NFTs Explained: Everything You Need to Know About Investing in Non-Fungible Tokens
NFTs – it's the buzzword on everyone's lips. Even A-list celebs are jumping on the bandwagon
The world of NFTs, short for Non-Fungible Token (we’ll get on to that mad vocab) has crash landed into our orbit with a bang. They have revolutionised digital art, music and virtual trading items and provided a new investment avenue for investors like you. NFTs let your piece of art stand out from the rest in a new way. But what are these electronic tokens, why is there so much hype and why should you even care about them? Whether you're an artist trying to add some exclusivity to your work or an investor looking at NFTs as a new form of asset class, there are endless ways for you to get involved. So if you're intrigued by the NFT hype train, read on.
So, what are NFTs?
NFT stands for non-fungible token, and if you're scratching your head and wondering what one of those is, you're not alone. NFTs are causing a shift in the way we interact with and value digital art, collectables, music, gaming items, memes, and even Tweets! They are encrypted tokens that can represent assets in the digital world, which offers clear advantages over traditional physical assets. Learning about NFTs is an opportunity to join the future of asset trading and get a real handle on how to use blockchain technology to store or transfer ownership (not just possession) of rare items securely. Plus, no need to worry about losing any physical goods – it all lives online.
The fact that they're non-fungible means they're incredibly unique and cannot be divided, duplicated, or exchanged for an equivalent item. That's why NFTs provide an evergreen solution for people to purchase and own unique, one-of-a-kind items that are just as impossible to replicate as traditional physical commodities. And perhaps best of all? NFT transactions can be completed almost immediately with no middleman involved, allowing for rapid purchasing with near zero transaction fees.
Examples of NFTs
• Videos and sports highlights
• Virtual avatars and video game skins
• Designer sneakers
Even Tweets count. Twitter co-founder Jack Dorsey sold his first ever tweet as an NFT for more than £2 million.
What does non-fungibility actually mean?
Fungibility is a concept that many people might not believe actually exists. After all, what good would guessing the same word wrong twice lawfully get you? Meet fungibility - it's an economic term. Fungibility refers to the exchangeability of goods or services that have equal value. It means that one unit of a given good or service can be substituted for another. To contrast this idea, NFTs (non-fungible tokens) are unique digital items, such as pictures or videos, and they cannot be exchanged with other NFTs. NFTs are irreplaceable and since there is only one copy of each item, they cannot be seen as fungible assets.
Investing in NFTs
You're probably already well aware of how these online assets can be used to purchase artwork and bring an investor a nice return.Whether you're in it for the art, the money, or both, NFTs also offer a unique way to diversify your portfolio since they aren't as affected by market volatility as other investments may be. Plus, there's no denying that having NFTs in your investment plans gives you one up on others who are still stuck in the traditional stocks and bonds mindset.
How to invest in NFTs
Ethereum was the first cryptocurrency linked to NFTs, but many others quickly jumped on the bandwagon, including bitcoin cash, Cardano, and Solano. You need to have crypto in order to buy an NFT - it can’t be done with your stash of Euros, Dollars or pounds. Cryptocurrency wallets provide you with an easy and secure way to store your NFT investments. To purchase non-fungible tokens, you'll need a crypto wallet funded with the corresponding tokens for that NFT - like Ether for those built on Ethereum's blockchain.
Keep calm & collect your NFTs.
Trading platforms for NFTs are popping up all over the shop, but some of the big names are currently OpenSea, Raraible, and Nifty Gateway. These areas provide the trading space to purchase and sell NFTs – all you need is access to the platform and some initial funds.
Pros and cons of investing in NFTs
So should you invest in NFTs? Well before you decide whether investing in these non-fungible tokens is the route you should go down, it's worth weighing up their pros and cons.
Pros of NFTs
1. You can make a lot of money
If you invest in the right NFT, you can make a lot of money. For example, an NFT of a digital painting by the artist Beeple sold for $69 million at Christie's auction house. That's a lot of money for something that doesn't even exist in the physical world!
2. You can get in on the ground floor
NFTs are a new and emerging technology, which means that there is a lot of potential for growth. If you get in on the ground floor, you could see your investment increase exponentially over time.
3. You can diversify your portfolio
Investing in NFTs can help you to diversify your portfolio and reduce risk. This is because NFTs are not correlated with traditional asset classes such as stocks and bonds.
4. You can support artists and creators
By investing in NFTs, you can support artists and creators who are using this new technology to create unique and innovative works of art.
