13.03.2022

The Role NFTs Play for the Individual in 2022

The Role NFTs Play for the Individual in 2022

With the world at the tail end of a two-year pandemic, inflation nearing or surpassing record highs in countries around the world, and a war being declared on Ukraine by Russia, many people are looking for new ways to protect their financial interests.

Today, there are many options for individuals who are looking for “safe havens”, including gold, silver (other precious metals), select stocks, and strong currencies. Over the last few years, Bitcoin and Ethereum have also entered the safe-haven asset discussion as both technologies provide blockchain security for sovereign assets.

Strong assets are awesome!

But NFTs are also creating a new form of connectivity among people. New NFT communities continuously pop up to share awesome art and cultures. And even in the worst of times, folks have found ways to donate NFTs to those in need.

In this article, we’ll not directly compare NFTs to other assets, instead, we’ll explore how NFTs are evolving to join the group of sovereign assets. We’ll also look at why that’s due to the exponential adoption of the technology. As per usual, let’s get some basics down first!

What is Inflation?

Simply put, inflation refers to when a country’s underlying currency loses purchasing power. Inflation only occurs when currency is devalued, which happens when a government or central bank prints more money.

The effects of inflation are broad-reaching and are seen in most goods and services in an economy. These effects of inflation are estimated by tracking price changes in selected goods or services over time. Generally, prices increase as a currency devalues.

Inflation has historically been managed by governments/central banks raising interest rates. When rates are raised, consumers are forced to save, tightening the circulating supply of money, lowering economic activity, and reducing inflation.

But most individuals aren’t willing to wait for a government or central bank to step in before inflation hurts their financial portfolio. So instead, they’ll invest their money into something they believe has upside potential over the long term like stocks, real estate, or certain assets. But not just any asset will do. These assets need to be especially resilient and robust.

Safe Haven Investments vs Collectibles

Since 2009, cryptocurrencies have been available for consumer investment, but only recently have some of them been considered potential “safe haven assets”, including NFTs.

Safe Havens

A safe haven asset is an asset that is expected to hold its value or even gain value during harsh economic times (such as high inflationary periods). A safe haven asset’s value must be highly resilient to economic pressures, political influence, war, etc.

For thousands of years, gold has been considered a safe asset as it maintains value from its inherent properties. Bitcoin is often considered digital gold but has perhaps more valuable properties than gold (much more secure, instant transactions, permissionless, accessible for anyone with internet) thanks to revolutionary blockchain technology and the Proof-of-Work system.

Collectibles

A collectible on the other hand is an item that holds high value because of its scarcity, condition, and popularity. Collectibles can include items like trading cards, toys, antiques, and shoes. But many also consider things like classic cars, fine clothing, instruments, and even jewelry to be collectibles.

Collectibles, like almost all other goods and services, also see increases in prices during inflationary periods. However, the difference between a collectible and a safe haven, is the collectible is too niche to be traded broadly and thus has less utility.

Where exactly do NFTs fall?

It appears that NFTs toe the line between the safe haven assets and collectible items, and may in fact be both. But it is important to recognize that not all NFTs are created equally, meaning some NFTs are better suited to be safe havens than others. This comes down to data storage.

When minting an NFT on Ethereum, for example, the NFT will be created as a smart contract that is hosted on Ethereum’s blockchain and will generate a URI (uniform resource identifier). This URI points to where the NFTs’ data is stored, whether on a decentralized source or on the internet, however, it does not determine the storage location. That is instead pre-decided by the blockchain developer, and they have two options. Centralized data storage or decentralized data storage.

NFT data that exists in centralized storage is at risk of attacks, data corrosion, and more. But there are popular decentralized storage options that are used to protect NFT data. IPFS technology, or an Interplanetary File System, is a decentralized, peer-to-peer storage network (much like Bitcoin or Ethereum’s blockchain) that allows NFTs to be stored with immutable data. The Bored Ape Yacht Club uses this technology to make their NFTs secure.

Creating intrinsic value with decentralized security on a peer-to-peer network allows NFTs to be considered immutable, sovereign assets, which can be incredibly valuable for the individual. This is especially true as NFTs become the link between physical and digital worlds.

Digitizing Reality

An exciting reason that NFTs have gained so much popularity in 2022 is because the technology has been widely adopted across the physical world. As NFTs have started to find use cases in several physical industries, the technology has become all the more influential.

Real Estate

For example, the real estate industry is becoming enamored with the idea of NFTs as they can offer homeowners an immutable, decentralized option for owning their properties. Important documents such as the house deed, closing documents, receipts, mortgage payoff statements, and more can all be minted as an NFT and held securely on a blockchain (along with an IPFS).

In short, using NFTs and cryptocurrencies for settlements could one day cut out tons of red tape, and remove middlemen (banks, home mortgaging firms) from the home owning process, and turn homes into physical NFTs for individuals. All of which is highly intriguing!

Athletics

Currently, one of the most viral uses of NFTs is in athletics. Many organizations are teaming up with NFT companies, like Fayre, to introduce a new way to connect brands with fans. A sports community can also become an NFT community by offering fans specialized NFT collectibles for each game or match.

Now that’s a slam dunk!

Now that’s a slam dunk!

In-game NFT activations, NFT drops, Web3 integrations and so much more are already being adopted by sports organizations like RCD Espanyol. At some point, we may even see NFT technology being used for things like ticket distribution.

The exciting part about digitizing the physical world is that it allows communities to engage around the world. With NFTs, this can be done safely by and for the individual.

Conclusion

The excitement and hunger around NFTs have grown largely because they can be assets to store and secure wealth with. But the most important factor of any NFT, which determines their storage properties, is the integrity of the NFT’s data storage.

Without solutions like IPFS offering secure NFT protection in decentralized forms, the technology may not be a safe place to store value since centralized data storage opens the door to data corruption, deletion, censorship and more. And while problems like inflation persist, the need for resilient assets is obvious.

But so long as the industry continues to explode into other industries around the world, the better NFT and blockchain technology will become. Finding solutions that tie the real world to the immutable digital world is incredibly valuable, and the individual stands to gain a lot from such possibilities.

With technologies like Web3 and the Metaverse in development, individuals’ digital sovereignty will be highly sought after, and NFTs certainly play the role in establishing that, especially in 2022.

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