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Why is NFT so expensive

That is good news for anyone whose NFT has generated some money. But what about the majority that aren't worth much at all? "There are 10,000 new pieces each and every day ready to go. I don't know where," said Martino. "There are not 10,000 new buyers every day to sustain this incredible production." Stability in the NFT market would require greater attention from the public to attract traditional investors, as well as greater comfort with cryptocurrencies, the experts said. This development is likely still years away, and surprises could pop up in the meantime.

Explained: Why some NFTs are so expensive

Nonfungible tokens (NFTs) burst onto the scene earlier this year when some of them started pulling in millions of dollars at auctions. A confusing and controversial new digital asset is on the rise. DW's own experiment selling an NFT made a smaller splash. Which made us all the more curious: Why are some so expensive?

Patrons of the arts?

First, a reminder: NFTs prove ownership of digital files. They can represent digital works of art but can also be associated with video game accessories, collectors items and more. Anything that can be stored as data on a blockchain can be an NFT. NFT transactions are recorded publicly on a blockchain and often bought with cryptocurrencies.

Investment bank JPMorgan recently valued the global NFT market at $7 billion (€6.3 billion). In October, an experiment by The Economist pulled in $420,000 when the weekly news magazine auctioned off an NFT of one of their cover pages. An issue about decentralized finance, the cover art portrayed cryptocurrencies alongside images from the children's book "Alice's Adventures in Wonderland." Buyer @9x9x9 told The Economist it was the fitting title — "Down the Rabbit Hole" — that compelled them to purchase the data file of the cover.

But buyers of breathtakingly expensive NFTs point to a whole range of reasons for spending big bucks for the rights to a data file that anyone else can view or copy. Cryptocurrency entrepreneur Vignesh Sundaresan spent a record-breaking $69 million on an NFT earlier this year. The NFT enthusiast, who has invested in the technology, denied that he was trying to push up prices. He said he wanted to support the artist and showcase the technology. For other buyers, it's about scarcity. "The buyer knows how many will be made and has blockchain proof of ownership," American billionaire and NFT collector Mark Cuban told online news portal Business Insider.

What the data says

Researchers at the Alan Turing Institute (ATI) wanted to know what the data said about this phenomenon. "What we observed is that there is this gigantic heterogeneity in the success of NFTs," Andrea Baronchelli, associate professor in mathematics at the University of London and ATI's token economy theme lead, told DW. "Some — very few — do very well, a bunch do decently, and the majority are worthless."

In 2021, ATI's team of experts completed a study which looked at the role certain factors play in the price of NFTs. They looked at three components: the NFT's visual features, previous sales of related NFTs and the social network of the buyer and seller. Researchers used a machine learning model to consider a dataset of 4.7 million NFTs exchanged by over 500,000 buyers and sellers. The result? Past sales of related NFTs was the most important of these three factors, accounting for over 50 per cent of the price variance.

For example, past sales of NFTs from the CryptoPunks collection, a prominent set of 10,000 tokens depicting pixel images of punks, would be a good indicator of future sales of tokens from the same collection. Visual features were the second most important aspect. Including this data increased the performance of the machine learning model by up to 20 per cent. Data showing the popularity of the traders increased performance by 10 per cent. Combined, they concluded these three factors can explain up to 70 per cent of the variability in NFT prices. They plan to look at more factors in the future, including the platform where the NFT is sold and the activity of the creator on social media.

An old market rethought

In the market for NFTs of digital artworks, one can recognize something of the traditional art market, where scarcity, social networks and, often to a lesser extent, content of the art piece help determine an object's worth. But NFTs have some features that distinguish them from their real world counterparts, Mauro Martino, director of the Visual Artificial Intelligence Lab at IBM Research and ATI study co-author, told DW.

"A very big difference between the art market and NFTs is that the artists take 10 to 20 per cent from the secondary sales," he said, "So anytime the piece will sell again, part of the sale will always go to the artist. This is really a novelty in the idea of art and can be a big game changer for artists." This is possible because future sales of NFTs are recorded on blockchain, which allows artists to receive their cut automatically.

