NFTs or Non-Fungible Tokens have seemingly blown up on the scene in 2021, and its momentum is still going strong in 2022. Traded volume on Opensea, the largest NFT exchange have remained consistently above $2 billion a month ever since August 2021 with over 1.2 mn users.

BAYC which arguably is the most well known NFT, has a floor price (lowest listing price) of a whopping $300,365.10 or 98 ETH. That’s more expensive that a Lamborghini and a Rolex watch COMBINED.

How? Why? Are probably what people who hasn’t been following the NFT market is asking. Heck, even people that are in the space is still figuring it out. To figure that out, it might be worth taking a step back a bit and ask yourself, “What makes something valuable?”

What makes Rolex more expensive than a Casio watch? When they can both accurately tell you the time?

What makes Chanel handbags so expensive, when a cheaper handbag can carry the same amount of stuff? (Also much easier to care for)

What makes Diamonds so expensive when its just a rock? It doesn’t do anything except sparkle in the sun does it? (Ok maybe its also used to dig tunnels)

There are two components to the value of something, the value from it doing something and the value arising from people believing it has value. A common example is gold. Gold does have some economic uses, but it certainly doesn’t generate $12 TRILLION of economic value which is its current market cap, most of the time it just sits there either on someone’s neck or in a storage somewhere. To put that into perspective Gold is worth more than Apple, Microsoft, Saudi Aramco, Alphabet, Amazon and Tesla put together.

Gold is so valuable not because it does something, but because people BELIEVE that it has value. One of which is that gold is the best store of value because it is scarce and doesn’t degrade overtime. (JPEGS also don’t degrade over time, will leave whether it is scarce for another time). Unless of course, you think gold generate more economic value than all those companies. But that is going to be hard pitch to make as only 330 tonnes or 8% of the total demand for gold went into technology (mainly as electroplated coating in electronics), the rest were either for investments or being kept in some form.

The same line of thinking can be applied to brands such as Rolex, Mercedes, Nike, Hermes, Chanel, the list goes on and on. Yes, they have value because of what they can do, and the quality of the product, but most importantly it is expensive because people BELIEVE that they have value. And what do they believe have value? Is it rubber that the Air Jordan’s soles are made of or is it the leather on a Chanel handbag? No, its the BRAND that they believe has value.

Moving on to the next question, what is a brand exactly. I quite like this definition from Investopedia.

“A brand is an intangible marketing or business concept that helps people identify a company, product, or individual. People often confuse brands with things like logos, slogans, or other recognizable marks, which are marketing tools that help promote goods and services”

Simply put, brand = identity. It is what the company, product, or individual stands for. For Nike its cool, inspirational, provocative and for Apple its creativity and excellence, the swoosh and the apple just represents them.

What happens then if we think of NFTs as a brand. As a way for people to express themselves on the internet. A way for people to express their identity and their values, just like wearing a Rolex watch or Apple products does in the real world. If that still doesn’t convince you that NFTs can have value, maybe this quote from GaryVee would help.

“People thought that Andy Warhols and Jackson Pollocks should not have value. People thought that sports cards should not have value.”

“Its more about understanding why people buy NFTs. Its the same reason people buy Chanel handbags, Nike sneakers and Mercedes Benz. Its about brand”

“We are living more and more increasingly in a digital landscape, and NFTs become assets to communicate who you are. And that’s something human beings have done forever — bought things to communicate. And NFTs will be the scaled version of that.”

Once you understand that NFTs is about brand, then the “right-click, save as” criticisms of NFTs become a lot less credible. Just as embroidering a Nike logo on a random t-shirt, doesn’t make it a Nike t-shirt, copying the JPEG doesn’t give you the NFT, as it lacks legitimacy. You can put the logo of any brand on to anything, and it still wouldn’t represent that brand. However, with real world items you may need some skills to tell whether something is counterfeited, but with NFTs you don’t. Anyone can verify who owns the NFT via the blockchain.

To conclude, at first sight NFTs may seem to be just a JPEG. But with the combination of brand and legitimacy, it is possible to see why they are so valuable and what they can represent. Its your identity. Its a way to communicate. Its you.

Note: NFTs have a much wider use than just profile pictures or as a brand, but this is where most of its value is coming from currently