Eli5:How do people make so much money selling digital assets? If the basic principle is to buy low, sell high, why does anyone buy something at that higher price at all?


All I keep hearing is NFTs…why are people buying them at such enormous prices?

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You only make money when you can convince a “greater fool” that the value will rise further.

In very general it’s never clear if the price is low or high until you saw what comes after. Like, yesterday it was 5, today it’s 10, tomorrow it could be 15 or 5 again, noone knows until it happens.

In general every dollar someone earned with crypto/nft was lost by someone else.

NFTs are no different from other physical collectibles; they have minimal value on their own; the value is in their provenance.

In fact, NFTs are nothing BUT provenance. All they are is a chain of custody that’s provable.

So collecting NFTs is like collecting dog breeding certificates or football trophies or educational degrees.

The people buying think it’s gonna get higher, the people selling do not. This applies to every kind of investment and not just questionable ones. Stocks, real estate, etc.

The real question is why do people expect the value to go up? Ordinarily the intended use of something would drive an increase in demand based on circumstances which change over time, but with NFTs (and arguably USD to an extent) that is not the case, people instead seem to be betting that other people will bet on it. They simply observe the price going up, and try to capitalize on it.

All buying an NFT does is add a ledger to the Ethereum Blockchain that says “(Insert buyer’s public crypto key) owns (insert Google drive link to picture).

This can be a useful technology as it has the power to work not just with Google drive links, but any kind of file. The thing people don’t get is that buying a link to drawing of a stoned chimpanzee you are not investing in the potential of this technology, merely using it to invest in a Google drive link to the chimp.

NFTs are, IMNSHO, a scam. They are not like other investments.

They have no *intrinsic* value. Their only value resides in perception and *continuing* perception.

It is almost the most pure form of a Ponzi scheme. The value of the entire chain relies on finding the next sucker. When they don’t come along the entire chain collapses.

This is not to say that crypto and Blockchain, etc., technology is cool and may find some good uses but NFTs ain’t one of them.

Google “Dutch Tulip Mania”. These schemes are not new.

NFTs are also NOT like stocks, bonds, etc. Stocks and bonds have intrinsic value. In the case of stocks, the value of the companies assets and revenue streams, etc. In the case of bonds, the collateral of the bond or the “good faith of the government.”

So far, it seems to me that “web3” and the “metaverse” are just more NFT like scares. “Buying” “land” in a “meta world” next to a B-lister also has no intrinsic value.

Caveat emptor.