Blockchain technology has created a new type of investment with cryptocurrency. Blockchain is also responsible for another trendy investment that debuted in 2021: non-fungible tokens, or NFTs. NFT investing is becoming more and more popular for a good reason. However, learning how to invest in NFTs can be complicated from the outside, but it’s easier to understand than one might think.
If you want to expand your investment portfolio and have a higher risk appetite, then NFTs can be a good option. This article will cover how to invest in NFTs, and whether or not you should.
What is an NFT?
A non-fungible token or NFT is a digital asset that represents a real-world asset.
You might have heard of a “non-fungible” asset. A non-fungible asset is an asset that is peerless. Since it is one-of-a-kind, it cannot be exchanged for an asset of similar value and has no recognized market value.
For instance, a plot of land would be a non-fungible asset. A plot of land exists only in one place and can’t be reproduced, so it doesn’t have a widely recognized market value, and cannot be exchanged for an equivalent value.
On the other hand, the one-dollar bill can be produced in large quantities. You can exchange one dollar bill for another dollar bill, with each retaining the same value.
An NFT generally represents a digital asset, such as:
- Videos
- Online Artwork
- Memes
- Music
- Video game data (in-game items, skins, virtual avatars, etc.)
- Tweets
- GIFs
- Virtual collectibles
Usually, digital creations are unlimited in supply (which makes them a fungible asset). Everything online can be copied and shared.
NFTs attempt to rectify this by creating scarcity and designating digital creations as “natives”. If you own an NFT of a digital asset, you own the original asset. For example, if you buy an NFT of a meme, you technically own the meme.
Note: NFTs are a very new type of investment, so there may be rules and regulations regarding copyright and profit models. It is possible that, for legal purposes, NFTs will be treated in the same way as cryptocurrency.
How Do NFTs Work?
Identical to cryptocurrencies, NFTs also use blockchain technology. Most NFTs are connected to Ether, that is the cryptocurrency of Ethereum.
Whenever an NFT is purchased, the transaction is registered on a network of computers, and the owner is given an access code. Each NFT has a unique digital signature, so one cannot be exchanged for another (unlike cryptocurrencies such as bitcoin).
Even if you own an NFT, know that people can still view or copy the digital asset. You can easily copy anything from the Internet. For example, if you have a digital photo, someone else can still download or screenshot it if it is posted somewhere on the Internet.
Most people buy NFTs to “brag off”. They are passionate about NFT and they want to enjoy being its official owner. Several NFTs are created by celebrities who auction them off to superfans. It’s not all that different from selling autographs.
For this reason, NFTs are a questionable investment. The vast most NFTs provide no cash flow such as stocks, and there is no evidence to suggest that they will appreciate in value like an investment asset.
The majority of investors buy NFTs on the basis of speculation. They think the NFT will be worth more money someday, so they’ll buy and hold until they can sell at a higher price.
This is not a very safe or rewarding investment strategy, but if you believe the NFT will increase in value, it may be a worthy high-risk investment for your portfolio.
What Makes an NFT Valuable?
NFTs have no intrinsic value, such as cryptocurrencies, they are only worth what people are willing to pay for them. Unlike stocks, the value of an NFT is not based on shareholder dividends, the company’s projected growth, or the annual profit margin.
A few NFTs have sold for millions of dollars, but even those NFTs are not guaranteed to be valued that much. NFTs do not appreciate the value in the same way that real estate does.
NFT has become popular for selling digital art. Digital artists can sell their artwork online and receive royalties on selling the NFT to a new owner. It’s unclear whether digital art will appreciate more than memes or GIFs.
Remember that many NFTs can be rather immodest. For instance, Charmin (toilet paper manufacturer) issued an NFT for “irreplaceable toilet paper”. For some investors, this may indicate that NFTs are more of a trend than a legitimate, long-term investment.
Where To Buy And Sell NFTs
It is difficult to compare NFT marketplaces by size, as official sales figures and numbers are not publicly available. Below are our top and best 5 picks on where to buy and sell NFTs based on our research:
- Opensea: If you’re looking for the eBay equivalent of NFT, check OpenSea first. Known as the largest NFT marketplace, It is perfect for creating new NFTs for developers. Not only does it offer the widest range of digital assets, but it also accepts over 150 different tokens for payments.
- Rarible: Similar in scope to OpenSea, Rarible is a community-driven marketplace. Through Rarible, you can create NFT portfolios that can offer royalties on future sales. Buying and selling on the platform requires the use of Rarible tokens.
