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Safe property exchange or speculative bubble?
Non-fungible tokens (NFTs) appear to have exploded this year. Whether in the form of art, music, or collectibles, these digital assets sell like exotic Dutch tulips in the 17th century — sometimes for millions of dollars.
But is it worth investing in NFT? Some experts believe it is a bubble about to burst, like the dot-com craze or Beanie Babies. Others believe that NFTs are here to stay and will change investing forever.
What Are Non-Fungible Tokens?
Non-Fungible Tokens (NFTs) are crypto assets on a blockchain network with unique identification codes and metadata that distinguish them from each other. Unlike cryptocurrencies, they cannot be traded or exchanged for equivalence.
This differs from fungible tokens such as cryptocurrencies, which are identical to each other and can therefore serve as a medium for business transactions. For example, money is fungible, which means that one rupee can be exchanged for another.
By definition, a non-fungible token is not comparable to another non-fungible token. This means that each NFT is unique or part of a very limited edition, and each one has its own unique identification code.
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ALT: NFT, Non-Fungible Tokens what are they and what are the projections
What does “non-fungible token” mean?
Fungibility is a characteristic of a good or commodity in which each unit is interchangeable and indistinguishable from another. Expendable items can be exchanged because each one is unique and unrepeatable.
For example, if you have a 100 rupee note, you can easily substitute another 100 rupee note or two 50 rupee notes without affecting the value exchanged. For example, Bitcoin is fungible because one Bitcoin can be exchanged for another.
Instead, your favorite limited edition soccer player card is an example of non-expendable merchandise. Each card is unique and can be treated as a collectible. A card with one player does not usually have the same value as the card with another player. Even if two cards are the same, other factors like the year of production or the condition of the card can make a difference. Likewise, a work of art or painting created as a single copy is an example of a non-collectible.
How do non-fungible tokens work?
NFTs exist on a blockchain, which is a distributed public ledger that records transactions. You are probably most familiar with the blockchain as the underlying process that makes cryptocurrencies like Bitcoin possible.
One of the most famous blockchain networks for NFTs is Ethereum. However, many of these tokens are also traded on other networks.
An NFT is created, or “minted,” from digital objects that represent tangible and intangible items, including:
-
- Art
- GIFs
- Videos
- Collectibles
- Virtual avatars and video game skins
- Designer sneakers
- Music
Even tweets count. Twitter co-founder Jack Dorsey sold his first tweet as an NFT for more than $2.9 million.
Basically, NFTs are like physical collectibles, but digital. Instead of receiving an oil painting to hang on the wall, the buyer receives a digital file.
You also get exclusive property rights. This means that NFTs can only have one owner at a time. The unique data on NFTs makes it easy to verify ownership and transfer tokens between owners.
The creator can also store certain types of information inside it. For example, artists can sign their artwork by including their signature in the metadata of an NFT.
What are non-fungible tokens used for?
Blockchain technology and NFTs offer artists and content creators a unique opportunity to monetize their works. For example, artists are no longer tied to big business auction houses when it comes to selling their art.
Instead, artists can sell their creations directly as an NFT, which also allows them to keep part of the profits. Additionally, artists can also schedule copyrights so that they can track their art and earn commissions from it.
But art is not the only way NFTs are profitable. Brands like Charmin and Taco Bell have auctioned off themed artwork to raise funds for charity.
Taco Bell NFT art sold out in a matter of minutes, with a maximum bid of 1.5 wrapped Ethereums (WETH), equivalent to $3,723.83 at the time of writing.
Nyan Cat, a 2011 GIF of a cat with a pop tart body, sold for nearly $600,000 in February. NBA Top Shot generated more than $500 million in sales through the end of March. A GIF of a LeBron James highlight fetched more than $200,000.
Even celebrities like Snoop Dogg and Lindsay Lohan are jumping on the NFT bandwagon, posting memorabilia, artwork, and one-of-a-kind moments as titled NFTs.
What makes NFTs so valuable?
Blockchain technology allows NFTs to be publicly authenticated, serving as a digital signature that certifies ownership and originality. NFTs cannot be exchanged for the same as each one is unique, unlike fungible assets like dollars, stocks, or gold bullion.
NFTs can only have one legal owner and are secured by the Ethereum Blockchain. That is, property records cannot be modified.
An art collector, Pablo Rodríguez Fraile, bought a 10-second video clip of an artist for $67,000 and sold it for $6.6 million.
As mentioned above, NFTs can only have one owner. This property is managed using a unique identifier and metadata that is unique to a particular NFT. NFTs are executed using smart contracts, which assign ownership and transferability of the tokens.
This is a unique way of trading digital assets, so its use is limited by the creativity of the creator of the NFT collection. Those companies that have found useful ways to make use of NFTs have seen profits in the millions.
In addition to this, today NFTs are used as a non-traditional investment method. That is why every day more businesses appear based on the purchase and sale of NFTs.
Where to Buy NFTs?
If you want to start your own collection of NFTs, you will need to acquire some key items.
First of all, you will have to get a digital wallet that allows you to store NFT and cryptocurrencies. You may need to purchase cryptocurrencies, such as Ethereum, depending on the currencies accepted by your NFT provider.
Cryptocurrencies can now be purchased using credit cards on platforms like Coinbase, eToro, and Binance. You can then move it from the exchange to the virtual wallet of your choice.
Popular sites to buy NFTs
Once you have created and funded your portfolio, there is no shortage of NFT sites to buy from. Currently, the largest NFT markets are:
- OpenSea.io: This peer-to-peer platform bills itself as a provider of “rare and collectible digital items.” To get started, simply create an account to browse the NFT collections. You can also sort items by sales volume to discover new artists.
- Rarible: Like OpenSea, Rarible is an open, democratic marketplace that allows artists and creators to issue and sell NFTs. RARI tokens issued on the platform allow their holders to have a say in things like fees and community rules.
- Foundation: Here, artists must receive upvotes or an invitation from other creators to publish their art. The exclusivity of the community and the cost of entry—artists also have to buy crypto to monetize the NFT—means higher-caliber art can be expected. This can also mean higher prices, which is not necessarily a bad thing for profit-seeking artists and collectors, as long as the demand for NFTs stays at the current level — or even rises.
Although these and other platforms are home to thousands of NFT creators and collectors, you need to do your research before you buy. Some artists have fallen victim to copycats who have listed and sold their works without their permission.
Additionally, creator verification processes and NFT lists are not uniform across all platforms – some are stricter than others. OpenSea and Rarible, for example, do not require owner verification for NFT listings.
Conclusions
As you have seen, non-fungible tokens present a unique opportunity for digital exchanges. These are the main points to keep in mind about this technology:
- NFTs (non-fungible tokens) are cryptographic assets whose quality is that they cannot be repeated. Each one is unique and indistinguishable.
- NFTs can come in the form of images, gifs, audio files, etc.
- There is a lot of business emerging around NFTs where media companies or chains offer unique rewards.
- NFTs have also become popular as an alternative investment method to the stock market and cryptocurrencies.
- To invest in these tokens, the first thing is to have a crypto wallet. Only then can that crypto be used to buy assets.
Editorial: Marcelo Frette
