If you’re anything like me, you have been keeping an eye on all things crypto over the last few years.
This exciting and profitable new form of financial investing has been booming over the last decade. New products and types of currency have been popping up all over the place.
(amhnasim / pixabay)
Bitcoin, Dogecoin, and Ethereum are all terms you have probably grown used to, but there’s one that still catches you off guard: NFTs.
What are NFTs?
NFT stands for non-fungible token. These are digital representations of a physical asset that is typically a one-of-a-kind item. An example of a non-fungible item would be a diamond or a unique collectible – anything that cannot be replicated or reproduced exactly as it is. In contrast, a fungible asset is anything that is the same as any other of its kind that has an equal value. Fungible assets include items like stocks, banknotes, or typical cryptocurrencies.
Due to their unique natures, non-fungible items do not have a fixed market price and cannot be traded for another item of equal value. This means their values are flexible and usually decided by the owner or prospective buyer.
By extension, a non-fungible token is a digital version of these real-world items. Given the easily recreatable nature of the internet and digital creations, anything can be copied and shared infinitely in cyber-space. NFTs offer an alternative to this by giving unique, digital creations a mark of originality, similar to a certificate of authenticity. This mark will help to denote that specific digital creation as the “original” version and allows for its purchase as a unique asset.
The creation of NFTs has created a form of a digital asset. By assigning digital files as “original,” people can now own what is seen as public data. An NFT can be one of many types of digital items, such as:
- Music, sound files, or videos
- Online artwork and GIFs
- Video game data (such as unique skins or avatars)
- Tweets or meme images
What Are Risks of Investing in NFTs?
I’ll be honest: NFTs are a high-risk investment. Their values are highly volatile and can fluctuate wildly based on any number of circumstances. What might be a highly sought-after image macro one day may become a harmful or socially insensitive depiction overnight.
Moreover, NFT buyers should be wary of the risk of damage to the underlying asset. Although a token will include details about its link to the main asset and the NFT holder’s right to that asset, should the underlying asset, say a painting, be damaged, stolen, or lost, the NFT could be deemed worthless. This, of course, doesn’t apply in cases where only the digital representation of the NFT is in existence.
I’d also say that it’s easy for an inexperienced investor to become a victim of fraud in the NFT marketplace. Did you know that anyone (me and you, too!) can mint an NFT out of a file that doesn’t belong to them and sell it as their own without the creator’s permission? Fraud like this is highly prevalent in the marketplace, so it’s crucial to evaluate NFTs carefully before splurging your hard-earned crypto on them.
What Are the Positives of Investing in NFTs?
As NFTs are a new form of asset, their full potential has not yet been unlocked. This means that the potential rewards for investing in them are pretty enticing. Though appreciation in an NFTs value should not be expected, this does not mean it is impossible. As quickly as public interest can be lost on an online asset, it can also endure a long time. Just take a look at the number of NFTs that are worth millions today.
Bored Apes Yacht Club, Crypto Punks, The Dodge Pound – these are some of the NFTs raking in millions. Some of them are even being marketed in popular auction houses, and others are partnering with Grammy-winning musicians for their own record labels.
The growing popularity of NFTs also means that the list of potential buyers and sellers is increasing every day. By jumping onto this bandwagon, you will find yourself amongst an ever-widening audience of potential investment opportunities.
How to Get Started Investing in NFTs?
If you have decided to take the risk and want to see what potential NFTs hold, I have put together a handy list of how to invest in them. Follow the steps below and find yourself on the new and exciting frontier of non-fungible tokens!
1. Create an account with an NFT marketplace.
There are a few good marketplaces that specialize in NFTs out there for trading on. OpenSea and Rarible are two of the most popular ones in use today. These marketplaces will allow you to browse what NFTs are available and put you in contact with their sellers.
2. Prepare your crypto wallet.
If you’re starting to invest in NFTs, it’s likely you already have a crypto wallet. If you don’t, a digital wallet is a personal online account to store your cryptocurrencies and NFT keys. These can be found in various places online, but the most popular wallets for NFTs include Metamask, Alpha Wallet, and Coinbase Wallet. Get your wallet set up, load it with your currency of choice, and link it with your marketplace account to begin trading.
3. Start trading your NFTs.
When your account and wallet are good to go, all you have to do is find yourself some NFTs and start trading! Search your chosen marketplace for anything that particularly takes your fancy, keeping in mind some of the points mentioned earlier regarding the possibility of trends and public interest. After you find what you want, it’s just a matter of contacting your chosen seller and starting a trade.
Remember: When you find an NFT you are interested in, make sure to look into the seller thoroughly. Like any crypto trading, the more you know about them and their reputation, the more likely you are to avoid problems.
NFTs are the Future
And there you have it.
It’s not too difficult to get yourself into the NFT trading world, but it’s certainly a challenging venture. As the years slip by, the world of NFTs will develop much like cryptocurrencies have. No doubt, we will get a better grasp of utilizing this exciting new form of trading best the more we do it.
There may be pitfalls, and you should certainly be prepared for the worst-case scenarios, as NFTs are far from an exact science. But given time, patience, and experience, I’m sure we’ll all begin to see the current trend of NFTs becoming a staple of the market economy.
