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S23: Hot Take- NFTs, a product of hype marketing and ponzi scheme?



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Track 6 S23: Hot Take- NFTs, a product of hype marketing and Ponzi scheme?

Nowadays, one of the common things that people talk about are NFTs. Money here, money there, money everywhere. It is commonly perceived that NFTs are to somewhat give high turnovers to its investors. But what exactly is an NFT? An NFT, or non-fungible token, is a unique digital asset that is verified on a blockchain and cannot be exchanged for other assets on a one-to-one basis because of its unique characteristics, Buterin (2018). In simpler terms, NFTs are digital assets that someone could purchase and resell in the future. In a more simple context, some would compare it to Purchasing paintings, where you purchase the certificate of authenticity. In comparison to NFTs where you acquire ownership of digital assets that take many forms such as digital art, music, videos and other content that is verified on a blockchain which provides a public and transparent record of ownership and authenticity. The content itself may be easily replicable, however these NFTs are represented with a one of a kind asset with its own signature and metadata that makes it different from any other, Mance (2021). NFTs are sold on online marketplaces that specialize in handling digital assets. With the use of blockchain they are able to verify the ownership and authenticity and also transfer these from one person’s wallet to another person’s wallet. The usual medium of transaction would be through cryptocurrency wallets.however these NFTs are represented with a one of a kind asset with its own signature and metadata that makes it different from any other, Mance (2021). NFTs are sold on online marketplaces that specialize in handling digital assets. With the use of blockchain they are able to verify the ownership and authenticity and also transfer these from one person’s wallet to another person’s wallet. The usual medium of transaction would be through cryptocurrency wallets.

 

Generally, people from the generation z up to the millennials perceive this to be the next big thing when it comes to investments and a profitable trading system. So many success stories of small investments with turnovers of ten times the initial capital, simply through buying and selling NFTs. However, in this essay, we will tackle how NFTs are a product of hype marketing and its possibility of being a pyramid scheme. 

 

The most common medium of NFTs are digital images and artwork. Which brings us to our problem, which is everyone being able to put something for sale so easily. Which questions the availability of its demand considering the artistic value of it can be easily generated. If put in a scenario where everyone is creating very cool and aesthetically artistic content, what value does it bring? It is arguable that these NFTs’ sole value is coming from hype and hype alone. With the growth of AI and with the technology that is able to help everyone create artistic content, what else is left of the values ​​​​of these NFT’s? The common way of how these artists publish content is through a series of digital content with some common theme, often referred to as “projects”. Investing in NFTs is like gambling to see which one would please the general public more. Basically when one enters the world of creating and selling digital artworks, its only either one of the two, either you have a unique artistic approach or you are able to create hype around your art. Thus the perfect example as to why one of the aspects of NFT is hype marketing.

 

In a paper by D’aria(2021), the recent influx in Popularity of NFTs has raised concerns about its potential as a ponzi scheme. Since it is bought and sold through cryptocurrency, it relies on a network effect to maintain value. If we think about the very first purchase of NFT, it started from nothing then led to the creation of other digital properties. The first purchasers and the ones who initially Resell are the ones who are able to initially make bank. How? Since the money circulating around the economy of these NFTs are the money brought from the money of the newcomers. In D’aria (2021) paper, the author stated that NFTs are in a situation where early adopters are able to profit from the investment while later investors are the ones holding the bag. 

Seeing the similarities of the whole concept of NFTs and Ponzi schemes alongside hype marketing brings out a new kind of risk. Especially when you are dealing with hype and Ponzi schemes, the timing is a very important factor as to whether you will or will not make a profit. Best times would be to come at an early stage to the middle stage of the hype but definitely not the last. But then again, coming in early is like gambling on something to grow. The thing with Ponzi schemes is that you or a group of people initially buys something to make people think that what they are purchasing is of value. Which they then Resell to the new people at a higher price, especially the ones who don’t quite understand the game at the start. Ethically not good, but it is what it is. There will always be tricksters and there will always be fools. The question is,

 

Sources: 

 

D’Aria, D. (2021). NFTs as a Bubble: A Survey of the Evidence. Journal of Business Research, 133, 53-62.

 

Buterin, V. (2018). Non-Fungible Tokens (NFTs): A Breakthrough for Digital Art. Retrieved from https://vitalik.ca/general/2018/03/28/nft.html

 

Mance, H. (2021). NFTs: A Game-Changer for Art? Financial Times. Retrieved from https://www.ft.com/content/d45d25e9-7452-4ff8-a4d4-4dd06dc254c4

 

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