2021 is, without question, the year of non-fungible tokens – an aspect of the crypto industry which currently boasts a market value of more than $7 billion.
Much more, the explosion of NFTs has not only contributed significantly to the decentralised economy but, more importantly, inflamed the worlds of art and gaming. They continue to sell for millions of dollars.
In March 2021, the first digital-only art auction by Christie’s auction house netted $69m for artist Beeple which made it the single most expensive NFT ever sold.
NFTs aren’t just raking in the money for sellers, they are also unique; hence the value. As highly valuable as NFTs are, you may need to know what exactly they are, how they work and why it is so expensive to purchase NFTs on Ethereum.
Simply put, NFTs are digital assets that are non-fungible, meaning they cannot be altered or interchanged. These assets can be anything from original artwork, trading cards, music, photography, video clip, among other collectibles.
In other words, NFTs cannot be mutually exchanged with other NFTs or digital assets; hence, the term, “non-fungible” which depicts that they are irreplaceable, and cannot be duplicated or replicated.
Since each NFT holds its own value, they cannot be exchanged for one another like normal cryptocurrencies. Consequently, NFTs act more as a form of authentication than a form of exchange. Given that NFTs cannot be copied or altered, they are especially suited for tracking ownership of property that cannot be replicated, like the rights to a property for example.
So how do NFTs really work? NFTs exist on a blockchain which is a distributed public ledger that records transactions in a secure and decentralized manner. Specifically, NFTs are usually held on the Ethereum blockchain, albeit other blockchains support them as well.
NFTs are taking digital ownership to the next level with the help of the blockchain and with more people showing interest, understanding how to acquire NFTs is crucial. To begin with, most NFTs are purchased using Ether (ETH) – the native currency of the Ethereum network, which is easily converted to US dollars on exchanges like Coinbase and Gemini just to mention a few.
Furthermore, in order to buy NFTs, you need a digital wallet to store your Ethereum. Crypto companies such as Binance and Coinbase let you create wallets with which you can connect to the marketplace where you want to buy NFTs.
Also notable is the fact that most NFT marketplaces are like auction houses where you place a bid, and wait to see if you win your chosen NFT.
With the explosive buzz of NFTs, finding where to buy or sell an NFT is very easy. There are a great number of trustworthy sites where you can easily buy an NFT depending on the type you desire. Prominent NFT marketplaces include:
The average price of NFTs on Ethereum is quite cheap, albeit the prices of some other ones can be more expensive than you’d imagine. Some artists have become overnight millionaires and I’m sure you are wondering which NFTs have really sold that high. Well, in February, an animated Gif of Nyan Cat – a popular internet meme from 2011 – was sold through the NFT Foundation platform for more than $480,000.
Beyond art, Twitter CEO and co-founder Jack Dorsey sold as an NFT, his “first tweet” through the Valuables platform, for $2.9 million. So why exactly are NFTs expensive on Ethereum? Remember that each NFT is unique and acts as a collector’s item that cannot be duplicated, making them rare and unique by design. Rarity makes them scarce and generally when things are scarce, the prices go up.
Since NFTs are based on cryptographic technology that does not allow duplication, people ascribe value to them because they are scarce. Another reason is that the market, which is made up of all the buyers and sellers trading that specific NFT, determines its price. The price will rise if there are more buyers than vendors as it translate to higher gas fee.
More precisely, despite its recent update 2.0, the Ethereum blockchain still has a congestion problem. Ethereum, unlike other blockchains, still handles a limited number of transactions per second (TPS) compared to its enormous daily demand of over a trillion. On the other hand, because it is the most commonly used for minting NFTs, congestion is unavoidable, resulting in high gas fee of NFT costs.
Ultimately, non-fungible Tokens (NFTs) are here to stay. They are on track to continue shaking up the art and gaming worlds for the foreseeable future, thereby upsetting the rules of digital ownership in the process.
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