NFT: Why People are Spending Millions on JPEGs

How can I convince myself that the image above is worth more than $9 million?

What you see is an NFT, one of the earliest creations. It is part of the CryptoPunks collection, a set of 10,000 NFTs released in 2017 that many people around the world  still did not understand what Bitcoin was.

Chances have already opened your eyes to the idea of ​​a $9 million  or NFT. The reaction to the irreversible token hasn't changed much since March when it first exploded. The general public  reflexively dismissed this as an environmental destructive scam. The bigger the sale, the more rude the injustice.

This brings us back to the bumpy chapter above. Its owner is a friendly Canadian software developer known as Richerd. He started making cryptocurrency software around 2013, but eventually got tired of it. Richerd, who discovered NFTs earlier this year,  bought CryptoPunk #6046 for $194,000 on March 31st. Richerd, who has more than 80,000 followers on Twitter and 4,444 Twitter followers, said last month  that his cryptopunk is invaluable to him and not for sale, regardless of price. The very next day, his determination was verified when an offer  for 2,500 Ether ($9.5 million) came in. This wasn't done because Richerd's CryptoPunk is worth it. Similar to the NFT, it currently costs around $400,000, but that's because his bravado has been exposed very publicly. It was a challenge, but the offer was still legit. Had Richerd hit the accept button on the OpenSea trading platform, 2,500 Ether would have flowed into his wallet.

Richerd turned down the offer.  "Well, obviously the day before I said 'I'm not selling it at any price'," Richerd said in a call with Zoom, so it would be a violation of my integrity if I sold it at that price. “Besides, I used this cryptopunk as my avatar and my brand. Everyone knows it's me."

Not so long ago, Richard's explanation seemed crazy to me. How far do you have to be to give an 8-digit number in a picture that looks like Fiverr? How shameful is it for a person  to decline this offer? But after spending several months investigating and tracking NFTs, I'm not at all surprised.

In fact, it makes a  lot of sense. Bitcoin Millionaire Here are some simple facts that explain why NFTs are being bought at the price of CEO salaries. Bitcoin is estimated to have created over 100,000 millionaires. Naturally, NFTs became a phenomenon in March. It was then that Bitcoin broke through the $60,000 mark, up more than 500% from just six months ago. When you see headlines or tweets about the unreasonable amount spent on NFT, it's easy to wonder how unreasonable the purchase is. It is easy to forget that very wealthy people almost exclusively buy very expensive things, and very wealthy people spend a lot of money on status symbols. Take the  Bored Ape Yacht Club as an example. This is a collection of 10,000 NFT monkeys, all with different traits that make them more rare than others. Rare items sold  for over $1 million, while regular variants cost around $200,000. (At  launch  in April, BAYC developers sold  NFTs for $190 each.) Owned by  Steph Curry and Jimmy Fallon, BAYC is what you might call an "avatar collection." The main purpose of the image is to use it as a display picture on Discord or Twitter, Instagram or everywhere where most NFT businesses do not operate.

Recall: $200,000 minimum for avatars.

Isolation is crazy. But putting it on the spectrum of how the rich spend their money makes it  less impressive. Why waste money when you can right-click and save the JPEG? Well, you can buy a nice house in a safe area for $1 million, but celebrities regularly buy a $20 million mansion. You can find trendy dresses for under $500, but brands like Chanel are building businesses that sell dresses for 20 times the price. We agree that the rich buy luxuries offline. Are you surprised that they buy luxury items online too?

"How do people in the real world manage their wealth?" According to Alex Gedevani, an analyst at cryptocurrency research firm Delphi Digital. “It could be buying a car or a watch. How scalable is that compared to buying cryptopunk and using it as your profile picture?"

Obviously, status symbols aren't just for the rich. Whether you're buying a new car for $20,000 when a used car is $7,000, Walmart has a basic product for less than $5 Whether it's buying a t-shirt for $30 when it's on sale, we all indulge in one way or another. What most status symbols have in common is that they have a specific target in mind. The banker wearing a Rolex and the  executive sitting in her Bentley don't mind if I think any of these purchases are overkill. They have a small but influential group of people who want to make an impact. The same goes for NFTs.

For Richerd, he runs his own business, Manifold, to show digital artists like Beeple  use blockchain technology to create art that can only exist with NFTs. Helping you be a part of this circle's most popular NFT collection. And when he says his brand was built upon his punk, he's not exaggerating to say that a group of investors  named the organization after him.