A JPEG of a rock

That is good news for anyone whose NFT has generated some money. But what about the majority that aren't worth much at all? "There are 10,000 new pieces each and every day ready to go. I don't know where," said Martino. "There are not 10,000 new buyers every day to sustain this incredible production." Stability in the NFT market would require greater attention from the public to attract traditional investors, as well as greater comfort with cryptocurrencies, the experts said. This development is likely still years away, and surprises could pop up in the meantime.

"If we notice that enthusiasm for NFTs today is very similar to the enthusiasm for cryptocurrencies at the very beginning, then we can expect some major correction," said Baronchelli. This would have unclear implications for this nonfungible asset. "If I have Bitcoin and it goes down 40 per cent, I still have 60 per cent," he said. "If I have a JPEG of a rock? What happens to the value of that JPEG? We don't know, because there is nothing similar."

What is NFT? Literally, the abbreviation stands for non-fungible token, that is, a non-fungible token. In fact, NFT is analogous to securities. The purchase of an NFT token secures a person the right to own a digital object on the Internet: gifs, paintings, photographs, audio, or any other file he buys.

NFT and crypto art: what, where, when and why is so expensive

In the new issue of Forbes Digest, we figured out what NFT art is, who does it, who buys and, most importantly, why?

The reasons for the recent boom in NFT were the rise in the value of the cryptocurrency, the emergence of the social network Clubhouse, where users actively discussed NFT and indirectly increased its popularity, as well as the entry into the market of celebrities and famous artists in the art environment. But the passions for Clubhouse subsided rather quickly, and NFT, it seems, is not losing ground yet. In the first quarter of 2021, NFT sales exceeded $ 2 billion, which is 20 times more than in the previous three months and 131 times more than in the first quarter of 2020.

New life for digital artists

What is NFT? Literally, the abbreviation stands for non-fungible token, that is, a non-fungible token. In fact, NFT is analogous to securities. The purchase of an NFT token secures a person the right to own a digital object on the Internet: gifs, paintings, photographs, audio, or any other file he buys.

And the cost of these objects ranges from mere pennies to tens of millions of dollars. For example, the auction for a collage of 5,000 works "Everydays" by digital artist Mike Winkelmann, known by the creative pseudonym Beeple , started at $ 100 and went up to $ 69.35 million .

Stupidity or genius: why buying a picture on the Internet for $ 69.3 million may be the best investment idea?

Until now, digital artists earned money mainly by making work, and they were rarely considered real artists. In addition, there was simply nowhere to sell their work. The emergence of NFT has shown that they create real in-demand art and can earn money by being creative.

Ethereum - the new Bitcoin

NFT tokens are sold and bought mainly for the Ethereum cryptocurrency, which was invented by Vitalik Buterin . Ethereum is the second largest cryptocurrency in the world with a market capitalization of $ 389 billion. Its exchange units are called "ether" and now they are second only to Bitcoin, whose capitalization is $ 1.1 trillion. In addition, Ethereum is both a payment system and a platform for developing blockchain-based applications. The code for these applications runs on a distributed network rather than on a centralized server. Thanks to this, the application cannot be censored.

Street art for sale: why would Paint Lampas need an NFT art auction

With the advent of ether, complex transactions with various digital assets became possible, so we can say that Buterin also invented NFT. In 2021, the programmer managed to become the youngest crypto billionaire in the world and lose this status. After the jump in the currency rate, Buterin's fortune fell by almost 40% and is now estimated at approximately $ 850 million.

Who sells what in NFT?

Not only artists have entered the game with crypto art, but also media personalities. Most sell their own photos, pictures of their pets and digital canvases. But there are also more interesting proposals.

