Apparently, this year is the year of the NFT. There are millions of dollars being spent on digital assets like art and music and even tacos and toilet paper.
But do NFTs deserve the hype or the money? They are considered by some experts to be a bubble that will pop, just like DotComs or Beanie Babies. However, there are others who believe NFTs are here to stay and will become a permanent part of the financial landscape.
This guide will explain what is NFT, how NFTs work, why there is controversy surrounding NFTs and how to become involved.
What is an NFT?
NFTs are essentially collectable digital assets that hold value both as a form of cryptocurrency and as an artefact. Like art, NFTs are perceived as value-holding investments. What makes them so?
To understand the term, let’s break it down. NFT stands for non-fungible token – a cryptocurrency in the vein of Bitcoin or Ethereum. An NFT, however, is different from a standard coin on the Bitcoin blockchain as it is unique and can’t be traded like-for-like (hence, it is non-fungible).
What is the unique aspect of NFTs compared to other cryptocurrencies? More information is stored in the file than just currency, so it goes beyond pure currency into a realm where anything can be stored.
There are a lot of types of NFTs out there, but they can be anything from digital art to music files to any unique thing that can be stored digitally. It’s basically the same thing as any other physical collectable, but instead of receiving an oil painting to hang on your wall, you receive a JPG file.
How do NFTs work?
They are individual tokens embedded with additional information, which makes them part of the Ethereum blockchain. This added information allows them to be represented as art, music, and video in JPGs, MP3s, videos, GIFs, among other formats. Like other types of art, they can be bought and sold because they are valuable, and their value is primarily set by the market and by demand, just like physical art.
That is not to say there is a single digital version of an NFT art available on the market. Copies of an NFT can also be made, used, bought, sold and traded much the same way that prints and other artefacts of an original are – but they will not have the same value as the original.
Also, do not think that you’ve hacked the system because you right-click on the NFT image and save it. The downloaded file will not become part of the Ethereum blockchain; therefore, you will not become a millionaire. Do you understand?
Where can I buy NFT tokens?
You can purchase NFTs on several different platforms, and which platform you choose will depend on what you want. However, you will need to own a wallet related to the platform you intend to buy from, plus you will need to fill the wallet with cryptocurrency.
A recent Christies auction of Beeple’s Everydays – The first 5000 days proved that some pieces are starting to reach more mainstream auction houses as well, so keep an eye out for them. If you didn’t hear, that Beeple piece sold for $69.3 million.
Because many NFT types are in high demand, they are often released in ‘drops’ (similar to events, where tickets are released in batches at different times). A frantic rush of eager buyers is expected when the drop begins, so you should be registered and ready to purchase before the start date.
You can purchase NFTs from the following sites:
Also making waves are NFTs used as in-game purchases in a variety of video games (much to parents’ delight). The player can purchase and sell these assets, which include playable assets such as unique swords, skins, and avatars.
Can anyone make an NFT?
It may have occurred to you that just anyone could get involved now that you’ve read this far. Well, it stands to reason given how Trevor Andrew drew a Gucci Ghost that sold for an eye-watering $3,600.
An NFT can technically be sold by anyone. On the Blockchain, anyone can create goods, transform them into NFT (through a process known as mining), and then sell them. You can even include a commission on the file – and you’ll be paid each time the item is resold.
As with purchasing NFTs, you need to have your wallet set up and loaded with cryptocurrency. Here’s where the problem arises for most people.
There can also be astronomical hidden fees, including a ‘gas fee’ for every transaction (the cost associated with the production of energy), and a fee for selling and buying. Also, conversion fees and time-dependent fluctuations in price must be considered.
Consequently, the fees on selling the NFT can often surpass its price by a considerable margin. However, different websites use different fees and some are better than others, so make sure you do your research before committing.
Even if NFTs don’t stick around, they have indeed become a new plaything for the ultra-rich, and if you can make it happen, you could make a lot of money. With the prices seen at the sale, NFTs give new meaning to digital art in general and are a fundamental component of the future of art.
Do you want to start creating right away? It will require you to either use one of these powerful laptops or one of these top drawing tablets.
In Conclusion, Should You Buy NFTs?
Does the fact you can buy NFTs mean you should? Arry Yu, chair of the Washington Technology Industry Association Cascadia Blockchain Council and managing director of Yellow Umbrella Ventures, says it depends.
“NFTs are risky because their future is uncertain, and we don’t yet have a lot of history to judge their performance,” she notes. “Since NFTs are so new, it may be worth investing small amounts to try it out for now.”
Investing in the NFT market largely depends on one’s individual preferences. Perhaps you should consider it if you have the money, especially if the piece has meaning to you.
However, you must remember that an NFT’s value is solely determined by what someone else is willing to pay for it. Thus, demand will determine the price rather than technical, fundamental, or economic indicators, which are generally used for determining stock prices and at least generally drive investor demand.
As a result, an NFT may resell for less than you paid for it. It could even be impossible to resell if no one wants it.
In the end, treat NFTs no differently than any other investment: Do your research, understand the risks and proceed with caution if you choose to invest.