NFTs represent non-fungible tokens. NFTs are essentially digital assets, ranging from art, music, photography, memberships, and other types of collectibles. Owning an NFT means owning digital property, which can be proven through the blockchain. They have skyrocketed over the past year, and with cryptocurrency prices plummeting in recent months, NFTs are now in the spotlight. To understand this space: I bought an NFT about a month ago to understand the product. I must say that it is the best designed financial product of all time. However, I also believe that it is the most dangerous product out there (even more dangerous than cryptocurrencies).
Let’s find out why:
NFTs exploit artificial scarcity and fear of missing out (FOMO) to a new level. If you visit any NFT website, you will see two big words. Those words are “Sold Out”. Scarcity is the great engine of consumption. Human beings tend to value goods and services much more when they are difficult to obtain. Even in the fashion industry, words like collaborations and limited editions are used to charge high prices and make consumers shop and wait in line for hours. Words like ‘limited releases’, ‘drops’ and ‘close soon’ are used effectively to increase FOMO.
One of the great rewards for NFT owners is the feeling of exclusivity, the feeling that the owner is part of something cool and modern, almost like a private members’ club. This is a great mind trick to make shoppers feel like they’re buying a high-status item.
With big celebrities and big brands like Adidas, Nike and luxury brands like Gucci and Prada entering the space, the element of trust has increased, another component that gives the space more legitimacy.
Gifts and airdrops
In an average financial product, there is emotion before investing. For NFTs, there is some excitement before you buy, but even more excitement after you buy. NFTs offer a host of free physical products and airdrops (free NFTs for existing owners) as a way to reward loyalty. Excitement and anticipation are well used to entice people to buy.
Spending (disguised as investment)
When someone receives a monthly salary, they have a difficult decision in front of them: how much to save and how much to spend. With NFTs, buyers get both, something that has the thrill of spending and the hope of building wealth. this is one of
the main reasons why NFTs hack minds (especially young minds, as they know they should save more but don’t). Also, unlike traditional investments, which are found in business and bank accounts, NFTs are also pretty to look at.
One of the ways NFTs hack into our brains is by making the owner feel part of a community and part of something big. Most NFTs have well thought out (mainly bogus) roadmaps and use fancy terminologies like web3, decentralized, and other futuristic-sounding terms (almost like being part of a movement). The feeling of being part of a community is a raw human need used effectively by NFT brands.
This is one of the biggest problems in this space. I have spoken to several NFT enthusiasts, and all of them have fallen victim to scams where they have lost thousands (lakhs in some cases). It is said that for every NFT, there are multiple scams. Unlike a credit card scam where the bank will compensate the customer, in the crypto world, there is no one who can help you. All of the above points are well used by spam bots and scammers to get innocent people to transfer money to them.
In conclusion, this article aims to spread investment awareness and nothing more. The rise of NFTs is not a problem, as there are thousands of dubious financial products. It is the lack of awareness of the associated risks that is of concern. Investors should also know how cleverly this category has been designed and how it is being used to hack our minds.