When many people think of NFTs, they think of silly digital images that sell for millions of dollars. Sergio Silva, who heads up digital asset custodian Fireblocks, believes that there is far more potential than that. The current NFT market is only a small piece of what it will become, and he joins the ETF Think Tank to discuss where the space is headed.
Silva says that NFTs are meant to capture the intangible value of things and monetize them. The Bored Apes, for example, is one of the largest and most well-known NFT collections out there. If you want to be part of that community, you can purchase a coin to verify your participation in it. The intangible value of the NFT is the “membership” in the community, much in the same way that someone might be a member of a country club. People want to demonstrate they’re a part of it. The hype cycles and bubbles in the value of these NFTs will come and go, but it’s all about how the market values it.
What are some things to look for in an NFT and where may the value be? Silva says that 99% of NFTs are probably going to be worthless. Digital art is interesting as some of these NFTs can potentially have value similar to the original art piece. Again, part of the appeal is joining an exclusive club of art owners or investors. One artist scribbles his investors' names into future art. Some require ownership of a previous NFT to buy another. The more valuable ones seem to need more creativity and uniqueness. Owners will want to treat them as collector’s items like any other collector’s item.
Silva says that the illusion of value, however, is a red flag. There is this idea out there that anyone with a computer can create an NFT and become an instant millionaire. This kind of thinking is mind boggling. In reality, the NFT industry is evolving very quickly and most of us will need to catch up, but the technology is still fairly new. It’s like the internet. Early on, it was expensive, slow and you needed a dial-up connection. Today, it is incredibly efficient, and you can generally access it from anywhere. Adoption and understanding will be the keys to growth. People need to take time to understand the paradigm shift, but once it starts to click, you start to understand how to make things more efficient, know the infrastructure you need, etc.
What drives the value of NFTs? Silva says that there are bubbles out there now, but once they become better understood, it will be like any other consumer product. It will be based on supply and demand. It’s like people who are willing to pay more for Tylenol than a generic brand. You are paying the premium for the name. It’s the same product, but there’s a belief that Tylenol is somehow “better”. You have to create some intangible value and have people willing to pay for it.
Silva reiterates that it’s the essence of a community that can make NFTs attractive to a wider audience. It’s difficult to share the ethos of a community. With an NFT, you can mint your position within a community. The NFT empowers a community to build on top of that with the social aspect. These can also have rarity traits like a baseball card would. The market will determine what they’re worth.
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