As Richerd explained, “Those who own cryptocurrency punks believe in something.” “You've been in the community for a long time and they believe so, or  paid a lot to join, or this is proof of your convictions.

“I want to show my convictions. This is one of those projects that makes you invest your money whenever you need it."

Little Trouble

NFT Polarization, There are  a few people who believe in the underlying technology (digital commodity tokens), but  many see it as a scam. Just as the second group struggles to discover the value of NFTs, the first group can sometimes defend against technical flaws. Rest assured, the NFT has a lot of problems.

First, incomprehensible accessibility. There is  a reason software developers tend to do well in cryptocurrency and NFT trading. Setting up a blockchain wallet and other necessary digital devices is difficult. Even simple trading can be risky. If you accidentally send money to the wrong wallet address, it's gone forever.

Then there is a fee. Imagine being able to lose $1,000 to jump into unimaginable water. If you issue a new NFT during a public sale, you will typically spend between $120 and $400. Not  bad unless you factor in  transaction fees. Most NFTs are based on the Ethereum blockchain, which is notoriously inefficient. Whether you are trading altcoins or buying NFTs, the more you use Ethereum, the higher your fees will be. It costs about $100 per transaction at a convenient time, but this amount is usually double or triple. Suddenly, that thousand dollars won't go too far.

This is particularly disappointing for NFTs, notorious for triggering "gas wars". 100,000 people can buy Shiba Inu coins at the same time. Because 1000 trillion are  in circulation. However, if 10,000 people try to buy an NFT, the transaction cost increases significantly as some users offer higher prices than each other to speed up their purchase. It lasts 1-2 minutes, but you can do a lot of damage during this time. It's not uncommon for people to spend more than $10,000 in transaction fees. Not even those who lost $1000 on  failed trades. Ethereum’s inefficiency also contributes to another major criticism of NFTs: the  amount of energy consumed. This is kind of a semantic problem. NFTs are not as harmful to the environment as Ethereum. Other networks, such as Solana, use a small fraction of the power. Ethereum developers are expected to implement an update next year that will force mining to consume 1% of the energy it currently uses. No one can say for sure how much energy Ethereum is consuming at this point, but we know it is a lot. (Bitcoin is far less efficient than Ethereum, despite all the headers, so very few are built on  blockchain.)

And finally,  the fact that most people who trade NFTs trade for profit. Scams are everywhere and prices are volatile. Most  people who create, buy, and sell NFTs are unaware or uninterested in this technology. If there is a technological leap, it is likely to close with dizzying price movements.

Gedwani said, "I'll call it a bubble because the number of speculators  entering the market exceeds the actual producers."But the bubble can burst and leave something better. Think about Pets.com. It peaked at $290 million in February 2000, but was already closed in November of that year, when the infamous dot-com bubble burst. Used as a warning for speculative bubble trading. But the urge to invest in Pets.com was clearly justified. This particular venture was a mistake, but the e-commerce trend it pursued was legitimate. Pixel art in 7 shapes may not last forever, but it can be proof of digital ownership. That's what NFT is all about.

Big 2022

Anyone can guess where the NFT ends, and anyone claiming to know is probably trying to sell you something. What we do know is that the number of people buying NFTs will almost certainly increase. Nearly 250,000 people trade NFTs each month on OpenSea, the largest NFT market. In the short term, CoinBase will soon open its own NFT marketplace with 2 million users  on a waiting list. Robinhood has a similar plan.

More importantly, giant corporations that are already making money outside of the cryptocurrency space want this. Niantic, the developer of Pokemon Go, has  announced a game in which players can earn bitcoins. Twitter and the company formerly known as Facebook are planning to incorporate NFT into their platform, and Epic Games says they are open to it as well. Imagine a world where instead of buying skins from Fortnite, you buy NFTs for the skins  you own. This means you can trade them for clothes and weapons in other games, or sell them when you're done. (Epic has stated that it won't integrate these mechanisms into Fortnite, but that won't stop competition.)

Richerd believes that the soon-to-be crowd to  the NFT market will create a wider variety of digital products that are sold to a diverse audience. A neighbor may not want to spend $200 on an avatar, much less $200,000, but he may want to spend $10 on a unique skin or product on Facebook Metaverse. However, space may change, but he is confident that CryptoPunk #6046 is safe for now.

"Even if all NFTs are down, cryptopunk will be the last."