NFTs: what are they and why are they valuable? 🤔

Hey Blooming Founders,

Welcome to your weekly dose of interesting reads on startup growth and learnings on web3!

Okay, admittedly I have to come up with a better intro paragraph next time.

This divider line above is a fixed feature of this template and I just realised this week that it’s meant to separate an intro part to the body of the newsletter.

You see, publication platforms like Revue and Substack have done a lot of user testing to come up with the designs they have. It may feel limiting, but the reason why they’re doing it is so that you focus on one thing: writing.

That’s actually pretty smart as I’m sure we have all wasted hours of our lives trying to make our email marketing or newsletter designs look a tiny bit prettier, when it’s not really mission critical.

One reader asked me last week why I’m sending my newsletters out so late on a Friday and whether that would be intentional.

I thought this was an interesting question, so in case anyone else is thinking about starting a newsletter and wondering the same: it is both intentional and practical.

For the intentional part: I myself usually don’t have time to read newsletters until the weekend. So by sending it out on Friday evening, I’m giving my readers the entire weekend to read it at their leisure. Said this, around 40% of you are opening this newsletter within the first hour, which I always find an amazing stat. 🤩

For the practical part: I still write this newsletter in real time and the only time in the week, where I can reliably block out 3-4 hours, is Friday afternoon / early evening.

Yes, even after 6 years of regular writing, it still takes me about 3-4 hours of quiet time to produce each issue. My productivity progress as a writer has been pretty much zero, but it is what it is. Quality over speed I guess. 🤷‍♀️

With that being said, enjoy this week’s Interesting Reads and if you have been wondering what the fuss about NFTs is all about, then check out this week’s Learnings About Web3 section.

Until Friday, keep blooming!

Lu

Founder of Blooming Founders

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A few weeks ago, I bought my first NFT.

When I told a group of friends about it, a discussion around what the value of NFTs is and why I would pay a decent amount of money for a JPG ensued.

These are all very normal and to be anticipated questions, so I wanted to summarise a few points today.

First off, NFT stands for Non-Fungible Token.

A “token” is a unit of data stored on a blockchain. Most NFTs are created on the Ethereum blockchain, but there are also NFTs now that are created on other blockchains such as Solana or Polygon.

The moment the NFT is created and recorded on the blockchain, its ownership relationship is cemented (forever and ever). The NFT belongs to a digital wallet and only this wallet can sell or transfer the NFT. In other words, the “token” part of NFT allows a clear identification of the asset owner.

“Non-fungible” means that it’s unique and can’t interchanged with something else. For example, cryptocurrencies like Bitcoin are fungible token — you can trade one Bitcoin for another and you would still have the same value.

NFTs on the other hand are non-fungible. Each token could have a different value and it’s up to the buyer and seller to agree on that value.

Some NFTs are released as a collection which can comprise of hundreds or thousands of individual NFTs. Each of them has a unique set of traits (or artwork), which makes them non-fungible.

These types of NFTs work like digital trading cards, where NFTs with rare artwork could be deemed more valuable than NFTs with more common artwork.

There are also NFTs that are unique by design, i.e. there is literally only one piece of it. They are called “1/1"s and are usually treated like digital art pieces.

Now back to the question what makes NFTs valuable.

1) It could be the same rationale as buying physical art (especially for the 1/1’s). An artist produces something, you like it and buy it for the price they want. Boom. Value exchange.

2) People buy NFTs to be part of a community. Sometimes this could be a real community, where people share memes, have fun and ‘vibe with each other’. Sometimes it could also be wanting to be part of an exclusive club like Bored Ape Yacht Club (BAYC), where the price for the cheapest NFT from the collection is around $209,000 at the time of writing. Yes, that’s two hundred and nine thousand dollars and there are 5,900 holders in the collection — a pretty exclusive community to be part of!

3) People buy NFTs because they support what the art of the NFT stands for. For example, actress Reese Witherspoon is using a World of Women NFT as her profile picture and encouraging more women to get involved in web3.

4) People buy NFTs because they are part of games. In order to participate in the game you have to own an NFT which is usually a character within the game.

5) People buy NFTs as investment assets. Whether people want to admit it or not, this is probably the main reason why people buy NFTs — they are hoping for financial gains.

It could be as simple as ‘NFT flipping’ which means you’re trying to get into the mint of a new hyped collection, only to sell the NFTs for a quick return shortly after.

Oftentimes, however, people believe in the long term value appreciation of NFTs — especially when they are starting to obtain cultural value (such as Bored Ape Yacht Club which has just closed a brand partnership with Adidas).

6) People buy NFT to obtain passive income streams. The reasoning here is similar to investment assets, but it’s slightly different as you don’t have to sell the NFT to get financial gains. In fact, you have to hold it to obtain any sort of passive income.

This is the part that I am currently exploring and I think I will write a bit more in depth about it next week as this week’s issue is already long enough, so stay tuned!

To wrap things up, I should highlight that while there are many reasons why an NFTs could be valuable, they are also highly illiquid assets and the value is always determined by the buyer. If there is no buyer to be found, then the NFT is practically worthless.

I hope you’ve learnt something new today. If you liked this newsletter, please vote with a ‘Yes’ 👍