Decentralization has taken the world by storm. Who are now actively trading in the market, most of them wouldn’t have heard about NFTs or even cryptocurrencies two years prior. As COVID-19 hit the globe, this decentralized art form, called NFT, held a new door open for both investors and digital artists.
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Let’s get started with NFT and discuss if you should invest in them.
What is NFT?
Non-fungible token. Period.
NFT is a form of non-fungible asset, which contrary to fungible assets – like money, has no specific value associated with them. Think about a house that you own. You might’ve bought the house with real money, but the real value of it in the present time depends on hundreds of other variables like location and neighbourhood.
The house is comparable to an NFT, just in the Blockchain. You can’t physically touch it. But it’s there; it’s there with all the cat gifs and moving rock photos NFT has to offer. Like your house is unique, NFTs are too. No two tokens can be the same.
You can trade any digital art like music, photos, videos, gifs through NFT and blockchain would certify that you are the owner of that piece of art. Even if you have the ‘proof of ownership’ after paying thousands of dollars for art, there’s nothing restricting other individuals on the internet from copying and sharing the media.
NFTs are non-fungible, hence not interchangeable, which negates the point of it being an appealing blockchain asset. Still, they are being explored by many today.
How NFTs Work?
NFTs work as an investment and only exist on the Blockchain.
Before we go ahead, you might need a crash course on blockchains. Blockchain is a decentralized public ledger that keeps track of transactions executed on the blockchain. Take Bitcoin as an example; when you transfer bitcoins to someone else, the blockchain keeps a record of that and can be used later to verify the transaction. Bitcoin is also designed to work on blockchain technology.
NFTs is supported by Ethereum blockchain, but now is being supported by other blockchains too due to its rising popularity.
NFTs are created, or in tech terms – minted – from digital objects like music, photos, or even tweets in exchange for other cryptocurrencies. How you can mint your own NFT is discussed later.
As a collector collects precious paintings and other forms of physical art, NFT collectors collect digital forms of the same.
Ownership rights of NFTs – as criticized as they are – also fuel their popularity.
Being a collector of NFT, you expect the value of your possession to go up someday for you to take the profit out of it.
What is the Difference Between Cryptocurrency and NFT?
Unlike cryptocurrencies, NFTs can’t be traded with other forms of NFTs. As you can’t exchange a Van Gogh with a piece of Lionardo Da Vinci, NFTs can’t be swapped. The monetary value of each NFT is limited by their bearer and doesn’t hold true for each one of them.
Although Cryptocurrencies and NFTs work on the same principle, the former has a more transparent possession method. Keeping a simple transaction history is not very complex.
Even if someone gets their hand on the data, the most they can do is share some encrypted gibberish. On the other hand, NFTs aren’t encrypted and the “certificate of ownership” isn’t particularly authorized by any prominent authority.
The whole fiasco around NFTs is around this particular issue. How can you stop a creator from reproducing and selling multiple copies of the same art to others?
1 BTC means 1 BTC. Wherever you go, the value doesn’t change. You can even transact cryptocurrencies with fiat money (real money). If you are minting intriguing NFTs, you can earn money in the form of crypto. But, if you are the one buying it, selling it again at a higher price could be challenging.
Top NFT Trade Histories
- Mike Winkleman’s “Everyday: The First 5000 Days” traded in the NFT market at $69.3 million by a Singapore based cryptocurrency investor in ETH. Which made the digital collage, third-most-expensive artwork by a living artist.
- Mike Winkleman again struck the market with his “Human One” – which is a hybrid art of the digital and physical form that consists of an aluminium plate that holds four video screens. Which was sold at $28.9 million.
- Cryptopunk(s) – uniquely generated pixel art characters – were developed by a Canada based developer duo. A total of 10000 characters were produced, out of which the most traded one managed to acquire $11.75 million, and is called Cryptopunk #7523.
Risks Involved with NFTs
There are several risks associated with owning NFTs that you can’t simply ignore.
NFT markets are extremely polarized. While there are traders who believe NFTs to be a great investment, there are others, who despise them. Whatever their belief is, there’s no denying that the NFT market is going to be saturated soon.
2. Risk of Getting Scammed
Risks associated with owning physical masterpieces are the same as NFTs. You can get scammed by anyone. While in an authorized auction house, you can buy authentic art pieces, it’s not true for the blockchain platform.
Buying fake pieces by someone impersonating real artists is a pretty common method of scam in NFT markets.
3. The “art” itself
Most NTF arts are somewhat popularity driven and don’t hold much exotic value in the physical arts market. The difference between popular arts and fine arts are more described in NFTs. The popular meme we are sharing today, won’t hold much value tomorrow.
Should You Invest in NFTs?
In my humble opinion, if you have the money to get popular NFTs and are willing to spend it on art, you should go for traditional fine arts. If you want art pieces for their sole artistic values, or want something to hang on the wall, NFTs are not the way.
But, if you are somewhat inclined to get a monetary value out of the art, you are welcome to invest in NFTs. Although the NFTs in your possession might not hold value 10 years later, they could be worth much more if circumstances allow them.
And, if you are someone who is looking at NFTs just like investment and have other options open, go for other cryptocurrencies like Ethereum and Bitcoin despite the fact that cryptocurrencies might not be as sustainable as it is now in near future, it still is a better investment than NFTs.
Being a digital artist, NFTs could be your go-to platform. As there is no minimum value to register your digital art in blockchain, you might even extract a multi-million dollar deal out of it.
How to Invest in NFTs?
Research about available NFTs that you think can have an upside potential, which you can find through sites like rarity.tools and NFTcatcher.io. NFTs work like auctions and have a specific date and time when a particular NFT enlistment is going live.
Keep a close look at how much cryptocurrency the NFT is going live for, the artists behind it, the server it’s on, and if it’s a legit one or not. Correspond your expectations and go for the one that suits you the best.
As you need Cryptocurrencies to buy NFTs, you need brokerage platforms for the same. As most of the NFTs are bought with ETH, go for platforms that support ETH tokens as a transaction medium. Keep their charges in mind while choosing the right exchange.
There are designated marketplaces available where NFTs are bought and sold. OpenSea, Axie Marketplace, and Larva Labs are popular options. Ensure you have ample cryptos to execute the transaction when the time comes.
After successful execution, you will be able to see your NFT in your digital wallet associated with the blockchain.
How to Sell Your Art as NFT?
You need to register yourself on the NFT marketplaces first. Following successful registration and initiation of your digital wallet – which will later be used to hold your NFTs – you are ready to start enlisting your arts.
Create an online catalogue on the same platform that you have your digital wallet on and enlist pieces on the marketplace that you want to go live on a predefined date and time.
Selling NFTs requires a blockchain transaction and for that, you need to pay a fee to the miners who are keeping the ledger. Which can be paid through ETH or other cryptocurrencies as per your convenience.
The Bottom Line
NFTs present an opportunity to digital creators by opening them up to the exotic art marketplace, which was somewhat limited to wealthy individuals till now. You, as an investor, can take advantage of the new platform to gain profits or can even show off your possessions to a lot more people; mostly through a website.
While the art pieces only hold value while the internet decides they do, that doesn’t guarantee the diminishing value of every art piece. It’s quite possible for the art piece to go balloon in the near future.