Understanding the Hype behind Non-Fungible Tokens (NFTs) and the Influence of Social Recommendations

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Jul 16, 2023
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Understanding the Hype behind Non-Fungible Tokens (NFTs) and the Influence of Social Recommendations
In recent years, Non-Fungible Tokens (NFTs) have taken the digital world by storm. In 2020 alone, the total market for NFTs reached a staggering $338 million, representing a remarkable Compound Annual Growth Rate (CAGR) of 102% from 2018. But what exactly is driving the hype behind these unique digital assets? And how do social recommendations play a role in their popularity?
One of the key aspects that make NFTs so appealing is the concept of ownership. Unlike traditional digital assets, NFTs provide holders with a sense of 'real' ownership, both emotionally and legally. In a survey conducted by NonFungible and L'Atelier BNP Paribas, 68.4% of NFT holders reported having an emotional attachment to their NFTs, highlighting the deep connection people feel towards these digital collectibles. This emotional attachment is not surprising, as the psychology behind collecting suggests that humans have a natural inclination to collect things, even as adults.
The concept of ownership is further reinforced by the use of smart contract technology in NFTs. These tokens store and record unique information on the blockchain, ensuring their authenticity and proving that only one of each NFT exists. This solves one of the significant issues with non-fungible goods, as it becomes easier to verify the authenticity of these digital assets.
Another factor contributing to the popularity of NFTs is the higher disposable income of individuals. As disposable wealth increases, people are more likely to engage in activities that bring them pleasure and satisfaction, such as collecting rare and unique digital assets. This is supported by the correlation between prolonged periods spent in gaming communities and the emotional attachment to virtual assets. The lack of actual ownership in virtual assets has been a significant inhibitor for their greater adoption, but NFTs bridge this gap by providing a sense of ownership and permanence.
Profit-making is also driving the interest in NFTs. Traders are buying NFTs upon issuance and reselling them at higher prices, capitalizing on the growing demand for these unique digital assets. The number of NFT buyers outstripping sellers suggests that more users are buying NFTs for various reasons, such as reselling them for a profit or keeping and using them. The potential for eye-watering profits is undoubtedly a lure for many NFT traders.
In terms of market awareness, NFTs have seen a significant increase in attention. With consumers spending more time consuming online content, the awareness of NFTs has also grown. However, the market for NFTs is still relatively new, and there is no reliable benchmark for their value. Different NFT categories have divergent market forces, and the industry is still in its infancy. Nevertheless, the increasing market awareness and the blurring lines between the virtual and real world create a favorable environment for the growth of NFTs.
While NFTs have been gaining traction, social recommendations continue to play a crucial role in consumer decision-making. Despite the rise of influencers on social media, younger generations, such as Gen Z and Millennials, trust recommendations from friends and family more than influencers. In fact, between 2015 and 2019, the number of Gen Z using social media to research brands and products increased by nearly 40%. When making a purchase, 39% of respondents cited recommendations from friends and family as their inspiration, while 48% mentioned discounts on products.
Interestingly, consumers tend to trust smaller influencers with up to 50,000 followers more than larger influencers. This suggests that credibility and authenticity are crucial factors in consumer trust. Consumers value genuine recommendations from individuals they can relate to, rather than endorsements from high-profile influencers who may be seen as less trustworthy.
In conclusion, the hype behind Non-Fungible Tokens (NFTs) can be attributed to several factors. The sense of ownership, emotional attachment, higher disposable income, profit-making opportunities, increased market awareness, and the influence of social recommendations all contribute to the popularity of these unique digital assets. As the online world continues to dominate our lives, NFTs bridge the gap between the virtual and real world, providing a means for individuals to express their creativity, collect rare digital assets, and engage with a community that shares their interests.
Actionable Advice:
- 1. Research before investing: Due to the lack of reliable benchmarks and the volatility of the market, it is crucial to conduct thorough research before investing in NFTs. Understand the different categories and market forces to make informed decisions.
- 2. Engage with communities: Join online communities and engage with like-minded individuals who share your interests in NFTs. This will not only enhance your understanding of the market but also provide opportunities for collaboration and learning.
- 3. Seek recommendations from trusted sources: While influencers can provide valuable insights, don't underestimate the power of recommendations from friends and family. Trust the opinions of those you know and trust, as they are more likely to have your best interests at heart.
As the NFT market continues to evolve, it is essential to stay informed, adapt to changing trends, and make decisions based on your personal preferences and goals. With careful consideration and a discerning eye, you can navigate the world of NFTs and potentially benefit from their unique opportunities.
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