Because non-fungible tokens (NFT) are making waves in the crypto world, experts think other cryptocurrencies, like Ethereum or Bitcoin, will increase in value.
We’ll look at what NFTs are and how they affect Ethereum, whether Ethereum will go up because of the NFT industry, risks, and the future of NFT investing.
Understanding NFTs and Cryptocurrency
Non-fungible tokens are unique digital assets that owners can exchange with each other. These assets are different from traditional cryptocurrency products because the same tokens cannot replace them. NFTs are more like artwork, so the value is in the originality, not the replicability.
People can sell copies of NFTs, but the original is the one with value. Because only one original exists, it increases in value, especially if other people want to own that NFT. NFTs differ from crypto because currencies can be replicated with costly mining procedures.
NFTs do not depreciate, like stocks – yet. As NFTs continue to grow in market value, more users create them for video games in ERC-20 and as pets like Cryptokitties. One of the more popular choices is creating NFTs in virtual land.
How Does an NFT Affect Ethereum?
As organizations create more NFTs, they use block-chain currencies to value their companies. For example, Decentraland, an Ethereum-based company, lets users buy virtual land using Ethereum to craft their NFTs.
To gain access to the world of NFTs, users need to access virtual space. Many rely on Ethereum, the first brand in the newest cryptocurrency market. The Ethereum token, called Ether, works as both a currency and a tool for network contracts. Ether powers the Ethereum network as people pay fees using the currency, making trading volume increase rapidly.
In the virtual world, users need Ethereum to pay for virtual services and to buy items. When a virtual user wants to build an NFT in an Ethereum-based world, the builder needs Ethereum to buy virtual land and supplies and needs Ethereum to execute the code to create the NFT.
Ethereum works differently than other cryptocurrencies, because it needs transactions to keep it flourishing, and users need to use the currency to function in Ethereum-based worlds. Each Ethereum transaction involves an incentive and disincentive, as it keeps people working, but prevents spam and bots from blocking work.
The Relationship Between NFTs and Ethereum
NFTs are one-of-a-kind collectibles. In essence, an Ethereum-based token is also a collectible, thus increasing the value based on scarcity. To make the NFTs have any value, they need Ethereum to give the collectible value. So, as NFTs increase in value, the Ethereum used to make and purchase it will increase, too.
Developers have not created a cryptocurrency that does the job of Ether. In the future, someone might develop a currency that does more than Ether, but at this point, Ethereum is the only one that provides access to services and items. Until that changes, the value of Ethereum is tied to NFTs, and vice-versa.
Will Ethereum Cryptocurrency Increase In Value because of NFTs?
As no one can predict the future, the value of Ethereum and NFTs is difficult to predict. If you are considering investing in one or the other, it is best to do research and consider that you could lose money in the short term or long term. Consider how quickly Bitcoin gained value, then lost it.
People who invest in the NFTs see value in the collectible market in the virtual world. On the flip side, people who choose to invest in the Ethereum blockchain understand the value of building the virtual world.
Consider Ethereum like real estate in the virtual world, while NFTs decorate that real estate as digital art. The two co-exist in the virtual ecosystem, but both can change in value.
As both investment opportunities sound like win-win situations, remember that the virtual world and cryptocurrency is a new market. Unlike the stock market and other traditional investment opportunities, the virtual world is young and untested in the long term. Ethereum and NFTs could become as worthless as overproduced baseball cards in the 1990s.
The Risk of Investing in the NFT Market
All investments have risks. While it might be attractive to invest in the NFT craze, the untested market could lose money. If NFTs and Eth are tied, if one fails, the other is sure to follow. The decentralized finance market is not regulated, so no investments in digital currency are protected by any government agency.
If you choose to invest in NFTs, you will need someplace to store your assets. You will need a private key for NFT sales, and if you lose that key, you lose your assets. The unregulated crypto market can have unexpected ups and downs, like the dogecoin craze.
Investing in Cryptocurrency Like Ethereum and Bitcoin
Ethereum is also a risky marketplace. Hackers and thieves are always on the hunt for unsecured cryptocurrency, especially the more valuable blockchains like Ethereum. The value constantly changes, making the investment value difficult to predict.
So before investing your money in Ethereum or NFTs, do your research!