Non-fungible tokens have stirred justifiable interest across the world since 2021. Most people know that NFTs have something to do with cryptocurrency, but what are they, really?
NFTs are essentially immutable tokens that represent unique assets like art, videos, music, and in-game tokens. The most popularized use of NFTs involves the trading of digital art. NFTs provide documentation that serves as proof of ownership and authenticity.
Digital art and music, just like real-world rarities, can be copied and made available to anyone. NFTs preserve the value of the original assets by conserving them in the blockchain.
Valuable digital assets can be likened to the works of famous artists like Vincent van Gogh's Starry Night. There are numerous replicas of this piece, but still only one original. When a digital art piece is of great value, NFTs ensure that this value is not affected by any copies. A unique NFT represents the actual value of art.
NFTs represent the original version of digital assets, whether it is land and property or a one-of-a-kind artifact. Dennis Consorte, an enthusiast of crypto and the metaverse, claims that NFTs will soon play a significant role in eCommerce.
Many renowned brands like Louis Vuitton have already incorporated a chipping system to mark each product as unique. It is a small jump from these chipping systems to the NFT space. Brands will be able to distribute non-fungible products that have digital counterparts in the metaverse with special characteristics once they enter the world of NFT.
The non-fungible nature of NFTs means that these tokens cannot be replicated or replaced. They are either entirely unique or extremely rare. The connection between NFTs and cryptocurrency exists because they are both based on a blockchain. Most existing NFTs are built on the Ethereum blockchain.
Most investors buy NFTs because they predict the value to increase in the coming time. Others may invest in support of their favorite artists.
The latter is comparable to real-world art collectors. Once you purchase an art piece of value, you are the rightful owner of an irreplaceable item that will likely grow in value as it is rare and unique.
It may seem complicated to get involved in the NFT market. However, although it isn't as simple as buying a cryptocurrency like Ether, it is still a relatively straightforward process.
It is worth noting that NFT transactions will always involve gas fees. A gas fee is simply the money paid for a transaction to take place. Gas fees may sometimes be high, so keep track of their fluctuations and tendencies to pick the right moment to buy.
There are other ways of investing in NFTs without buying them outright. For example, you could get involved in a venture capital fund that invests in crypto infrastructure and NFTs. However, you do need to be an accredited investor to go this route.
Non-accredited investors can buy NFT-focused exchange-traded funds such as Defiance Digital Revolution ETF which invests in NFT stocks, cryptocurrency, and blockchain.
Deciding to purchase NFTs should not be done lightly. It is an extremely risky investment with unpredictable outcomes. If your goal is to profit from the rise in the value of the NFT, this might not be the best investment opportunity for you.
However, if you wish to purchase a digital artwork in support of an artist or because the piece truly speaks to you, it is worth the investment.
The golden rule of investing in NFTs is never to invest money you can't afford to lose. NFT investments are even more speculative than cryptocurrency investments. NFTs are only worth what someone is willing to pay for it. If you buy an NFT that cannot be resold, it is essentially worthless.
Let's consider the disadvantages of investing in NFTs for the sake of providing saturated advice:
The principle of buying low and selling high is just as applicable to NFTs as any other investment. Many investors buy NFTs to sell them for a profit later. It should be noted that NFT investments are entirely based on speculation and their values can drop to zero in very little time.
Some NFTs can be bought and sold for a profit right away, whereas you can hold others for longer periods. Unlike traditional stocks and bonds, you cannot know what the intrinsic value of an NFT is. Their market value depends solely on what the crypto community is willing to pay for them.
It is wise to set aside a certain amount of money in a risk capital bucket. Your risk bucket contains the amount of money you are willing to risk losing, although you might also gain from it.
NFTs can be thought of as commodity-like assets comparable to silver and gold. This is because NFTs are illiquid and completely uncorrelated to any other marketplaces out there.
Your long-term investing goals should determine your choice of NFT. Like with any other investment, you should find NFTs that align with your portfolio growth.
Some NFTs have greater applications than others and will inevitably hold greater value in the future. When investors understand the utility of an NFT, it can be a very promising investment in the long run.
The trade of digital artwork primarily led to the hype of NFTs. Blockchain technology ensures that the value of digital art is secured and ownership is authenticated. Digital artworks are the cornerstone of NFTs and are traded more than any other digital assets in existence. When you buy an NFT artwork of multiple pieces from a collection allows investors to sell it for a large profit when the value of those NFTs increases.
The real estate domain has always been immense and involved high trading volumes. Real-world real estate is extremely difficult to transfer because of the presence of a middleman such as a bank or financial institution. NFTs make this process significantly more accessible because they secure the ownership of assets safely and effortlessly without the need for a regulatory entity.
The play-to-earn gaming model has revolutionized the digital space in recent years. By incorporating blockchain technology, players can make gaming a full-time job, and investors have a lot to gain in this respect.
An NFT marketplace is a platform created on a blockchain platform where transactions occur. Large businesses have recognized the potential of NFT platforms as an investment opportunity, and by getting involved in such a platform, more users are generated. Investing in a promising NFT marketplace is a great way to make a profit in a short amount of time.
Marketing a specific NFT marketplace will convert a large number of participants, further elevating the platform's potential. NFT marketing involves promoting the platform on social media, via emails, ad promotions, and content marketing.