Luxury items often come under the radar for the little utility they add to the consumers’ necessity and the total opposite for their vanity. The up and coming exercise in the world of luxury seeking class has been the exchange taking place in the NFT market. Non-fungible tokens (NFTs) are unique, identifiable digital assets whose exchange between the creator and the buyer takes place in a cryptocurrency, usually etherium. It has stirred a lot of intrigue among investors. Whether or not it is here to stay is a question only time can answer, but while it is here, it has gained substantial momentum. Research firms L’Atelier BNP Paribas and NonFungible.com reported that NFTs were a $250 million market in 2020, with investments up 299% year-over-year. What exactly is causing this upward trend in the NFT values? Is it just the conspicuous consumption by the uber wealthy or are there bigger factors at play?
An important feature catering to the investors’ growing interest in NFT is the blockchain technology and the crypto denomination of underlying assets. NFTs provide digital certificates of authenticity for a range of things- art, memes, GIFs, music, autographs- all things digital.Artists, musicians, sports clubs and social media influencers are among those to have embraced NFTs as a way of making money from their achievements. It is set to bring about a revolutionary turn in how assets or properties are owned, protected, and transacted. When you buy a NFT, you are buying a verifiable digital token that represents your ownership of the asset on that blockchain and this ensures that they are not interchanged or replaced with other like assets. Hence the name, ‘non-fungible.’ The technology helps retain original ownership and if replicas of a given NFT are required, the permission of the creator is a must. In some cases, the owner also gets paid proportionately with the number of copies made. It is therefore no surprise that a NFT for a patented or unique asset is valued quite highly in the market. While bitcoin brought digital currency to the forefront, NFTs have given a new life to digital art, audio-visuals, etc. Contrary to the conventional investment in bonds and stock securities, NFT investors are more interested in collectibles. Such desires arise from either emotional attachments to a piece of art, or a pure profit motive. Andy Murray cashing in on the craze for non-fungible tokens (NFTs) by selling the “moment” he won the Wimbledon tennis tournament in 2013 in the latest such high-profile auction can be an amalgamation of both aforementioned factors. But to some, NFTs are solely increasing luxurious spending wherein token holders have received a sum as large as a seven digit figure for its sale. Much like high society art or renaissance paintings, digital art is also giving a good run for the buck. In March, for instance, digital artist Beeple sold an NFT through Christie’s for $69.3 million including fees – a record for a digital-only piece of artwork. Given the high end game that is the NFT holdings, more and more investors are lured into playing with the numbers simply because others are too. The recent upscaling of NFT values can be credited to this very phenomenon, more commonly known as FOMO (Fear of Missing Out).
The growing popularity of NFTs has raised concerns regarding their sustainability, not just as a mode of investment but also for the environmental strain it unleashes. Afterall, it has significantly increased the value of Ethereum and other like cryptocurrencies, which are now being mined at excessive rates. This posses the problem of massive energy consumption, increased emissions, and thus, expanding the carbon footprint of cryptocurrencies. An independent research periodical has claimed that the digital token already uses about as much electricity as the entire country of Libya. Astonishingly enough, the viral space cat gif has a NFT whose carbon footprint alone is as much as equivalent to an EU resident’s electricity usage for two months. These problems come with the territory of crypto usage, which hinges on its environmentally unethical nature. Since the NFT business is fairly new, it will take some time to analyse the buzz and bubble risks it beholds, but it may take forever to reverse the series of environmental destructions it sets off. It is advisable to look for alternative ways of mining the crypto used in NFT trading. Such a change has been in the books for very long, from correcting individual behavior that drive trends to unsustainable levels, reducing electricity consumption by mining machines, to integrating renewable sources of energy, all possible alternatives aim at forming a world where one ‘space cat gif’ doesn’t cost us Earth’s years! ‘Wild’ times, indeed.
Rishika's research interests include labour economics, public finance, and financial innovations. As an independent researcher, she has previously written for renowned journals, blogs, and a national periodical. In addition to being an ardent contributor to the solutions of various social and economic issues, she enjoys cracking econ puns, baking, and a good game of badminton.