NFTs or non-fungible coins (NFTs) appear to have taken off from cyberspace this year. From music and art to toilet paper and tacos NFTs are being sold as 17th-century extravagant Dutch tulips–some with million dollars.
But is NFTs worth the cost or hype? Some experts believe they’re a bubble about to explode, just like the dot-com bubble and Beanie Babies. Others think NFTs will be around for the long haul and can transform investing forever.
After literal hours of reading, I think I know. I also think I’m going to cry.
Okay, let’s start with the basics:
Table of Contents
What Is an NFT?
An NFT can be described as a type of digital asset that is a representation of real-world objects such as art, music games, video game items, and others. They can be purchased and sold on the internet, usually using cryptocurrency They generally have the same software used in numerous cryptos.
While they’ve been in existence from 2014 onward, NFTs are gaining notoriety as they become an increasingly popular option to purchase or sell artwork digitally. An astounding 174 million is spent on NFTs in November 2017.
NFTs are typically unique or at least one with a limited number, and come with distinctive identifier codes. “Essentially, NFTs create digital scarcity,” declares Arry Yu, who is the chair of the Washington Technology Industry Association Cascadia Blockchain Council and the managing director at Yellow Umbrella Ventures.
This is in stark contrast to digital works that are nearly unlimited in their supply. In theory, cutting off the supply would increase the value of an item, provided it’s in high demand.
However, many NFTs, at the very least in the early days are digital works that are already in ways elsewhere, such as famous videos from NBA games, or securitized versions of digital art available on Instagram.
For instance, the famous graphic artist Mike Winklemann, better known as “Beeple” crafted a composite of 5,000 daily sketches to make perhaps the most well-known NFT of all time, “Every day: The First 5000 Days,” which was sold at Christie’s for an astonishing $69.3 million.
Anyone can access the individual images or even the whole collection of images online at no cost. Why would anyone want to pay millions for something that they can easily capture or download?
Since an NFT permits the buyer to be the owner of the original item. It also comes with built-in authentication that acts as evidence of ownership. Collectors are enthused by these “digital bragging rights” almost more than the actual item.
What makes an NFT different from Cryptocurrency?
NFT stands for non-fungible token. It’s typically developed by using the same software as cryptocurrency, similar to Bitcoin as well as Ethereum however, this is where the similarities end.
Cryptocurrencies and physical money can be described as “fungible,” meaning they can be exchanged or traded against each other. Also, they’re equal in value. One dollar will always be equivalent to another dollar. A Bitcoin is always the same as another Bitcoin. Because of its fungibility, Crypto is an effective method for conducting transactions through the blockchain.
The NFTs differ. Each is a digital signature, which means that NFTs are unable to be exchanged for or even equal to each other (hence the term “non-fungible”). A single NBA Top Shot clip, for instance, isn’t the same as every day because they’re both NFTs. (One NBA Top Shot clip doesn’t mean it’s equal to another NBA Top Shot clip, for instance.)
How Does an NFT Work?
NFTs are a part of the blockchain, which is a public ledger distributed across the globe that tracks transactions. You’re likely familiar with blockchain as the basis that allows cryptocurrency to be created.
Particularly, NFTs are stored by specifically, the Ethereum blockchain However, other blockchains also allow them to be used.
An NFT is created also known as “minted” from digital objects that are both tangible and intangible objects, such as:
*Videos and highlights from sports
*Virtual avatars and video game skins
Even tweets are counted. The co-founder of Twitter Jack Dorsey sold his first tweet ever as the NFT to fetch greater than $2.9 million.
In essence, NFTs are just like objects of collector’s value, but digital. Therefore, instead of an oil painting that can be displayed on the wall, the buyer receives an electronic file.
They also receive the exclusive rights to own. This means that NFTs can only have one owner at any time. The unique information of NFTs can be used to verify their ownership as well as exchange tokens with owners. The creator or the owner may also keep specific data within them. For example, artists can make their work public by putting their signatures in the NFT’s metadata.
What Are NFTs Used For?
Technology like blockchains and NFTs provide artists and content creators with a unique chance to profit from their products. For instance, artists must not rely on auction houses or galleries to sell their work. Instead, they can offer it directly to the buyer via an NFT as well, which lets them keep a larger share of profit. Additionally, artists can program in royalties to be paid a portion of profits whenever their work is sold to a new buyer. This is a great option since artists typically don’t get future earnings following the first time their artwork is sold.
