This article aims to provide an overview of Non-Fungible Tokens (NFTs) and the common misconceptions people have of them. If you are unfamiliar with NFTs and how they work, do read our introductory article before reading this.
You might have known of NFTs before you even heard about DeFi. From luxury brands including NFT collections in their product line to celebrities flaunting their Twitter profile pictures (PFPs), NFTs are no longer fringe. Still, many find it baffling how these deceptively trivial assets, which include bizarre-looking apes and minimalistic 8-bit eccentrics, have taken the world by storm. In this piece, we aim to shed some light on a few common misconceptions surrounding NFTs.
1. NFTs Are Just JPEGs
Perhaps the sheer absurdity of a compressed digital image costing tens of millions of dollars has hoaxed us into believing that JPEGs constitute the entirety of the NFT sphere. While visual art on a digital medium stands as the most popular use-case of NFTs at the moment, various applications of the technology have also been developed.
For example, the music industry has seen a wave of NFT usage. Artists such as The Weeknd and 3Lau have auctioned off their exclusive merchandise as NFTs on NFT marketplaces like OpenSea. Platforms such as Audius and Royal aim to create a democratized ecosystem of music artists and fans through the use of NFTs and have attracted the likes of The Chainsmokers who most recently shared royalties of their new album with fans via an NFT airdrop.
The gaming industry has also been revolutionized by NFT technology, specifically in the ownership and transferability of in-game assets. Previously, such assets would be wiped out after the game memory was deleted, regardless of whether they were purchased with cash. As NFTs, however, in-game assets can be sold on a marketplace when you do decide to quit the game. Companies like Animoca Brands, Sony, and Atari have deftly jumped on the trend to elevate the gaming experience of their customers. Learn more about play-to-earn (P2E) games and GameFi here!
2. You Can Do Anything With the NFT You Own
Buying an NFT does not necessarily mean that the NFT becomes your property. Even though NFTs are fundamentally unique and stored within non-custodial wallets, they are not authoritative tokens of ownership.
NFTs are merely digital certificates that convey ownership, as your purchase is traceable on the blockchain. However, you do not own any other rights to the token, including those under copyright law. For example, a project can deny you the right to adapt or reproduce the original work or make the work freely available to the public.
However, the rights that NFT holders possess vary between projects. For instance, Kings of Leon has stipulated that their NFT album “When You See Yourself” is strictly for personal consumption. On the other hand, projects like CryptoKitties allow holders to use the token to commercialize their own merchandise. The only caveat is that holders do not earn more than US$100,000 in annual revenue.
3. Screenshotting an NFT Is as Good as Owning One
One of the biggest inside jokes within the NFT space is that screenshotting an NFT is the equivalent of property theft. However, this could not be further from the truth. Screenshotting or otherwise right-click-save-ing an NFT is akin to taking a photo of a painting at the museum – a painting that is created and owned by someone else. What you have is merely a replica that serves no purpose and holds no value.
On the other hand, by virtue of its non-fungibility, owning an NFT translates to owning a certificate of authenticity. While two JPEG files may look identical, the fact remains that they are different files. The owner of an NFT will be able to receive benefits and rewards from the NFT’s creators. For example, holders of the iconic Bored Ape Yacht Club (BAYC) were airdropped $APE tokens amounting to billions in market capitalization at their peak.
As NFT ownership is set in stone on the blockchain, someone who screenshots these NFTs claiming to own them will not be eligible for benefits that are exclusive to the project-specific community.
4. NFTs Are Just About Money
Undoubtedly, many have made their wealth from the buying and selling of NFTs, and perhaps this has created an impression that the world of NFTs is just a big get-rich-quick scheme. This is not true.
Depending on the project, NFTs have varied utility. Some champion noble causes. For example, holding an NFT from World Of Women and using it as a PFP can serve as a statement for gender inclusivity and representation, while being a part of CryptoMorie can be an indication of your support for mental health issues.
More than that, NFTs grant owners fellowship with the project’s community. One look into the Discord group of almost any NFT project will speak volumes about the vibrancy and zeal of an NFT community. You will see members live-streaming musical performances, sharing their art with the community, and even hosting spontaneous real-life meetups. There is even signs of tribalism as members rally to conduct Twitter raids and celebrate when their project goes to the moon.
5. All NFTs Are Overpriced
The NFT sphere is more than just mere artworks you see on headlines costing millions of dollars. While there are reasons why certain NFT collections and artworks command such high prices, not all NFTs are like that.
This requires the understanding that NFTs are not merely purchased on the secondary marketplace. There are multiple avenues to acquiring an NFT:
- Mint an NFT by getting on the whitelist
- Receive an NFT via airdrop
- Purchase an NFT on a secondary market
NFTs can either be minted or purchased on a secondary marketplace such as OpenSea or LooksRare. Minting an NFT can be notoriously expensive or, sometimes, free. The cost of purchasing an NFT, however, is determined by its scarcity and demand in the market. Famous projects like BAYC or CryptoPunks are definitely traded at high prices. Similar to other retail products, NFT prices rise with increased demand, limited supply, and how or who the product is endorsed and “hyped up” by. For instance, Snoop Dogg’s The Doggies NFT floor price rose to $1,900 from a mint price of $500 just 24 hours after its launch.
Are NFTs the Future?
Admittedly, the current NFT space seems frivolous and saturated with expensive digital art of funky cartoon animals. However, serious real-life use cases for NFTs are already beginning to emerge. Whether NFTs can lead us to a better future is yet to be seen, and is up to the communities and developers in the space. How will we utilize this technology? Where will we take it decades from now?
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