- Mintable: If you are more of the Etsy type, visit Mintable. Brought to you by billionaire Mark Cuban, this NFT exchange is easy to use.
- Foundations: The Foundation was created as a no-nonsense, no-frills way to offer NFTs. Launching in early 2021, he has already generated $100 million. This site is invite-only and curated by artists.
- Nifty Gateway: If you are a fan of the celebrity’s NFTs, Nifty Gateway is worth a look. This curated artwork platform is powered through the cryptocurrency trade Gemini. Nifty made waves by selling NFTs created by some of the hottest digital artists. The market holds the record for selling the majority of expensive NFTs at $91.8 million.
How To Invest in NFTs
It’s simple to invest in NFTs. Just follow these key steps:
- Open an account on NFT Marketplace: NFT Marketplace is an online marketplace where NFTs are listed for sale. The most popular is open sea and rare. Be sure to research the person you’re buying from—many creators and celebrities have impersonators trying to sell counterfeit NFTs.
- Create a digital wallet: You will need to create a digital wallet to store your NFT keys and crypto tokens. You can use an external hardware wallet or an integrated wallet with a crypto-currency exchange (Coinbase, for instance, has an integrated wallet where you can store your keys).
- Fund your account: Whether you use a crypto exchange or an external wallet, you will need to connect your bank account or credit card so that you can cryptocurrency for your transactions. You may be required to go through an identity verification process which is run by the software/exchange platform.
- Buy NFT: Find the NFT you want to buy and buy it! The NFT marketplace will generally walk you through this process. It’s not much apart from buying something from Amazon. Some assets are sold via auction, while others offer a “Buy Now” option. Don’t forget that even if you get a free or cheap NFT, you will still have to pay transaction fees. Once the purchase is complete, you will have access to your new NFT in your crypto wallet until you decide to sell it.
How To Sell An NFT
Once you buy an NFT, it’s up to you to deem what to do with it. If you deem to sell it, you can list it on the marketplace for a fee. Before you attempt to upload an NFT to the marketplace, be sure it supports the blockchain the NFT was created on.
Then, you can list it at a set price, or the buyer can choose for an auction. Once your NFT is sold, the marketplace will handle the transfer of assets between you and your buyer, upon which the cryptocurrency funds will be transferred to your digital wallet.
Pros And Cons of Investing in NFTs
Before investing in any type of property it is a good idea to weigh the potential drawbacks against the benefits. The value of many NFTs has increased significantly in recent times and thus has created a buzz among the investment community.
Physical collectibles have historically been reliable in terms of their value appreciation, and many believe the market for digital art will behave similarly. Artists and creators will also receive fair payment when assets are used or resold through smart contract technology.
On the other hand, NFTs are fixed assets and do not generate income on their own. Their worth is subjective and will fluctuate based on buyer demand. However, who can say that Nyan Cat will retain any cultural relevance 20 to 30 years from now?
It is hard to say, and that is the risk NFT buyers are willing to take. NFTs and other assets using blockchain technology are also receiving negative attention due to their environmental effect. Creating and verifying transactions utilize a significant amount of energy.
Should You Buy NFTs?
Are NFTs a good investment for you?
Ask yourself why you are investing.
If you are trying to save for retirement or earn a passive income, NFTs are maybe not the best investment for you because they are highly volatile (fluctuate wildly in value) and may not appreciate over the long term. Also, They don’t pay recording dividends or interest. Better to invest in these:
- Mutual funds Or Index Fund
- Exchange-traded funds (EFTs)
- Rental Properties
NFTs are a high-risk investment. Several investors’ portfolios around reliable low-risk and medium-risk investments that are safe and pay steady dividends. investors only invest in high-risk investments such as NFTs after they have built a diversified portfolio. That way, if they lose their money on the high-risk investment, the losses will be covered by the other investments. Consider utilizing these tactics for successful investing.
The Bottom Line
Non-Fungible Tokens (NFTs) are digital assets that represent unique works of art on the internet, such as memes, GIFs, videos, and digital art. NFTs stand for ownership of digital assets, but most NFTs can be copied or accessed even if they appear on the web.
NFTs have no intrinsic value and do not pay dividends or interest. Most people only buy for the personal satisfaction of owning. With the rising popularity of 2021, many investors want to learn how to invest in NFTs.
However, due to their low value and trendy nature, they may not be a lucrative investment. Consider using NFTs as a risky investment. However, prefer low-risk investments.