The Weeknd's musician sold an unreleased song for $ 2 million at an NFT auction. The lucky owner of a non-leveraged token received a track that will never be presented on any digital platform. DJ 3LAU went even further and sold an entire album of music for $ 11.6 million.

Christies was the auction house that sold his artwork and whilst they have an incredible pedigree in selling art which dates back to the 1700's, this was the first time they or any other major auction house had sold a piece of art that was entirely digital (with a NFT). I read that they themselves were unsure of how to value the piece. Its fair to say the auction went very well, it was a record breaker, and judging by the artist's twitter feed he appears to be amazed by the final price paid.

Digital art: What are NFTs and why are they so valuable?

How do you determine value? Thinking about this today as I see splashed across the media news about a digital artwork that sold online for US$69.3 million. Now that's a really expensive JPEG file. What caused the price to reach such heady heights? Supply and demand, scarcity value, novelty factor, bragging rights? In the case of this artwork potentially a combination of all of the above.

The artist Mike Winklemann professionally known as “Beeple” was not well known outside of the digital art world. Now he is one of the most expensive living artists you had probably never heard of. Until now.

Christies was the auction house that sold his artwork and whilst they have an incredible pedigree in selling art which dates back to the 1700's, this was the first time they or any other major auction house had sold a piece of art that was entirely digital (with a NFT). I read that they themselves were unsure of how to value the piece. Its fair to say the auction went very well, it was a record breaker, and judging by the artist's twitter feed he appears to be amazed by the final price paid.

.@beeple 's 'The First 5000 Days', the 1st purely digital NFT based artwork offered by a major auction house has sold for $69,346,250, positioning him among the top three most valuable living artists. Major Thanks to @beeple + @makersplaceco. More details to be released shortly

— Christie's (@ChristiesInc) March 11, 2021

What was it about this artwork that made it so hotly contended? The sale of the artwork came with some interesting features:

  1. Sold with a Non Fungible Token.
  2. Purely digital artwork.
  3. A compilation of 5,000 individual artworks.
  4. Sale process managed by one of the most revered auction houses, Christies.
  5. Cryptocurrency was an acceptable form of payment.

Until Tuesday this week I had never heard of NFT's or Non Fungible Tokens. Crypto currency? Yes. Blockchain? Sure. NFT? Nope. I found out about them by chance when meeting with a business partner he mentioned NFT’s to me. "NF what?" I queried. He patiently explained the concept and how NFT's could be applied to assets such as artworks and music using blockchain technology. I was interested to hear about it but wondered where had I been all this time? He believes NFT's are the next big thing, just his opinion, absolutely not advice!

The record producing artwork by Beeple is titled “Everydays: the first 5,000 days", a digital asset compiled of 5,000 individual artworks. If the new owner(s) decide to sell the artwork in the future it will have to be sold as a whole, they will be unable to siphon off individual pieces to sell. Whilst the artwork is a rich tapestry of thousands of pieces the owners will be able to zoom in on each individual piece, so it can certainly provide them with some viewing variety.

The First 5000 Days

Investing Compass

Investing Compass

Everydays — The First 5,000 Days, by an artist named Beeple, released by Christie's (Christie's Via AP)

There is no doubt in my mind that an important part of the value of the artwork was that it was sold with a non fungible token or NFT. The NFT is essentially a digital trademark providing proof of provenance and ownership. With the use of a NFT authenticity of the asset is forever assured; using blockchain technology the token will be stored on a digital ledger. Should the artwork change hands in the future the NFT would go with it providing an important safeguard that this is the original piece, helping combat the risk of fraud and forgery. This can be a serious and expensive issue in the art world which is well covered in the popular BBC television series “Fake or Fortune”.

It is easy to understand how a NFT can provide safety to buyers and sellers, particularly important for digital art which can be easily replicated. It will be fascinating to watch from the sidelines to see how the use of NFT's develop. No question that we really do live in interesting times.

