This year, non-fungible tokens (NFTs) seem to have exploded from nowhere. These digital assets are selling like 17th-century exotic Dutch tulips, for millions of dollars, on anything from art and music to tacos and toilet paper.
Is that really worth the money—or the hype—to invest in NFTs? Like the dotcom frenzy or Beanie Babies, some experts believe they’re about to burst. Others feel that NFTs are all here to stay and will permanently revolutionize the way people invest.
What Is an NFT, and What Does It Mean?
An NFT is a digital asset that reflects real-world elements such as art, music, video, and in-game stuff. They’re purchased and traded online, and they’re usually encoded using the same underlying software as many other cryptos.
Despite the fact that they’ve been there since 2014, NFTs are becoming increasingly popular as a means of purchasing and trading digital art. NFTs have cost a whopping $174 million since November 2017.
NFTs are generally one-of-a-kind or part of a limited batch, and feature unique identifying numbers. “Essentially, NFTs create digital scarcity,” says Arry Yu, managing director of Yellowfin Capital and chair of the Cascadia Blockchain Council of the Washington Technology Industry Association.
This contrasts sharply with the vast majority of digital things, which are nearly always available in almost infinite quantities. If a certain asset is in great demand, lowering its supply may result in a price increase.
Many NFTs, on the other hand, have been secured copies of digital art that are already floating on Instagram, at least in these early stages.
Famous digital artist Mike Winklemann, better known as “Beeple,” assembled a composite of 5,000 daily drawings to produce “EVERYDAY: The First 5000 Days,” which sold for a record-breaking $69.3 million at Christie’s in 2021.
Individual images or perhaps the full collage of images can be seen for free on the internet. So, why are individuals prepared to spend millions of dollars on something that might be simply screenshotted or downloaded?
Because buyer can keep the original thing in a non-financial transaction. It also has built-in authentication that serves as proof of ownership. Collectors prize the “digital bragging rights” almost as much as the piece itself.
What Is the Difference Between an NFT and Cryptocurrency?
The concept “non-fungible token” relates to a token that is not fungible. It’s usually programmed in the same style as cryptocurrencies like Bitcoin or Ethereum, but that’s where the similarities end.
Cryptocurrencies and physical money both are “fungible,” meaning they can be traded or swapped for one another. They’re also worth the same amount of money. One dollar is always worth another dollar and one Bitcoin is always worth another Bitcoin. The fungibility of cryptocurrency makes it a safer way to conduct blockchain transactions.
What Is an NFT and How Does It Work?
NFTs are kept on a blockchain, which is a distributed public ledger that records transactions. The majority of people are familiar with blockchain as the underlying technology that enables the existence of cryptocurrencies.
NFTs are often maintained on the Ethereum blockchain, although they can also be held on other blockchains.
Digital things that represent both tangible and ethereal objects, such as:
- Graphic art
- Videos and sports highlights
- Virtual avatars and video game skins
- Designer sneakers
Even tweets are accounted for. Jack Dorsey, one of Twitter’s co-founders, sold his first tweet as an NFT for $2.9 million.
NFTs are essentially digital replicas of real-world collectibles. As a result, the purchaser receives a digital file rather than a genuine oil painting to hang on the wall.
They also get the property’s exclusive rights. NFTs may only have one owner at a time, and their use of blockchain technology simplifies ownership verification and token transfers. The creator of an NFT can also store extra information in the metadata. Artists, for instance, can sign their work by signing it in the file.
What Is the Purpose of NFTs?
Thanks to blockchain and NFTs, artists and content producers get a once-in-a-lifetime opportunity to monetize their work. Artists, for example, are no longer reliant on galleries or auction houses to sell their work. Instead, the artist may sell it directly to the buyer as a non-traditional toy, allowing them to keep a bigger percentage of the earnings. Artists may also incorporate royalties into their software so that they receive a portion of the proceeds when their work is sold to a new owner. Because most artists do not make more cash after their initial sale, this is a useful feature.
Making money with NFTs isn’t just for artists. Companies like Charmin and Taco Bell have marketed themed NFT paintings to raise money for charity. The NFT art by Taco Bell sold out immediately, with the top bids coming in at 1.5 wrapped ether (WITH), or $3,723.83 at the time of writing.
Nyan Cat, a 2011 GIF picturing a cat with a pop-tart body, bought for more than $600,000 in February. NBA Top Shot has surpassed $500 million in sales as of late March. A single LeBron James highlight sold for more than $200,000 on NFT.
How to Purchase NFTs
If you’re willing to start your own NFT collection, you’ll need the following items:
To begin, you’ll need a bitcoin wallet that can hold both NFTs and cryptocurrencies. Based on what currencies your NFT provider takes, you’ll probably need to get some cryptocurrency, such as Ether. Coinbase, Kraken, eToro, and even PayPal and Robinhood now allow you to buy cryptocurrency using a credit card. Afterwards, you’ll be able to transfer it from the exchange to your preferred wallet.
When considering your alternatives, keeping fees in mind. When you trade crypto, most exchanges fee at least a portion of your transaction.
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