Unless you’ve been living under a literal (not digital) rock, you would know NFTs are all the rage right now, taking the digital art and collectibles world by storm. From celebrity memorabilia and tweets to apes and rocks, these digital assets are being sold for millions of dollars.
In fact, NFTs are life-changing for many digital artists, thanks to this hype and huge demand in sales from this new-found crypto audience. To some, NFTs are the new must-have investment while for others, they are merely a passing fad.
So, you might be wondering: what is an NFT?
Well, you’ve come to the right place! Let’s dive right in and explore what all the fuss is about.
What does NFT stand for?
Simply put, NFT stands for non-fungible token. It is a digital cryptographic asset that exists on a blockchain and cannot be replicated. Real-world, tangible items like artwork, real estate and celebrity merchandise can be ‘tokenised’, which would make the buying, selling and trading of these assets more efficient while reducing the risk of fraud.
How do NFTs work?
Now that we’ve established a basic understanding of what NFTs are, let’s deep dive into how they work before you even consider dabbling into some yourself.
Most NFTs are created on the Ethereum blockchain, but there are also new NFTs supported on alternative blockchains. This allows the verification of identity and ownership of the asset on their respective blockchain ledgers.
You can buy, sell and trade NFTs on marketplaces just as you would in a physical store or gallery and the price is largely affected by market forces of demand, supply and scarcity. How do you know that the NFT you’re buying is legitimate? Simple. Each NFT has its own digital signature that makes it impossible to duplicate. Also, NFTs can only have one owner at any given time and this can be easily verified through the very use of blockchain technology that it has been built upon.
NFTs and Cryptocurrencies: what’s the difference?
As explained earlier, NFTs are non-fungible tokens. What this means is that you cannot swap one unique NFT for another with the expectation of them retaining the same value.
On the flipside, physical money and cryptocurrencies are ‘fungible’ in the sense that they can be traded or exchanged for one another with a preset equal value – one dollar is always worth a dollar and one Bitcoin will be the same value as one Bitcoin.
So, what’s the point of NFTs?
This all depends on who’s involved in it. Artists and content creators now have this opportunity to monetise their craft independently without having to rely on galleries or auction houses to market their works. They can now sell it directly to their audience as an NFT, with an added feature to get paid a percentage every time the NFT is sold or exchanges hands.
If you’re a buyer, NFTs are a pretty good way to show your support for charitable causes. Brands like Taco Bell and Publicis Groupe have auctioned off themed NFTs for charity and the war against Ukraine respectively.
Of course, if you’re an investor or collector, this would be a brand-new speculative asset that you can purchase and hope that the value of it goes up to earn yourself a profit – think Mutant Ape Yacht Club (MAYC), Bored Ape Yacht Club (BAYC) and Azuki.
How to Buy NFTs?
If all of this appeals to you, and you’re keen to begin collecting NFTs, here’s a few things you will need to get started.
First, you will need to own cryptocurrency to buy any NFT as most NFTs can only be purchased with Ether.
Next, you will also need to get a digital wallet that allows you to store both your cryptocurrencies and NFTs.
Once you’ve got both of these in order, there are many NFT sites for you to get your hands on one. The top few marketplaces are Opensea, Sandbox, Decentraland and Solsea.
A word of caution, as with buying cryptocurrencies, always do your own research on the verification processes for creators and NFT listings as each platform has its own set of requirements.
Here are some of the better-performing NFTs to have been sold in recent years
Virtual Real Estate in the Metaverse
Decentraland, Sandbox and Otherside are just a few metaverses that people have bought into over the past year. Players are able to buy virtual plots of land that will be represented by a unique NFT, which can then be sold on the open market.
CryptoPunks, Bored Ape, Mutant Ape
These collections of digital characters are all individually unique and numbered NFTs. Known for their quirky designs, they have since exploded in the scene and are one of the most highly sought-after pieces.
From Snoop Dogg to Logan Paul to Steph Curry, the NFT space has no shortage of superstars. In fact, more and more celebrities are taking an interest in this by releasing unique moments and artwork as NFTs and selling them in limited runs.
Should You Invest in NFTs?
So, just because you can get started in NFTs, does that mean you should? It depends.
Deciding whether or not to invest in NFTs is a very personal decision and always exercise caution and due diligence of which platforms to use.
As far as statistics go, the market is definitely booming. In 2021 alone, NFT trading volume surpassed $40 billion – with many tokens selling for over a million dollars. It is clear that people are making a lot of money from buying and selling trending NFTs. However, this is dependent entirely on market demand.
If you are considering jumping into the NFT marketplace, keep this potential price volatility in mind. Because should the hype die down, you might be left with an image of an 8-bit-style pixel art that nobody wants to buy.