Do NFTs Have Value?
Digital art
NFTs aren't the first investment phenomenon this year. In 2021 we’ve seen other exciting shake-ups in the investment and trading world. Meme stocks like Gamestop were hyped up in internet communities, experiencing rapid growth in a short period of time, and we saw the rise of SPACs. So, do NFTs have value?
Do NFTs have value?
As cryptocurrency has circulated more widely, NFTs (Non-Fungible Tokens) have become more popular and easier to ‘mint’, buy, and trade. NFTs are tokens that signify ownership of a digital asset. After being minted, ownership tokens are stored, traded, and purchased using blockchain, the technology underlying cryptocurrencies like Bitcoin.
In contrast with fungible cryptocurrencies like Bitcoin, which are all of equal value, NFTs are valued uniquely. Essentially, they are the digital equivalent of the certificate of authenticity one receives when buying a physical work of art.
The momentum of NFTs rose from an MFactor of 8 in March of 2020 to 48 in March 2021 as consumers and creators became excited about the technology and larger companies invested in it. To understand if NFTs have value it helps to look at those driving interest. They are especially popular amongst the digital art community; Mark Cuban has pointed out that "you can sell anything digital using NFTs… anything our imagination can come up with."
Why NFTs Have Momentum for 2021
Artists aren't alone. Large companies with established brands are driving NFTs’ momentum as they incorporate the technology into their own businesses. A recent example is the NBA NFT offshoot “TopShot”, a site that allows people to collect digital basketball highlights from in-game moments.
The MFactor for NFTs. MFactor is a proprietary tool that measures cultural momentum through topic modeling and sentiment analysis.
NFTs represent a new revenue model for digital creators and fan support, putting ownership back into creators’ hands. NFTs have value, or at least they seem to, with creators who can list whatever they want and continue making money indefinitely. This would apply to a piece sold in the resale market because of how blockchain stores ownership titles.
Criticism for NFTs Environmental Impact
While many believe NFTs have value, praised for disrupting the art market, they’ve also drawn criticism for their environmental footprint. NFTs rely upon blockchain technology, which consumes a great deal of energy. For instance, the energy required to create one Ethereum coin, the cryptocurrency most commonly used to purchase NFTs, is approximately equivalent to an American’s daily power consumption. Consider how this scales.
NFTs have a much higher transaction rate than the average cryptocurrency transaction; consumers mint, bid, cancel, sell, and transfer ownership constantly, therefore, this comes with an even larger environmental footprint. Consider, a single NFT’s carbon footprint overall, is on average equivalent to an American’s total electric power consumption for nearly two weeks.
NFT Controversy
This has understandably polarized the art community. Some argue this mass adoption of the technology sets a bad precedent among digital creatives. Online art platform “ArtStation” even halted their NFT launch after artists and users complained about the environmental impact of blockchain transactions. Others see artists merely as users. They believe because NFTs have finally created a public market for artists, increasing the likelihood they’ll receive fair value for their work. In these cases, the argue responsibility for environmental sensitivity lies with the developers of the technologies that support NFTs.
The momentum is likely to continue because NFTs have value for new markets for digital creatives and give brands the chance to experiment with digital assets in an increasingly digital world—just don’t count on seeing NFT-related securities in green investment funds any time soon.