Earlier this year in March, a digital piece of artwork sold for a staggering $69 million by an artist named Beeple. Twitter CEO Jack Dorsey sold an NFT of his first tweet ever that said, “just setting up my twttr” for $2.9 million. Celebrities like Eminem, Ellen DeGeneres, Snoop Dogg, Lindsay Lohan, Grimes, and William Shatner got in on the action too, with each releasing their own digital tokens. But what exactly is an NFT and how can I make some NFT investments?
What Is an NFT?
NFTs, or non-fungible tokens, are digitized assets that represent digital and physical things like collectible cards, music, real estate, art, contracts, or identifications. You can literally make anything into an NFT which can be thought of a digital image of that thing. But why would you do this? The whole point of an NFT is to track that digitized asset while proving ownership of it. Think of the title to your car or the deed to your house – you can’t prove that you own any of these assets unless you have that piece of paper that says you own it. But what if you digitized that title or deed into an NFT? There would no longer be a need to print it on paper and you can access it at any time and anywhere, just as long as you can connect to the internet. This provides convenience and security. You don’t have to worry about losing it since it lives in cyberspace, which protects you from any attempts at fraudulent activities as well.
What Does Fungible Mean?
When something is fungible, it means it can be exchanged with another identical item while also capable of breaking it down into smaller parts. The dollar bill is fungible because it can be traded with other dollars while also being able to be broken down into smaller denominations like quarters or pennies. Bitcoin, commodities, and precious metals are all examples of fungible goods.
NFTs like Jack Dorsey’s tweet or the Beeple digital art are non-fungible tokens because they are unique, cannot be traded, and are indivisible. The programming in the token is written in such a way that it’s impossible to change or break down into smaller parts.
How Do Non-Fungible Tokens Work?
Most of the NFTs out there are run on the Ethereum network. Whenever a new NFT is created on the blockchain, there are unique identifiers, codes, and metadata that are tied to it forever. Think of a digital representation of something with a fingerprint – completely unique and unable to be broken down. The immense popularity of blockchains in recent years is due to their ability to reliably record data with total traceability and transparency. It’s no wonder why Ethereum is always in the news.
What Benefit Does NFTs Have?
Decentralized finance, or DeFi, is the talk of the town these days and this isn’t surprising because of the immense value it brings to the financial world. NFTs are what makes DeFi possible because its technology allows direct transactions of digital assets from peer to peer, all while doing so without a third-party intermediary. For example, artists and musicians can sell their work directly to buyers without having to ask for permission from a publishing house or record label. This means you’ll have more cash in the bank because you won’t be playing by their rules or paying them royalties or commissions. The very nature of an NFT allows you to enjoy owning your digital asset with absolute control of it. Musicians can even set up their NFTs to pay royalties back to them on every sale which means that they are earning a cut whenever it gets resold in the NFT marketplace.
Investing In NFTs
Similar to the stock market, NFTs also have marketplaces where you can buy, trade, and sell digital assets. Below are the steps to take so you can get in on the action today.
Select The Right NFT Platform
With the advent of blockchain technology tons of NFT marketplaces sprung up making the selection process dizzying. The first thing you should do is to decide what kind of digital asset you would like to invest in. If you’re unsure, look into OpenSea and browse their huge selection of categorized NFTs, which can give you an idea of what you want. Myth Market is perfect for those who like to collect trading cards while Enjin Marketplace is a haven for gamers – perfect for US players.
Set Up a Crypto Wallet
To buy and sell on the platform, you’ll need to link a cryptocurrency wallet to it. Crypto wallets are similar to a debit card in that your money isn’t held directly in an ATM but acts as a key that unlocks money from it. Private keys are stored in crypto wallets which provide access to the NFT on the blockchain. Ensure to store your private keys in a safe place while making sure no one finds about them.
Not all platforms are compatible with all crypto wallets so make sure you research this before you commit to either. Metamask is a safe company considering it is one of the most popular wallets out there and is compatible with all of the platforms mentioned before. Trust Wallet and Formatic are great choices too but make sure to look into their differences in fees, security, and compatibility. Once it’s all set up, you can fund it with fiat money (i.e.. Apple Pay, Debit card, etc.) or cryptocurrency.
Buy, Sell, or Create Non-Fungible Tokens
Once your crypto wallet is funded you can buy, sell, or even create NFTs of your very own through the marketplace that you signed up for. You’ll need to link the crypto wallet and the platform before you do anything though. If we use Metamask as an example, you would have to download its Chrome extension then sign into OpenSea. Navigate to your profile and you’ll see an option to sign in through Metamask. Once you do, the installed extension will automatically pair the wallet to the platform.
Now that you’re set-up, the only thing left to do is go to the marketplace where you can choose the assets that you want to buy. This is as simple as a click on the ‘buy’ button on the NFT of your choosing. NFTs will vary greatly in price so make sure you have enough funds in your wallet before you make a purchase. Once purchased, you can keep the NFT in your crypto wallet or sell it immediately to a customer – hopefully for a profit. Some investors like to hold on to it for a while with hopes of it increasing in value over time.
If you decide to put your NFT up for sale, it’s really as simple as hitting the ‘sell’ button on any of the NFTs that’s in your inventory. You’ll be prompted to select a selling method that usually involves a fixed price, auction option, or bundle. Beeple’s artwork that sold for millions was sold through an auction as with most digital art that fetched millions. The bundle option allows you to package multiple NFTs for an affordable price. If you want to make a profit from your flip make sure you know your market. NFTs are now mainstream so naturally, the NFT market has been flooded with people creating and selling their own collectibles and digital art.
All of the digital art and other related items that sold for high prices were creators of their own tokens. You too can create a digital only piece and sell it to clients just like celebrities do. Not all platforms allow you to create your own NFT so make sure to look for the ‘create’ button on each website you visit. After you’ve created your own NFT, make sure to let customers know that it’s open for investing.
Are NFTs The Right Investment?
Although NFTs are high in demand these days, it’s important to know that NFTs are relatively new and that their future is unpredictable, making these assets challenging to consider as a good investment.
Before you go investing in a token, ask yourself these questions. Can Jack Dorsey’s first ever tweet be resold to another customer in the future or was the buyer making a $2.9 million mistake? Is the $69 million Beeple artwork really worth it? Will blockchain and NFTs advance far enough where it becomes ubiquitous and overtake every aspect of our e-commerce? Are we in an NFT bubble? These are all great questions, but no one has the answer to them right now. It’s entirely possible that NFTs may become obsolete and be replaced by another technology. It’s also possible that government regulations could regulate DeFi and make the whole decentralization concept crumble.
On the flip side, none of this may materialize but one thing is for sure – the possibility of losing your money in an NFT investment is real. Investors of NFTs would be considered speculative considering their current climate and the fact that they have no intrinsic value nor any fundamentals to back up their value. Its value is derived from only what you or the public thinks it is. For example, intrinsic value comes from the stocks or bonds that ETFs, or exchange-traded funds, owns. NFTs work differently where it’s purely driven by market hype and people’s perceptions.
Do yourself a favor and research thoroughly and if you are going to invest in this risky asset don’t expect financial freedom and allocate only up to 5% of your investment portfolio while expecting losses. Otherwise, you might be better off making bigger gains through a 10 free no deposit bonus casino. In fact, with the many iGaming sites offering cash deposits and returns, there are just as many which use cryptocurrencies as a main payment method. Either way, it’s good idea to look into if you’re interested in NFTs and blockchain technology as a whole.