NFT stand for non-fundgible tokens (NFTs, explained, theverge.com, 2022). They can be said to be digital pieces of art that have their ownerships recorded on the blockchain. Basically, NFTs are digital assets which cannot be duplicated thanks to the blockchain. This also means that we can differentiate between a real and a fake NFT.
We have all heard about the bored ape yacht club. They are the king of NFTS. It cost just 190 Dollars to buy one in the start and now the price of these NFTs starts from 100,000 Dollars (About Bored Ape Yacht Club, luckytrader.com, 2022). The BAYC is not the only one, some other successful projects have been Azuki, Murakami Flowers, Veefriends, cryptopunks, and so many more.
Why do people buy them?
NFTs are purely speculative assets. Everyone is getting into the new projects because they promise the same rate of returns as the BAYC. For example, if you bought a BAYC NFT at the minting of the project, you would have seen a whopping 50,000 percent return in just a single year. That means just a single
Dollar invested in it would have returned 500 Dollars. Not to mention the apecoin and subsequent nft drops that BAYC holders got. Overall, the cumulative annual return is higher than that of bitcoin.
Now, there have been thousands of NFT projects, many of them scams, but they all promised huge returns and after seeing the bored ape yacht club, who would not want to buy them. So, the answer is simple. They bought the NFTs to make crazy amount of money in a small amount of time.
How do they make money?
They make money by many ways, but the simplest one is by flipping NFTS. Flipping NFTs is no different than flipping anything else, such as houses. The gist is you buy low and sell high. The difference between purchase price and sell price is your profits.
The other way people make money is through what is called, ‘drops’. The drops are what the NFT project runners give to NFT holders from time to time. For example, the BAYC holders got the mutant ape yacht club NFTs for free which at the current price are going for about 20,000 Dollars.
Another reason is the NFT utility. To incentive long term holders, an NFT may have utility such as entrance to a highly exclusive club or a physical prize such as Sneakers only for NFT holders. This tends to increase the value of the NFT as people want to take advantage of the utilities and become a part of a community.
The recent downward trends in crypto prices has also impacted the NFT prices. Even though in ethereum, the price of BAYC has remained largely the same, the price has actually dropped in terms of actual money due to a drop in ethereum price. Many new entrants has lost money instead of gaining riches, so it is a good idea to stay away from NFTs in the meantime.
NFTs, explained. Theverge. 2022, 6 June. Retrieved July 15, 2022 from https://www.theverge.com/22310188/nft-explainer-what-is-blockchain-crypto-art-faq
About Bored Ape Yacht Club. Lucky trade. 2022. Retrieved July 15, 2022 from https://luckytrader.com/nft/boredapeyachtclub