Crypto Thoughts
How do you make sense of this whole NFT phenomenon?
If you are following the news, you might have come across the NFTs and the buzz it’s generating across the globe (Or if you are still new to NFTs — you can have a look at my previous post to get an introduction).
In this post, I would like to take a step back, understand this whole phenomenon and check if it’s worth spending time on it.
We can look at NFT from the following perspectives -
- As an Artist
- As an Investor
- Ethical
For an artist, it is simply a new channel to sell their artwork and establish a life-long revenue stream with the royalty agreement that comes with the NFT(artist can take a cut of max 10% from the future resale profits). It looks quite attractive this way. But NFTs don’t solve all previous problems and magically convert a piece of artwork in to a valuable item. Artists still need to work on making their art valuable for selling, but there are now more chances for getting the art pieces sold at a higher price than before with this new craze. For well-established artists and celebrities, it’s pretty straightforward and there are already many success stories as their work is already valuable for a lot of people. For upcoming artists, it’s still a difficult path to walk and create a difference among the already growing NFT crowd. Sometimes it’s quite confusing to understand what’s valuable in the NFT world. Digital art pieces which take a lot of time to create sometimes won’t sell, but on the other hand, people pay thousands or even millions of dollars for art pieces that seem like commonly used GIFs. It can be demotivating at times. But NFTs are still a new concept, and it is evolving, so better to keep a close watch on this space if you are a creative artist for any new opportunities.
If you are looking at NFTs from an investment point of view, you can treat NFTs as a new asset class but better be cautious when the current trend stops. It’s not yet clear on the intrinsic value of purchasing an NFT at the moment, except for providing some bragging rights. People are building castles in the air with NFTs, and there is a lot of hype around it at the moment, which you can utilize to make some profits out of it. But please don’t believe that would continue forever. In my opinion, the optimism around NFTs at the moment is primarily due to optimism around crypto in general, which is again due to current pandemic times, people spending time online, and a probable inflation outlook. These can change once we go back to pre-pandemic lives. But again, NFTs and crypto in general, are a new concept. Nobody knows how would it evolve. It’s a new way to think about money and assets. It can even create a paradigm shift bringing in more opportunities. You never know. Better be cautiously optimistic.
From an ethical point of view, there are concerns too. NFT minting is computing intensive operation performed on a blockchain network, and it can take a significant amount of electricity for doing it, which is not environmentally friendly. Most of the NFTs minted today are based on the Ethereum blockchain that uses the energy-intensive Proof-of-Work consensus mechanism. Ethereum has plans to change it to a Proof-of-Stake consensus mechanism which is way more efficient in the operation, but it will take time. In such cases, one option available is we can look into NFT services provided by some other blockchains like Flow that already uses the Proof-of-Stake mechanism or be aware of the environmental hazard and do the NFT minting meaningfully.
But one thing I’m still wondering is that, if these NFT practices would further widen the gap between rich and poor or would it help bridge the gap? Only time will tell.
One thing that changed for sure is that now more people are aware of crypto technologies in some way or the other. It can further bring in more innovations as more brains are now curious and thinking about it.
