Non-fungible tokens — unique digital assets, like artwork and sports trading cards, that are verified and stored using blockchain technology — exploded in popularity in 2021. People create, collect and trade NFTs for millions of dollars, some with the hopes to profit in the future. But experts are still skeptical that NFTs are a good investment.
The surge in NFTs is still fairly new, but massive amounts of money has already exchanged hands among collectors. Since 2017, for example, NFT collectibles have generated over $6.2 billion in sales while digital art has generated over $1.9 billion, according to NonFungible, which tracks historical sales data of NFTs.
“I think things like artworks and collectibles have become the big commodity of NFTs because they naturally fit into what NFTs are,” according to Jon McCormack, a professor of computer science at Monash University. “Digital being copyable, having this extra Certificate of Authenticity is really important to show ownership of that particular thing.”
Researchers are concerned that it may be a bad time to enter the market, which has grown too big, too fast under immense hype and speculation. NFT trading volume grew 38,000% year-over-year to hit $10.7 billion during the third quarter, for example, according to an analysis by DappRadar, a company that helps people track NFTs and other decentralized assets.
“This may well be the apotheosis, the peak in the paradigm of everything bubbles,” said Michael Every, Rabobank’s head of financial markets research for Asia-Pacific. “It worries me intensely even if I fully understand the dynamic that drives younger people in particular.”
Experts suggest buying an NFT because you want to own it, not because you want to get in on the hype.
“Don’t buy it because it’s an NFT,” said Evan Cohen, co-founder of Vincent. “Buy it because you like the art or buy it because you think the collectible is cool or the community is cool. You want to participate for the asset, not the underlying technology that powers this.”
Watch the video to find out more about how NFTs work as an investable asset.