Dispelling Friends’ Doubts About NFTs
Main Takeaways
Skeptics often dismiss NFTs because of a perceived lack of inherent value, environmental concerns, and uncertain regulatory status.
However, the digital uniqueness that NFTs enable gives this asset class value. Non-fungible tokens can have numerous real-life use cases, from verifying ownership or identity to serving as event tickets and education certificates.
This article will equip you with a simple five-step strategy for explaining to your friends and family where the value of NFTs comes from and why they are so unique.
Struggling to convince your friends that NFTs aren’t just a fad? We’ve got you covered.
There are quite a few people out there who are skeptical of NFTs. Perhaps you’ve already had to convince one or two friends that non-fungible tokens are valuable. Or maybe you’ve been outnumbered by skeptics at a party or family dinner. So, how do we help people understand what makes NFTs so uniquely valuable?
It all comes down to digital scarcity and how we can explain the concept. Consider this your guide to dispelling friends’ doubts about NFTs in five easy steps!
Why Do People Have Doubts About NFTs?
Non-fungible tokens (NFTs) have gained popularity in recent years, especially in the art world, where they have been used to host digital artwork, sometimes selling for millions of dollars apiece. Yet, some people still harbor doubts about NFTs, usually for one or several of the following reasons:
Environmental concerns. NFTs rely on blockchain technology, which sometimes requires significant energy to operate. This has raised concerns about the ecological impact of NFTs, with some critics arguing that the carbon footprint of NFTs is too high.
Perceived lack of inherent value. While NFTs can represent unique digital assets, some question whether they have inherent value. Unlike physical assets, NFTs cannot be touched or displayed in a traditional sense, which may make it difficult for some to justify their high prices.
Lack of regulation. NFTs are a relatively new phenomenon, and regulation isn’t always up to date with the technology. This issue has led to concerns about fraud and scams and questions about how NFTs fit into existing legal and tax frameworks.
While NFTs have generated a lot of excitement and interest, they also face significant challenges and concerns. These need to be addressed before NFTs can be fully embraced as a legitimate form of digital ownership and investment.
What Makes NFTs Valuable?
All the points mentioned above are legitimate concerns. However, the public’s perception of NFTs is often driven by a limited number of high-profile use cases that do not represent the big picture. When you hear about pieces of digital real estate going for hundreds of thousands of dollars, it can be easy to extrapolate this to NFTs as a whole.
What’s fundamentally important is that NFTs offer a way to create digital rarity, and this key point gives them their value and underlies potential use cases. You cannot, in any way, copy an NFT. The attached content can be copied, just like you can get a printed copy of the Mona Lisa in the Louvre gift shop. But the NFT itself can’t be, and owning the original is what’s important.
We need to convey this key point to help people understand the value of NFTs. It doesn’t matter if you can copy-paste a Bored Ape image; it’s about owning the “digital rights” to it.
But what about the energy consumption issue?
The environmental concerns begin to look less pressing when you look at what blockchain networks most NFTs live on. All major NFT-enabled blockchains, such as Ethereum, BNB Chain, and Polygon, rely on variations of the proof-of-stake consensus (PoS) mechanism, which is incredibly energy-efficient.
In contrast to proof-of-work networks, which require miners to solve complex mathematical puzzles using a lot of computational power, in PoS systems, transaction validators are typically chosen based on the amount of cryptocurrency they hold and lock up as collateral. Since no computational power is required, PoS networks tend to be much more energy efficient than PoW networks.
For example, following its switch from PoW to PoS in the fall of 2022, Ethereum’s yearly energy consumption is equivalent to that of 587 air conditioners. Thus, its footprint is smaller than that of many global companies and even famous buildings like the Burj Khalifa.
And regulations and IP rights?
As with any other type of digital asset, the regulatory situation around NFTs will be highly dependent on your jurisdiction. In many jurisdictions, things are developing quite fast in this domain, and we can expect more clarity on NFTs’ legal treatment globally in the near future.
For instance, the United States’ Internal Revenue Service (IRS) has already declared plans to tax some NFTs as collectibles, similar to precious stones or art, while the EU VAT Committee is currently working out the value-added tax status of non-fungible digital assets.
In terms of intellectual property (IP) rights, it will again depend on where you are and what rights the original NFT minter has provided. Bored Ape Yacht Club (BAYC) holders are allowed to use their Ape tokens commercially, for example. The owners of NFTs from another popular collection, CryptoKitties, enjoy similar rights:
“[You can] use the art to commercialize your own merchandise, provided that you aren't earning more than $100,000 in revenue each year from doing so.”
To summarize, there is work underway in the space, and NFTs are certainly further along on the road to regulatory clarity than they were three or so years ago. However, you should always be aware of the applicable laws in your jurisdiction to deal with NFTs in a compliant manner.
How to Dispel Your Friends’ Doubts in 5 Steps
In addition to the arguments above, we’ve articulated the five bite-sized points that should go far in dispelling any NFT doubts your friends might have. With the five steps below, you should be able to explain where the value of NFTs lies.
Digital files can usually be copied repeatedly, making them virtually limitless. A copy-pasted document can be identical to the original. It is nearly impossible to prove who owns the original file and which one it is.
With NFTs on the blockchain, that's not the case. Each NFT is unique and cannot be duplicated because it contains metadata that allows one to verify its uniqueness. It's like having an original Monet painting or a hand-signed Charles Dickens novel. There's only one of them in the world, and that's what makes them valuable.
You can use your NFT as proof of ownership, quite like a property deed. An NFT often doesn’t contain what it represents ownership of, like art or music, but it can give its holder rights over it.
NFTs can be used for lots of things. You can use them as a membership token for a club or an event ticket. Non-fungible tokens could be used in supply chains to verify the provenance of goods. One could also use an NFT as a certificate of authenticity.
But what about the sky-high prices you’ve seen for digital land in games and artwork NFTs? It may not seem to make sense, but it’s not much different from the monetary value placed on any other piece of art or collectible – which is highly subjective and shaped by many outside factors and trends. In the case of NFTs, though, it's important to remember the source of their inherent value: the ability to create digitally unique items.
NFTs Aren’t So Tricky When You Understand Them
NFTs can be difficult to understand initially, but they have genuine utility. Their strength lies in representing digital uniqueness, which can be used to verify ownership of digital and real-world assets. Sure, the prices of some NFTs may seem absurd, but that's highly subjective – just like with traditional art. Ultimately, NFTs offer an innovative way to appreciate and own digital art and other assets, and that's something to get excited about.
Further Reading
Risk Warning: The value of your NFT may go down or up. NFTs are subject to high market risk. Binance is not responsible for verifying the identity, legitimacy or authenticity of any NFT. NFTs are not regulated in most countries, however please ensure you are permitted to access our Binance NFT Marketplace based on your circumstances. For further details, see the Binance NFT Terms and Conditions, our Terms of Use and Risk Warning.