Investing has rapidly changed over the last decade.
You’ve seen cryptocurrencies like Bitcoin rise and crash.
You’ve seen meme stocks like AMC go on wild rides in 2021.
Now you’re seeing NFTs as part of the future of investing?
Feeling a little left out of the loop? You’re not alone.
Plenty of investors are looking into NFTs and want in on the action.
The NFT marketplace has attracted names like NFL quarterback Tom Brady, billionaire investor Mark Cuban, and talk show Ellen Degeneres.
But are NFTs just a passing phase or something worth investing in?
Let’s start by answering the question “what is an NFT.”
What Is an NFT?
NFT stands for “non-fungible token.”
NFTs are a type of crypto asset that represents a real-life object—like a video, in-game item, or a digital picture.
This crypto or digital asset is authenticated and logged on crypto blockchains, mainly Ethereum.
You can buy and sell these digital assets online with cryptocurrency.
The “fungible” in “non-fungible token” refers to the ability of an asset to be exchanged for a similar asset.
This means that an NFT cannot be exchanged for another because each is valued differently.
Is Every NFT Unique?
Yes.
The easiest way to understand NFTs is to picture them as trading cards.
Let’s say your friend wanted to trade his 2009 Lebron James basketball card—worth only a few bucks—for a Black Lotus Magic the Gathering trading card valued at nearly $156,000.
You wouldn’t trade.
While both are trading cards, they are unique and carry different values.
That’s basically what NFTs are.
How Does It Work?
Wondering how to create an NFT?
To create an NFT, a creator or artist must mint their work on an NFT marketplace.
Common NFT marketplaces include Axie Marketplace, OpenSea, Foundation, and plenty more.
When a creator mints an NFT, they’re creating a smart contract that’ll be stored on a blockchain.
A smart contract stores information about the NFT, such as the creator’s name.
With this information stored, the creator receives royalties each time that NFT is sold.
Technical Difficulties
Collecting royalties from your creation is one of the main drawing points for NFTs, but it’s not without some difficulties.
Unfortunately, glitches in the system can end with royalties not transferring over every time they should.
On top of that—what’s to stop people from simply screenshotting an NFT and claiming it as their own?
Unlike copyright laws, there is no legal precedent that legitimizes smart contracts.
Vulnerable to Hacks & Scams
Another major issue with NFTs is security.
In late January 2022, hackers exploited a popular NFT marketplace, OpenSea, by purchasing NFTs at their original price and re-selling them on the marketplace at their current price.
The attack didn’t go unnoticed for long—but by the time it was over the damage was done.
Three scammers were able to purchase assets for a total of $133,000 and sell them for a total of $934,000.
Coinbase Partners With Mastercard For Its Upcoming NFT Marketplace
The popular cryptocurrency marketplace, Coinbase, is partnering with Mastercard to allow people to buy NFTs using fiat currency (such as USD).
This is a huge shift for NFTs, which usually require a buyer to exchange cash for cryptocurrency before purchasing.
Now those who are interested in NFTs—but don’t like the idea of buying crypto—have easier access to digital assets.
Coinbase NFT, the name of their NFT marketplace, allows you to trade, sell, and mint NFTs.
NFT Group Buys Copy of Dune
Were you a fan of one of 2021’s biggest blockbusters, Dune?
Well, you probably didn’t like it as much as the crypto group who bought a rare copy of the book the movie is based on for €2.66 million ($3.04 million).
This physical copy of the book isn’t a digital asset, but the group of investors plans on making it one.
In short, they plan to turn the book into a series of JPGs and then destroy the physical copy.
The idea is that destroying the original so that only the NFT versions exist will then boost the value of the NFTs.
Whether or not this grand scheme plays out the way they want it remains to be seen.
But the precedent it sets could mean other attempts to turn physical art into digital assets may follow.
How To Invest in NFTs
You don’t have to be an artist to create or invest in NTFS.
The first thing you need to do is identify an NFT you’d like to invest in.
Some people only buy things they like.
Others approach NFT investment strategically, meaning they buy what they believe they can sell at a higher price later.
Once you’ve identified the NFT you want, you’ll need to check which type of cryptocurrency you need to purchase.
Each NFT marketplace has its crypto wallet, so you’ll need one specific to your target NFT.
Next, you’ll open a crypto wallet on the NFT marketplace, which allows you to store and receive digital assets.
To purchase the NFT, you’ll either buy it at a fixed price or via auction.
Regardless of how you bought the NFT, it is now yours to hold or sell.
The challenge is deciding whether this digital asset is going to appreciate in the long run.
The jury is out on the long-term effect NFT as cryptocurrency will have on investment.
Is it just a bubble waiting to burst or have we found the future of investing?
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