NFTs stand for non-fungible tokens. NFTs are essentially digital assets – ranging from art, music, photography, memberships and other types of collectables. Owning an NFT means owning digital ownership, which can be proven via the blockchain. They have exploded over the last year, and since crypto prices have crashed in the last few months – NFTs are now in the limelight. To understand this space – I purchased one NFT about a month ago to understand the product. I have to say it is the best-designed financial product of all time. However, I also believe it’s the most dangerous product out there (even more dangerous than cryptocurrency).
Let’s find out why:
NFTs exploit artificial scarcity and fear of missing out (FOMO) to a new level. If you go to any NFT website – you will see two big words. Those words are “Sold Out”. Scarcity is the big driver of consumption. Humans tend to value goods and services much higher when they are hard to get. Even in the fashion industry – words like collaborations and limited editions are used to charge high prices and get consumers to buy and wait in line for hours for them. Words like ‘limited releases’, ‘drops’, and ‘closing soon’ are all used effectively to heighten FOMO.
One of the big rewards for NFT owners is the feeling of exclusivity – the feeling that the owner is a part of something cool and hip – almost like a private members club. This is an excellent brain hack to make purchasers feel like they are purchasing a high-status item.
With big celebrities and big brands like Adidas, Nike and luxury brands like Gucci and Prada entering the space – the trust element has gone up – another component that gives the space more legitimacy.
Freebies and airdrops
In an average financial product – there is excitement before investing. For NFTs – there is some excitement before buying, but there is even more excitement after buying. NFTs offer lots of physical merchandise and free airdrops (free NFTs to owners of existing ones) as a way to reward loyalty. Excitement and anticipation are used well to lure people into buying.
Spending (disguised as investment)
When someone gets a monthly salary – they have a tough decision in front of them – how much to save and how much to spend. With NFTs – buyers are getting both – something which has the excitement of spending and the hope of creating wealth. This is one of
the main reasons NFTs hack minds (especially young minds since they know they should be saving more but don’t). Also, unlike traditional investments, which sit in trading and bank accounts – NFTs are also pretty to look at.
One of the ways NFTs hack our brains is by making the owner feel like a part of a community and a part of something big. Most NFTs have well-thought-out roadmaps (primarily fake) and use fancy terminologies like web3, decentralised and other terms which sound futuristic (almost like being a part of a movement). The feeling of being a part of a community is a raw human need used effectively by NFTs brands.
This is one of the biggest problems with this space. I have spoken to several NFT enthusiasts, and all of them have been victims of scams where they have lost thousands (lakhs in a few cases). It’s 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 nobody who can help you. All the above points are used well by spam bots and scam artists to get innocent people to transfer money to them.
In conclusion, this article aims to spread investment awareness and nothing else. The rise of NFTs is not an issue – as thousands of dubious financial products exist. The lack of awareness of the risks associated is what is concerning. Investors should also know how intelligently this category has been designed and how it’s used to hack our minds.