Non fungible tokens (NFTs), which are cryptographic digital assets representing unique and non-interchangeable entities, appeared to attract a large number of users towards the end of 2017.
CryptoKitties, one of the most popular Ethereum-based decentralized applications (dApps), appeared to have played an important role in promoting the use of NFTs. For the first time, CryptoKitties launched digital collectibles (digital cats) on a blockchain-based network.
NFTs Bring “Immense Paradigm-Shifting Capabilities”
Although this resulted in an enormous amount of traffic on the Ethereum platform, which significantly slowed down its network speed, it showed that the “potential of paradigm-shifting capabilities is immense.” This, according to a blog post published by Lou Kerner, the partner and co-founder at CryptoOracle.io, a New York-based venture capital firm focused on investing in cryptocurrency-related projects.
As pointed out in a video shared on Kerner’s blog, Mark McKinley, a prominent psychology professor, has explained that humans like to acquire collectibles for investment purposes, “pure enjoyment,” expanding their “social circles,” and “preserving the past.”
However, analysts have also argued that in order for a collectible to be perceived as valuable, it must be scarce. Ideally, there should be a very limited number of copies (or units) of the collectible item (in this case, an NFT) that will (ever) be available.
Ethereum’s ERC-721 Standard
Based on Ethereum’s ERC-721 standard, properly developed NFTs should allow the holder to have “true ownership” of the asset, Kerner’s blog noted. Other essential characteristics an NFT must have include having the ability to provide “global liquidity,” “openness and interoperability,” and also be “censorship resistant and persistent.” Every properly designed NFT must have these key attributes in order for it to potentially be widely adopted, according to Kerner’s video (featuring several crypto industry professionals).
Psychology: There’s Something Special About Being Able To Physically Hold Something
While digital collectibles might be a recent phenomenon, they appear to not bring any significant innovation (or new development). Blockchain technology, on which NFTs have been created and issued, may offer a more technologically advanced platform for collectibles. However, timeless and classic baseball collectibles have been around for over a century.
There is also something psychologically powerful about holding something “physical” in your hands. Notably, the “most expensive piece of sports memorabilia ever sold” is a New York Yankees jersey worn by “Babe Ruth” from this historic 1920 season. The jersey reportedly sold for $4,415,658 in 2012. It would be hard to imagine people perceiving digital collectibles to be more valuable and paying higher amounts for them.