Understanding NFTs: Should You Invest In NFTs?

What exactly are NFTs? It’s a question that everyone is asking as the value of digital art continues to skyrocket. Despite the fact that NFTs have been around for a few years, it took Beeple, CryptoPunks, and Bored Ape Yacht Club to put them on the map. Adidas, Nike, Disney, McDonald’s, and a slew of celebrities have all jumped on board with NFTs since then.

NFTs are still difficult to grasp, and the more they make headlines, the more difficult they become — after all, if a photo of an NFT bin sells for $252,000, anything is possible. In this article, we will be sharing some basic concepts on NFTs and how to invest in non-fungible tokens.

What Is an NFT (Non-Fungible Tokens)?

NFTs are digital assets that represent real-world objects such as art, music, in-game items, and videos. They’re bought and sold online, often with cryptocurrency, and they’re usually encoded with the same software as many other cryptos.

Even though they’ve been around since 2014, NFTs are gaining popularity now as a popular way to buy and sell digital artwork. The market for NFTs alone was worth $41 billion in 2021, which is approaching the total value of the entire global fine art market.

NFTs are also one-of-a-kind, or at the very least one of a very small run, and have unique identifying codes. “Essentially, NFTs create digital scarcity,” says Arry Yu, managing director of Yellow Umbrella Ventures and chair of the Washington Technology Industry Association’s Cascadia Blockchain Council.

This is in sharp contrast to the vast majority of digital creations, which are almost always available in infinite quantities. If a given asset is in demand, cutting off the supply should theoretically increase its value.

However, many NFTs have been digital creations that already exist in some form elsewhere, such as iconic video clips from NBA games or securitized versions of digital art that are already floating around on Instagram, at least in these early days.

Individual images — or even the entire collage of images — can be viewed for free on the internet or even screenshotted. So, why are people willing to spend millions of dollars on something that could be easily screenshotted or downloaded?

Because a non-financial transaction allows the buyer to keep the original item. It also comes with built-in authentication, which acts as proof of ownership. The “digital bragging rights” are almost as valuable as the item itself to collectors.

What Is an NFT and How Does It Work?

NFTs are stored on a blockchain, which is a decentralized public ledger that keeps track of transactions. Most people are familiar with blockchain as the underlying technology that allows cryptocurrencies to exist. NFTs are most commonly held on the Ethereum blockchain, but they can also be held on other blockchains.

An NFT is made up of digital objects that represent both tangible and intangible objects, such as:

• Graphic art
• GIFs
• Videos and sports highlights
• Collectibles
• Virtual avatars and video game skins
• Designer sneakers
• Music

Even tweets are taken into account. Jack Dorsey, a co-founder of Twitter, sold his first tweet as an NFT for more than $2.9 million. NFTs are essentially digital versions of physical collector’s items. As a result, the buyer receives a digital file rather than receiving an actual oil painting to hang on the wall.

They also get exclusive rights to the property. NFTs can only have one owner at a time, and their use of blockchain technology makes verifying ownership and transferring tokens between owners simple. In the metadata of an NFT, the creator can also store specific information. Artists, for example, can sign their work by putting their signatures in the file.

What Is the Purpose of NFTs?

Artists and content creators have a one-of-a-kind opportunity to monetize their work thanks to blockchain technology and NFTs. Artists, for example, no longer have to sell their work through galleries or auction houses. Instead, the artist can sell it as an NFT directly to the consumer, allowing them to keep a larger portion of the profit. Additionally, artists can program royalties into their software so that they receive a percentage of sales when their work is sold to a new owner.

This is a desirable feature because most artists do not receive future proceeds after their first sale. Making money with NFTs isn’t limited to art. Companies like Charmin and Taco Bell have auctioned off themed NFT art to raise money for charity. Taco Bell’s NFT art sold out in minutes, with the highest bids coming in at 1.5 wrapped ether (WETH) — equal to $3,723.83 at the time of writing.

Charmin’s offering was dubbed “NFTP” (non-fungible toilet paper), and Taco Bell’s NFT art sold out in minutes, with the highest bids coming in at 1.5 wrapped ether (WETH) — equal to $3,723.83 at the time of writing. In February, Nyan Cat, a 2011 GIF of a cat with a pop-tart body, sold for nearly $600,000. As of late March, NBA Top Shot had grossed more than $500 million in sales.

NFT sold for more than $200,000 for a single LeBron James highlight. Snoop Dogg and Lindsay Lohan are among the celebrities who have jumped on the NFT bandwagon, releasing unique memories, artwork, and moments as securitized NFTs.

How to Buy & Invest in NFTs

If you’re interested in starting your own NFT collection, you’ll need a digital wallet that can hold both NFTs and cryptocurrencies. Depending on what currencies your NFT provider accepts, you’ll probably need to buy some cryptocurrency, such as Ether. Coinbase, Kraken, eToro, and even PayPal and Robinhood now allow you to buy cryptocurrency with a credit card.

After that, you’ll be able to transfer it from the exchange to your preferred wallet. When researching your options, keep fees in mind. When you buy crypto, most exchanges charge at least a percentage of your transaction.

Conclusion

The decision to invest in NFTs is largely a personal one. If you have some extra cash, it’s something to think about, especially if the piece has sentimental value for you. However, keep in mind that the value of an NFT is solely determined by what someone else is willing to pay for it. So remember to treat NFTs as you would any other investment: do your homework, understand the risks (including the possibility of losing all of your money), and proceed with caution if you decide to invest.