We were browsing through our social newsfeed and were surprised how many sponsored ads for NFTs popped up. Some of you might also have experienced the same thing over the past few months, and perhaps you’re wondering, “What in the world are NFTs?!”
We’ll do our very best to keep things simple, especially for those who get easily confused. Here we go.
What are Non-fungible Tokens or NFTs?
A non-fungible token, or NFT, is a form of a digital asset representing real-world objects such as art pieces, music, and videos. It has been around since 2014 but has become increasingly popular over the past year because it allowed people to buy and sell digital artwork using cryptocurrency.
NFTs, in essence, are supposed to create some form of digital scarcity, even if most digital creations are widely available online. Some might say that it is pointless since digital art can be viewed, accessed, and saved at any time. Why would a person spend millions on a piece of digital art?
Simple. NFTs allow a person to own the said artwork with an authentication built-in to prove their ownership of the item. Picture it this way, the Mona Lisa can be reproduced and mass distributed in different forms and shapes at different prices, but only one person has the original priceless artwork. More than ownership of the said item, it is the digital bragging rights collectors are paying for.
What makes NFTs different from other cryptocurrencies?
Unlike most digital and cryptocurrencies, NFTs might not be good for mobile push payment transactions. Still, they have generated quite an interest in many investors that they have been making a lot of noise today.
An NFT is made with the same programming used for cryptocurrencies, such as Bitcoin and Ethereum, but that’s pretty much all they have in common. Physical notes and digital currencies are all fungible. This means they have a specific value (a dollar to a dollar, a BTC to a BTC) that can be traded or exchanged for one another and other items with the same value.
Their fungibility is what makes cryptocurrencies more trustworthy for transactions. NFTs, on the other hand, are a lot riskier since they have no specific real value tied to them. For instance, an online clip of an NBA highlight featuring Michael Jordan does not have the same value as another MJ highlight. Their digital signatures make it nearly impossible to determine the actual equal value between items, let alone trade it 1:1.
Is it just hype, or is it the real deal?
All the noise NFTs make nowadays is getting people’s attention — specifically from investors and collectors/speculators. But is it truly worth spending thousands to millions of dollars on?
Collectors and investors have a keen sense for things like this, especially those who have greater experience in their respective fields. However, the average collector and investor should still approach NFTs as they normally would with their other transactions and investments.
Due diligence is required to gain a deeper understanding of the topic. However, caution is also highly recommended since it is technically relatively new and quite unstable.
Although some investors believe it is the future of collecting and investment since we’re already transitioning into the digital era where almost everything is done online. NFTs allow artists and creators a unique opportunity to earn money for their digital creations. It cuts down their costs as no physical manifestation is required to sell artwork.
This means they no longer need to paint or print on paper, no need to display in galleries to attract clients and buyers. They can directly sell the files as NFTs to interested parties.
One unique feature about NFTs is that the artist can preprogram them so that they will receive royalties every time their artwork gets sold to a new owner. This way, they get to keep the entire profit all to themselves on the initial sale and still make some money off of royalties in succeeding transactions.
But art isn’t the only moneymaker where NFTs are concerned. As mentioned, it can include anything that is produced digitally, such as but not limited to:
- Sports highlights
- Video clips
- Virtual avatars and skins
Even tweets have been sold as NFTs, with Twitter co-founder Jack Dorsey selling his first-ever tweet as an NFT for a whopping $2.9 million.
How can you buy one?
For those interested in getting started with NFTs, you will need a digital wallet to store cryptocurrencies and NFTs. You will also need to buy some cryptocurrencies depending on what is accepted by the NFT provider. You can buy cryptocurrencies using your credit card on different platforms such as Coinbase, eToro, Kraken, PayPal, and even Robinhood. Just make sure to take note of the charges for each transaction.
Once you have your digital wallet set up, you can now look for NFTs in specific marketplaces that carry them. Here are some of the more popular ones right now:
As we already stated, approach NFTs as you would any investment, with due diligence and great caution. Just because you can afford NFTs doesn’t mean you should automatically buy them. With all the risks and uncertainties involved in it, even experts are somewhat divided on the topic. This makes investing in NFTs a major personal investment decision, so don’t take it lightly.