5. You can have a lot of fun!
Investing in NFTs can be a lot of fun. There is a growing community of NFT investors and collectors who are passionate about this new technology and its potential.
Cons of NFTs
1. There's no guarantee you'll make any money
There's no guarantee that you'll ever make any money back from your investment, and even if you do, it's likely that you'll only make a small profit.
2. They're not backed by anything
Another disadvantage of investing in NFTs is that they're not backed by anything. Unlike stocks or bonds, which are backed by real assets, NFTs are nothing more than digital files. As such, they're subject to the same volatility as any other cryptocurrency.
3. They're unregulated
Another downside of investing in NFTs is that they're not regulated. Unlike stocks and bonds, which are regulated by the Securities and Exchange Commission, there are no regulations governing the sale or purchase of NFTs. This means that there's no protection for investors if something goes wrong.
4. They may be worthless in the future
Finally, it's important to remember that NFTs may be completely worthless in the future. Because they're not backed by anything and there's no regulation governing them, it's possible that they could become completely worthless overnight. If you invest in NFTs, you could end up losing all of your money.
Environmental impact of NFTs
NFTs have environmental considerations and whilst in some ways they're more environmentally friendly, it's worth considering that they're not in other ways.
Let's start with the positives shall we? NFTs have less environmental impact insofar as they do not require the materials that many traditional forms of artwork do. That's a fact. But although these digital collectables are much more eco-friendly than their physical counterparts, NFTs still come with an environmental impact that should be considered before purchase. For example, many of the popular platforms used to mint and store NFTs require energy-intensive mining techniques or proof of work algorithms that can cause a significant environmental footprint if unchecked. And let's not overlook the environmental costs of powering all our glowing screens as we check out our collections.
That being said, we should consider ways to reduce our emissions without giving up entirely on this revolutionary new technology. For instance, as individuals investing in NFTs, we can look for green providers who offer carbon offset credits or projects that implement renewable energy sources. If you're keen on adding a few limited edition collectables to your collection, why not consider making it an ‘environmentally conscious’ collection?
Celebrities and NFTs: What's the hype?
Celebrities are joining in on the NFT craze too, from Leonardo DiCaprio to Paris Hilton. After all, NFTs open up a new area for them to flex their financial muscles and make investments that reflect their interests and values. Furthermore, it provides an extra avenue for celebs to make money while furthering their own personal brands as well as those of emerging NFT artists. One thing is clear — NFTs have become the latest money-making craze and celebrities are riding the wave!
Celebrities purchasing NFTs
Mike Tyson has announced his foray into NFTs by releasing a limited NFT version of his trademark tattoo. A similar approach was taken by William Shatner, who marked the occasion of becoming a centenarian through giving NFTs of photos he took on various sets during his illustrious career. Additionally, having already released an NFT collection previously, RACHAEL RAY has gone the extra mile to launch her own NFT show on her network — another testament to NFT’s burgeoning reputation. NFT adoption by such distinguished individuals speak volumes about its transformative potential and captivating allure.
Creating NFTs and selling them
Ready to take your creative content to the next level with NFTs? All it takes is a crypto wallet, the click of a "create" button, and you're one step closer to earning some extra cash while preserving the authenticity of your work. Creating NFTs is a great way for creatives to gain recognition, monetise their work and take control of authenticating it.
Each platform handles things a little differently, but the basic minting process is as follows:
- Have a crypto wallet opened and funded (like with Ether in order to cover the computing fees involved with creating the NFT).
- Click the "create" button within the marketplace and upload your work.
- List the NFT for sale either for a fixed price or for sale via auction.
Should you invest in NFTs?
The NFT movement is revolutionising how art is created and purchased, though environmental concerns about the environmental implications of digital economies are valid. Despite this, NFTs represent an incredible potential for creators to benefit from their work in a new and engaging way. Buying NFTs can provide some thrill due to the inherent unpredictability they possess, as the value of certain pieces may fluctuate based on demand or rarity. It's true that investing in these products is a bit of a gamble. However, taking part in this fascinating and ever-evolving industry could be greatly rewarding - both financially and artistically!
However, at the same time we should be wary of jumping headfirst into this momentary trend of buying and selling digital assets as collectibles. Their value is mostly speculative and subject to fluctuate due to the demand for a specific work. Not to mention, the environmental impact of this activity has yet to be adequately tested. For these reasons, it may be wise to be mindful when hopping on board the NFT train - it very well may turn out to be a spectacular ride, but also could cause some bumps along the way.