To understand what an NFT is there are a few things we should point out first. An NFT or Non-Fungible Token is, or should be, in essence a digital asset, which should combine a few characteristics in order to be treated as such: an investment or collectible.
Many people mistakenly think that something can be considered an NFT solely based on its rarity and scarcity, and that is wrong. For example, many NFT start-ups sell people the idea of buying and owning an NFT just based on an artificial rarity and scarcity created by the project developer. But rarity itself is not enough to make something valuable and gain the status of a collectible or an NFT.
What Is an NFT? - According to Forbes
An NFT is a digital asset that represents real-world objects like art, music, in-game items and videos. They are bought and sold online, frequently with cryptocurrency, and they are generally encoded with the same underlying software as many cryptos.
WHAT MAKES AN NFT AN ACTUAL ASSET?
A few more characteristics should be taken into consideration to actually own a valuable collectible whether it is a physical collectible or a Non-Fungible Token (NFT). Other factors that should be considered when evaluating the real value or potential of a digital asset is its specialness, the value it carries and current and future demand (and when I say future demand I don’t mean short term demand, but longer term in years time).
Another factor to consider when purchasing or owning a NFT or collectible as an investment is the demand it has. Collectibles and NFT’s fall under the same category, so there needs to be a demand from others willing to pay X amount of dollars in order for your asset to be worth something.
The value of a collectible is subjective and highly correlates with the perception others see in it. The narrative behind said collectible brings value to it, and if you combine that with rarity, scarcity and value, you have a special collective with the potential to be an asset that can either retain its value or appreciate with time. Ultimately, an NFT or collectible in general should be something that brings you joy by the mere fact that you own it and it is valuable to you.
THE PROBLEM WITH NFT GAMES TODAY
The problem with most NFT games today is that most people are only hyped and sold on the idea that owning an “NFT'' will make them money, most people are sold on the idea that they can buy something for a fraction of what they will be able to sell if for in a few days or months. But again, that is a demand that is only being fed by others joining in, much like a pyramid scheme, on the promise or the thought that they will be able to replicate what other people did: profit from it.
The real problem with this approach is that a pyramid scheme is being built around NFTs right now and the value of most NFT’s only rise by the demand of new people joining projects hoping for quick gains. You wouldn’t believe the number of people I read from everyday turning away good projects because they think the returns are “too slow”. They are 100% sold on the idea that a project is not good if they can’t multiply their returns in less than 100 days or even less, which is sad to see and read. The disconnect between reality from some folks out there blinded by the NFT hype is scary but that also reinforces the idea that we are in an NFT bubble which may burst at at any time, and I think we might be only a few weeks or months away from that because that is not a sustainable model.
Of course you can make money if you join one of these projects early enough and it takes off. You could make money because of the demand and hype built around it. But the people that enter later, will most likely not be able to profit or sell their NFT’s because there is one key problem: nobody is in it to own the "NFT" out of pure love or enjoyment but instead they buy NFT’s with the idea to profit from it. And when the market saturates and the artificial demand fades, the NFT or token used by the project will collapse, and with it, your speculative investment.
RECENT DROP IN PRICE AND MARKET BEHAVIOR
We are already seeing some games such as Axie Infinity (SPL token), Plant vs Undead (PUV token) and Dragonary (CYT token) drop in value by over 80% from their previous all-time highs. And although I don’t think these projects will die, I believe many people will not be able to profit as they thought they would from these projects and they will lose interest in them soon.
AXIE INFINITY - Smooth Love Potion Token (SLP)
PLANT VS UNDEAD - PVU Token
DRAGONARY - Coinary Token (CYT)
FUTURE OF NFT GAMING
If you think carefully about it, the recent drop in price of NFT tokens and NFTs market in general, might not be a bad thing for these projects in the long term, as it will drive hyped people away from them and actually allow them to develop in a more stable environment, restructure their model and mature to become long-term successful projects. The NFT game industry is in its embryonic stage and there are many things that need to improve for this market to find stable ground.
I am not saying that NFT’s or collectibles are bad investments. I am a believer that they can be valuable assets. I also want to emphasize that I do believe in the future of NFT’s and digital assets. I am 100% sure this investment class is here to stay, but I don’t think most people understand the fundamentals of digital assets just yet, which is creating a bubble right before our eyes.
Finding the right collectible or NFT investment requires screening out some hyped pseudo collectibles and NFTs. Is a homework we should all do to avoid being burnt and losing our investments or end up sitting on assets that won’t appreciate in value. A few things will have to change before NFT’s become stable assets with real value. Many NFT projects have good foundations, but right now, it is our perception of NFT’s and the hype we build around them that is creating this artificial demand that I am 100% sure is not sustainable in the long term.
If you play NFT games, I don’t suggest you quit it, but I do suggest you enjoy it in the first place and you enjoy being the owner of said collectible, and maybe in the long run your NFT's will be valuable, don’t just own something because you want to profit from it but because you actually find joy in it.
Good luck everyone!