At first glance, it might seem that there is no value at all--that you’d be buying “nothing.” But if we look at NFTs through the lens of the history of traditional art, there are direct parallels that suggest that some NFTs are worth the investment and go beyond mere hype.

How to find out how rare your NFT is

We can consider the same formula for NFTs:

Value of an NFT = Perceived (Demand + Rarity + Authenticity)

Demand. This is key, because the vast majority of NFTs out there do not sell at all, because there is no perceived demand for them. Those that do sell, and sometimes for a lot of money, are the ones that were promoted heavily (whether through a “drop” both organized and marketed by a platform like Rarable, Nifty Gateway, Top Shot or OpenSea, or through a traditional bricks-and-mortar platform like the Christie’s auction house) and the hype around which stoked demand. NBA Top Shot, which sells basketball-themed NFTs, is particularly good at this. Since their digital trading cards sell out so quickly, and interested buyers must sign up for a waiting list, demand far exceeds supply. This spurs collectors to buy when they can on both primary and secondary markets.

Rarity.. A buyer of 2 of a series of 10 NFTs released by Dallas Mavericks owner, Mark Cuban, publicly “burned” one of the two he had purchased, meaning he destroyed it, in order to increase the rarity of the one he retained. The buyer’s rationale was that owning 1 of 9 was more valuable than owning 2 of 10. NBA Top Shot trading cards come in a series of varying rarities. A “common” series might have 40,000 total cards available, while just 499 are available in a series they label “rare.” Many NFTs are randomly generated with the possibility of having (or not having) rare or one-of-a-kind features. The overall rarity score of an NFT within a certain collection can be checked on sites such as HowRareIs, which shows you how rare your NFTs are.

Solana Snek NFTs tend to increase in price the more accessories and rare features they display (shades, cobra fans, rainbow skin, trousers etc.)

Authenticity. The beauty of the blockchain is that it guarantees authenticity. When Monsieur Personne broke into Beeple’s account and apparently created a duplicate of the world’s most expensive NFT, the art world was in shock. But he didn’t actually mint a second version of Everydays--he just briefly gave the impression that he did. Creation, ownership and transfer history are open to anyone to view. The only trick is that you need to check the blockchain, a step that some more impulsive buyers might not take.

With this in mind, it is easy to see how the value of NFTs parallels the value of traditional paint and canvas art. Sometimes, what makes an NFT valuable just comes down to a matter of taste. If you prefer Cryptokitties or Solana Sneks to a Titian, then the choice is yours!

This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.

The most popular collection of NFTs right now is a set of 10,000 pixelated pictures of randomly generated characters called CryptoPunks. Even celebrities are investing in the project, including rapper Jay-Z, NFL wide receiver Odell Beckham Jr., entrepreneur Gary Vaynerchuk and internet personality Logan Paul. What’s even more shocking is the price tags on these NFTs. Most, if not all, punks are now worth more than a decently sized house. The cheapest punk available to purchase in August was priced at 66.66 Ether — worth about $222,000 now.

How to buy a Piece of CryptoPunks

One of the largest issues the NFT market faces today is accessibility. You might find CryptoPunks interesting but can’t imagine dropping hundreds of thousands of dollars worth of Ether for a picture. Luckily, you don’t need to buy an entire punk. The decentralized platform on Ethereum called unic.ly and a few others break punks up into tokens, allowing users to buy a piece for much less than the total price.

Unfortunately, most NFTs are not fractionalized so you won’t have too many choices. Unic.ly split up a relatively large collection of CryptoPunks into thousands of tokens called uPunk. To buy some uPunk from unic.ly, first, make sure you have some Ether in a software wallet like Coinbase Wallet. Some of the best trading platforms to purchase Ether from are Coinbase, Binance, Gemini, Voyager and Crypto.com. Then go to the unic.ly website, find uPunk and click Buy. You will be taken to a swap page on the site to easily swap Ether for uPunk.

If you want to get started with NFTs and DeFi, check out some of the top U.S cryptocurrency exchanges shown below.

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