After bursting onto the scene in 2009 as the first cryptocurrency, Bitcoin has since taken the globe by storm, offering totally new concepts in trade that go well beyond what is typically understood in normal cash, including the trade of digital assets like NFTs. Non-fungible tokens, or NFTs, were made possible by the use of blockchain technology, which serves as a record of all cryptocurrency transactions, giving them security and authenticity.
It was just a matter of time before virtual currencies and tokens became valuable, especially in nations where the government or banking institutions were weak. A situation like this elevates virtual assets above their actual physical counterparts (cash and physical assets) in terms of value. But will these last, or are they just a fad or bubble waiting to burst? Will NFTs retain their value beyond the current surge?
Understanding NFTs
A Non-fungible token can be anything ranging from artwork to music, even physical items such as crafts or tangible items, so long as it is unique. In the trade of NFTs, however, they are only traded on the blockchain, and the owner is given a unique private key that dictates ownership. In this environment, the items are not easily copied. They have value since they can only useable and held by the person who has the key.
NFTs differ from cryptocurrencies, also traded on blockchains, in that cryptocurrencies function like regular currency. Even in the real world, you can trade them for physical things or services. This is not how NFTs work. While the blockchain, a digital ledger, keeps track of both as a means of determining ownership, you can't use one NFT to buy another NFT. You can do this with cryptocurrencies, for example, by exchanging one Bitcoin for one Litecoin of the same value.
As a result of this, we can conclude that Bitcoin is more adaptable than NFTs, and thus more versatile. However, while NFTs may not be instantly usable as cash, they do have inherent worth that can grow in value over time, just like real-world items such as artwork.
Are NFTs Here to Stay?
To answer the question of where NFTs will go in the years to come, it is important to consider them in their own context. A person who owns physical assets might have a store of cash, gold, and priceless artwork. All of these things have monetary value, and the cash can be exchanged for other goods, while the gold and artwork can be exchanged for cash. It is likely that NFTs and cryptocurrencies will operate in the same way, just digitally.
As the demand for NFTs grows, the value assigned to them will become more important.It could be that in the coming years, NFTs will collapse like a bubble. Some have already compared the trade in NFTs to Ponzi schemes. It is also possible that if collectors keep producing and trading them, their value will not only hold, but may even rise.
The main reason NFTs might not survive is the negative impact on the environment that their very creation and existence cause. NFTs are currently created on the Ethereum blockchain, but they are also traded on Polkadot. An NFT must be "mined" before it can be created (for example, a piece of art or music). To add an asset to the blockchain, computers solve complex digital riddles and calculations, and the first one to do so "wins" the race, allowing the winner to add the asset. After that, a customer can purchase it.
However, in order to power the mining computer, it requires a substantial quantity of electricity, and the creation of electricity, currently based on fossil fuels, has a detrimental environmental effect. Since the mining of cryptocurrencies and NFTs became a popular pastime, greenhouse gas emissions have surged. Due to the increasing size of the blockchain and the consequent increase in computer time required to mine it, future NFTs will need even more energy. In the end, it might not be the value of the NFTs that causes their demise, but instead the lack of energy needed to produce and trade them.
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