Currently, the millions invested on NFT “art” are part of a hype cycle that will presumably crash in a couple of months. Most of those artworks will lose their value. There are a couple of reasons people are buying NFT art:

  • Patronage (supporting the creator)
  • Collectibles (just like trading cards – an obvious parallel are the NBA Topshot NFTs, which are videos of important moments in NBA history. Owning it has no effect on the free availability of those videos online). Collectibles are inherently tied to status
  • Status 
  • Speculation 
  • Money laundering/ tax avoidance (apparently already rampant)

In addition, a lot of people got rich quickly with crypto trades. (The crypto universe is worth roughly $1.7trn). Implying that a lot of people A) are new to having a lot of money B) owe that wealth to speculating on the future of crypto. It seems obvious that a large section would A) trust new crypto models B) look for ways to flaunt their wealth/tech-savviness. 

Side note (1): A friend of mine is selling NFT art. For him, that makes a lot of sense. It costs very little to mint an NFT and he could gain a lot from it. Indeed, he sold one of his drone landscape pieces for more than 890 USD.

Important: He doesn’t need to believe in NFTs to make this a rational action. After all, he has fixed costs and in the (currently wild) NFT market unlimited potential upside. This fact further strengthens the hype cycle.

Side note (2): There’s no guarantee that the owner of the art mints the NFT and sells it. In fact, anyone can mint an NFT for any artwork and pretend it’s theirs. 

Does this mean NFTs are a stupid hype? 

— Even though it seems absurd to create artificial scarcity when you could have abundance —

Not necessarily.

(Enter, the Metaverse)

The Metaverse is a persistent, infinitely-scaling virtual space with its own economy and identity system. Most likely, the internet as we know it will change from a 2D and siloed environment to a 3D and interoperable space. This could happen either gradually or very sudden. In either case, it is posed to increase the time spent and the importance of virtual life1.

Currently, video games like Fortnite already contain sophisticated economies2 , but each economy is limited to its platform. 

Two criteria of a fully-functioning Metaverse are:

A) fully-functioning economy 

B) interoperability of data, digital items/assets, content, and so on.

That’s where NFTs come into play – theymake sure digital ownership is transferable across any online space. NFTs may become one of the pillars of a future Metaverse, showing ownership as you wander from one space to the next. If that happens, they will not only be attached to art of questionable value, but rather be an integral part of everyday life. 

1 A wild tangent [Status: Highly speculative]: Immersion into virtual worlds may be an explanation for the Fermi Paradox. While there are plenty of reasons why we should be unable to detect vastly more intelligent life (as it would necessarily be), there are many reasons why we would explore the virtual in favour of the “real” world. My favourite to date is that our brains are wired to a certain computation speed, which puts a direct limit to the number of human experiences until the sun turns into a red dwarf or the universe runs towards entropy. In a virtual world, there’s no need for your experience of time to be tied to human biology.

2 In 2018, over $1 billion of Fortnite’s $2.4 billion in revenue came from the sale of skins (outfits) or emotes (dance moves).