managed to capture attention quickly, leading to a smoother transition to the blockchain across various use cases. However, it is still a long road ahead in making NFT mainstream.
We are also witnessing some concerns being raised over NFTs. Environmental impact and crypto-bubble are the two major concerns here.