*A person holding a phone showing NFT words*

We hear lots about the metaverse, blockchain and NFTs nowadays, but how many of us know the in and out of these terms? Below, we are going to give you a glimpse of the story behind these buzzwords.

According to the Financial Times and Chainalysis, there are about 360,000 NFT owners around the globe until 2021. It shows that every 20,000 global citizens will have one NFT owner, even celebrities like Snoop Dogg, Paris Hilton, and Justin Bieber got their NFTs too. NFT has been in the limelight all around the globe and has brought a popular trend in the world. You may wonder what NFTs are and the related concepts behind them. In today’s article, we will focus on the reasons why NFT has become a trend and the values behind NFT.

What are NFTs and NFTs related concepts

Do you know when the first NFT was published? The answer is May 2014. It is an NFT named ‘Quantum’ and was launched by digital artist Kevin McCoy. The full form of NFT is a non-fungible token, similar to the physical artworks or art pieces, which you may purchase and sell whenever you want. But NFT is specialised as it has ownerships for each of them so that it is unique and special to every owner. There are four main concepts underneath NFTs, which include Metaverse, Blockchain, Cryptocurrency and NFTs.

1) Metaverse

NFT is in a metaverse ecosystem, it is a network of virtual worlds which provide a more realistic user experience than previous digital and internet iterations. According to MakeUseOf (MUO), there are a wide variety of types of NFT, including art, music, video game items, etc. The table below shows the list of types and examples of NFTs.

The table showing the types of NFTs and the examples of it

2) Blockchain

Image showing an imaginary visual of NFT

Blockchain is a network that works peer-to-peer and it is the foundation of every NFTs. There is Blockchain underneath every NFT and it is the autonomous nervous system that runs invisibly underneath many of these worlds. It’s managed and controlled by a network of independent stakeholders that render it decentralised and immutable. It helps to provide ownership and protection in the digital world.

3) Cryptocurrency

Cryptocurrencies are decentralised, digital, and encrypted systems of exchange. The currency of NFTs is enabled by the Blockchain mentioned above. It differs from the physical money, like the U.S. dollar or Euro. It is not launched by the local Government and other Financial Institutions. But they have similar functions, which are buying, selling and transferring.

According to Investopedia, there are over 18,000 cryptocurrencies available in the market as of March 2022. From the graph stated by statista, it shows that the top cryptocurrencies are Bitcoin (BTC)and Ethereum (ETH).

A Chart showing Top 15 Cryptocurrency by Market Capitalization

Bitcoin is one of the cryptocurrencies available in the market and it is the first type of cryptocurrency launched around the globe. Some said it was launched to counter the financial crisis back in 2008 to revolutionise the monetary system, as introduced by Satoshi Nakamoto, ‘Bitcoin: A Peer-to-Peer Electronic Cash System’. Bitcoin began trading at USD0.0008 in July 2010, spiked to USD 64,400 in November 2021 and though declined fairly in 2022, its price is trading at USD 21,000 in May 2022.

4) NFTs

*A woman sitting in front of the screen showing NFT*

NFTs are unique digital goods that are also enabled by Blockchain technology.

All in all, NFTs are protected by the blockchain in the metaverse ecosystem, they specialise in their uniqueness and are irreplaceable. Every NFT is unique as it has a special blockchain underneath the NFTs. It is very secure and protective to purchase.

Why has NFT become a trend?

1. ‘Virtual World’ and ‘social interaction’
As NFT is a brand-new concept, the curiosity of online users was raised. Take Hong Kong as an example, according to the Google search engine, until March 2022, the search rate of the term, ‘NFT’ in Hong Kong has hit more than 60%, which is far higher than South Korea, Taiwan and Japan. The incremental search rate reflects the popularity of NFT. This shows that online users started to discover the new trend that is happening in the world.

The first reason leading NFT to become a trend nowadays is due to the ‘Virtual World’. NFT is closely linked to Virtual Reality (VR) and Augmented reality(AR). As mentioned above, there are many blockchains underlying every NFT in order to make it unique and permanent. Other than these characteristics, all NFTs have high transparency, all the online users may check the owner of every NFT by checking the blockchain underneath NFTs.

Nonetheless, social interaction also causes NFT to become a trend nowadays. The term social interaction refers to the communication and reaction between people. There are a variety of discussion groups online, for example sharing their NFT experiences and knowledge on Telegram, Discord, and Twitter. Take ‘CrypoPunks Discord’ as an example. It is a discussion group in Discord, focusing on the first NFT project among the globe, ‘CrypoPunks’. Besides, there is also ‘Bored Ape Yacht Club’ on Discord to let people who owned or are interested in Bored Ape Yacht Club to discuss this NFT project.

2. Generation Z’s consumption habit

*The usage of mobile gadgets among Generation Z*

In April 2021, Civicscience conducted a study to see how familiar the American public was with NFTs. The great majority of NFT followers (14%) are between the age group of 18 to 24. The 25-34 age group are ranked second place, having 8% of respondents interested in NFTs. From these statistics, we can see that Generation Z will pay more attention to NFTs.

3. A new experience and value of time and space expansion

The reason why NFT is on trend nowadays is due to the tight connection between the offline and online world, which totally expands in the size of space. In the real world, we will purchase an item and it doesn’t have a system like a blockchain to specify who is the owner of that item. But in the online world, which is the NFT world, there are blockchains underneath every NFT, which can specify who owns the NFT. The relationship between the customer and the brand may not only have the transaction. Instead, NFTs help to empower the concept of the relationship between customers and the brands and nonetheless, the power of owning an item.

4. Bring social belonging or enhanced self-esteem to online communities

In this digital era, people may compare each other in the online media. The higher achievements they can gain, the more they may involved in online communities.

There are a total of 3 layers in the luxury and NFT Tier Pyramid stated by Danielle Alleres, Messari. Includes accessible, intermediate and inaccessible. While NFTs are like luxury cars, there are different levels determined by their popularity.

The online users who owned CrypoPunks and Bored Ape Yacht Club are on the highest level among the NFT market, according to the official website of CrypoPunks and Bored Ape Yacht Club, they only published a limited amount of 10,000 pieces of NFT, which is valuable and inaccessible.

From Instagram, we can see a common practice of NFT owners, they will simply change their avatar to be their purchased NFT if the one they purchased is Profile-pic NFT (PFP NFT). This will raise the awareness of other Instagram users and cause NFT to be a popular trend.

For example, a famous Canadian singer, Justin Bieber has changed his Instagram profile picture to an NFT created by himself and cartoon designer, gianpiero, which is the inBetweeners NFT.

For the KOL/influencers who owned an exclusive NFT, it may enhance their self-esteem and stand out from the crowd.

Conclusion: Future Direction of NFT and the risk behind it

*An image showing the definition of Risk*

To sum up, even though there are listed advantages and values behind NFT, due to the illusion of scarcity and ownership problems, there is still the presence of the NFT bubble. A bubble in finance aspects is meaning an unstable situation is seen in an economic cycle and it is going to burst. Here, the NFT bubble stands for the presence of an unsure situation. The value of NFTs is determined by market consensus, with a certain number of users agreeing that its properties will have value. If the market does not recognize it, there is no practical value.

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What is NFT? Why has it become the talk of the town?