Although Non-fungible tokens (NFTs) have been around for quite some time now, since 2014, they have gained investment traction over the past two years. Today, major auction houses have embraced NFTs trading – NFTs being sold for fiat dollars. With such a trend, investing in NFTs is something to go by. All over the globe, investors cannot afford to overlook this one fact: Already, NFTs have a potential for increased value. As a result, NFTs are here to stay.
What Are NFTs?
A non-fungible token (NFT) is more of a digital asset representing a real-world object. It transforms any digital work into verifiable assets that can be traded on the blockchain. As the latest blockchain and cryptocurrency phenomenon to prevail, NFTs are sold and purchased online. Frequently, the transactions are carried out using cryptocurrency.
Typically, the encoding software used in cryptocurrencies also applies to NFTs. As such, NFTs are built on the blockchain platform. Consequently, they are tradable for cryptocurrency or fiat currency exchange. The NFTs serve as ‘ownership’ evidence for digital assets. However, the rights attached to an NFT tend to vary.
Note: Some NFTs are characterized by Smart Contracts – Transaction protocols stored on a blockchain.
The big picture is that NFTs exist as ‘pieces of digital content.’ They are normally linked to a core digital database supporting all existing cryptocurrencies: Blockchain. Unlike cryptocurrencies, which are fungible, NFTs cannot be interchanged mutually. Therefore, no NFT is similar to another.
It’s worth noting that NFTs are not currencies. They take different forms; Collectibles, video games, tweets, in-game items, images, GIFs and any other digital artwork, to say the least. Investing in NFTs has proved to be a worthwhile investment as collectors, artists and even speculators have embraced the same investment path.
How to Start Investing in NFTs?
Investing in NFTs means that one is engaging in trading a ‘virtual certificate’ guaranteeing ownership of a digital asset. The virtual certificate, just like the physical certificate or title, presents proof of ownership. Now let us consider an investment of NFTs representing virtual assets.
Buying and selling NFTs takes place in a purpose-built marketplace meant for non-fungible tokens. In the NFTs marketplace, the digital assets can be bought at a fixed price. Similarly, the same marketplace can function as a virtual auction zone for buying and selling NFTs.
The token bought by any investor represents a unique item and value which cannot be replaced by anything else. After successful bidding or purchase, opening and funding a crypto wallet is necessary. The funds in the wallet are used to buy the targeted NFT.
Tip: Although most NFTs are based on Ethereum networks, there exist NFTs that embrace other blockchains; Solana and Polkadot. However, an NFT built on Ethereum requires the purchase in the form of Ether tokens.
With the sudden wave of NFT popularity during the COVID-19 pandemic, several marketplaces continued to gain stability: –
Upon purchasing an NFT, one is at liberty to do whatever deems fit. This goes to the extent of keeping it as a collectible, incorporating it in a digital project or displaying it to the world. Above all, one can list it for sale. For every sale, the marketplaces charge a fee. The fees depend on the Blockchain network.
Both the buying and selling processes are secure. All that is needed for a seller of the digital asset is to upload the piece to the marketplace. After the marketplace has verified the asset, the marketplace takes charge of the NFT transfer, including the transfer of crypto to the seller’s wallet. An alternative to listing the NFT for sale is opting for an auction.
Becoming a non-fungible token creator is another way of investing in NFTs. Artists, writers and musicians are leading as digital asset creators. In other words, they can guarantee the authenticity of their work, thus monetizing it. Any individual with a digital asset has the opportunity to turn it into NFT. There is also an option to ‘mint’ via: –
- Opening and funding a crypto wallet
- Within the marketplace, use the ‘create’ button to upload your work
- Listing the NFT or auction it
Advantages and Disadvantages of NFTs
The investment community has shown a lot of interest in NFTs. Undoubtedly, this can be attributed to the immeasurable merits of investing in NFTs, as follows: –
- Digital assets, like art and other collectibles, exhibit price appreciation. There is a provable track record that digital assets will definitely rise in value.
- The NFTs market is expanding at a steady rate. This hints at more buyers and sellers.
- Some NFTs incorporate smart contracts. This guarantees proceeds to the owners after the use and resale of the NFT. Therefore, there is an opportunity to continue earning in the future even after ownership transfer.
Nevertheless, going for NFTs as an investment has its downside:
- An NFT may not guarantee returns on its own due to the static nature of the assets – They are valued depending on certain metrics like demand from the buyers.
- Over time, an NFT can lose substantial value
- Creating an NFT has proved to be costly. Moreso, a huge amount of energy is used to verify blockchain transactions. This poses an environmental problem.
How Will NFTs Perform in the Future?
With the influx of interest to trade NFTs through blockchain technology, there is a golden opportunity for those who would love to maximize the technology. Gamers, influencers and artists mark a special lot of investors profiting from NFTs. However, investing in NFTs has become a universal game – Anyone can participate freely. Why not you?
In the days to come, investors will continually receive proceeds from their digital assets. The same demonstrates how the digital economy is taking shape as an attractive feature. Non-fungible tokens are expected to dominate the digital space by far. Thus, the performance of NFTs in the future is overly promising.
Things to Consider Before Investing in NFTs
Investors should ensure they are doing everything right. There are several must-dos or rather considerations to watch keenly:
- Ensure thorough NFTs research. Scan what is in the marketplace before buying, or creating one. Analyze the risks. More importantly, understand the scarcity behind each NFTs.
- Identify a reliable crypto brokerage or exchange. NFTs investment requires possession of cryptocurrency. You can buy or exchange cryptocurrencies from Kraken, Binance.US, and Coinbase etc.
- Be keen on marketplace selection. An NFTs marketplace reflects where the digital assets in question are either sold or bought. Go for the most popular NFTs marketplaces.
- Evaluate the costs involved and make sure funds are available in your wallet. Whether you are an NFT creator, buyer or seller, there are fees involved due to gas fees.
- Other key parameters to consider include NFTs uniqueness, market volume and liquidity, and ownership history.
Investing in NFTs is easy. There are enough reasons to believe that the NFTs are worth the money and investment. Sales and profits are being made, thus qualifying NFTs as a promising technological front. Although risks are inevitable, NFTs are here to stay.