It’s not the only way to earn money from NFTs. Brands such as Charmin as well as Taco Bell have auctioned off themed NFT artwork to raise money to benefit charities. Charmin has dubbed its offering “NFTP” (non-fungible toilet paper) and Taco Bell’s NFT art sold within minutes, with the highest bids being 1.5 wrapped Ether (WETH)–equal to $3,723.83 at the time of writing.
Nyan Cat, a 2011-era GIF of a cat sporting the body of a pop-tart, was auctioned for 600,000 dollars in February. Additionally, NBA Top Shot generated more than 500 million sales in March. One LeBron James performance from NFT was worth more than $200,000.
Even celebrities such as Snoop Dogg as well as Lindsay Lohan are jumping on the NFT bandwagon, and are releasing exclusive memories, artwork, and even moments that are securitized as NFTs.
How to Buy NFTs?
If you’re looking to begin the process of building an NFT collection You’ll have to purchase the following essential items:
In the beginning, you’ll need to purchase a digital wallet that allows you to store cryptocurrencies and NFTs. You’ll probably need to buy some cryptocurrency such as Ether depending on which you want to purchase and what currencies the NFT provider supports. You can purchase crypto with credit cards on platforms such as Coinbase, Kraken, eToro, and even PayPal and Robinhood today. You’ll be able to transfer it from the exchange to your bank account of preference.
Keep charges in mind when you explore choices. The majority of exchanges charge an amount of a portion of the transaction when you purchase cryptocurrency.
Popular NFT Marketplaces:
After you’ve got your account in place and funds credited you’ll have plenty of NFT websites to shop. At present, the top NFT marketplaces include:
* OpenSea.io The peer-to-peer platform claims to be a supplier of “rare digital items and collectibles.” For a start, all you have to do is establish an account on the platform to access NFT’s collection. You can also sort the items according to sales volume, and find new artists.
* Rarible Like OpenSea, Rarible is an open, democratic marketplace that permits creators and artists to sell and issue NFTs. RARI tokens that are issued through the platform allow holders to vote on the features they want to include, such as charges and rules of the community.
* Foundation The foundation artists need to receive “upvotes” or an invitation from other creators to upload their artwork. The exclusiveness of the community’s platform and the price of entry–artists also have to pay “gas” to mint NFTs–means they could showcase higher-quality art. As an example, Nyan Cat creator Chris Torres has sold the NFT through the Foundation platform. This could also lead to increased prices, but that’s not necessarily a negative thing for collectors and artists looking to earn a profit, provided there is a demand for the NFT continues at the current level or increases in the future.
Even though these platforms and others provide access to many thousands of NFT creators and collectors, ensure you conduct your research before purchasing. Certain artists have fallen victim to fakes who have listed and sold their work without authorization.
Additionally, the verification process for creators as well as NFT listings doesn’t always work between platforms. Some have more stringent requirements than others. OpenSea and Rarible For instance, they don’t require verification of the owner to be verified for NFT listings. The buyer protections are insufficient at best, and when looking for NFTs it’s better to remember the old phrase “caveat emptor” (let the buyer beware) in your mind.
Should You Buy NFTs?
If you can purchase NFTs does that imply you should? It depends, Yu says.
“NFTs are risky because their future is uncertain, and we don’t yet have a lot of history to judge their performance,” she observes. “Since NFTs are so new, it may be worth investing small amounts to try it out for now.”
Also, the decision of investing in NFTs is a very personal choice. If you have cash in the bank, then it could be worthwhile to consider, particularly if a piece of art has significance for you.
However, keep in mind that the value of an NFT is determined by the amount that other people are willing to purchase it for. Thus, demand will determine the price, not fundamental economic or technical indicators that typically affect the prices of stocks, and in turn, usually form the basis for the demand of investors.
This means that an NFT could be resold at a lower price than the amount you have paid. It could also mean that you aren’t capable of reselling it at all if no buyers are interested.
NFTs also have to pay capital gains tax–just as when you sell stocks for profits. As they’re classified as collectibles, however, they don’t get the same preferential long-term capital gains rate that stock does, and could be taxed at the higher tax rate on collectibles, although the IRS hasn’t yet made a decision on which NFTs are considered to be for tax purposes. Keep in mind that the cryptocurrencies you use to buy the NFT could even be subject to tax when they’ve grown in value since you purchased the NFT, so you might need to consult an expert in tax when you are considering the addition of NFTs to your holdings.
But, treat NFTs as you would with any other investment Make sure you do your homework and be aware of the risks, including that you could lose all your money invested. And should you choose to go for it make sure you take a good dosage of caution?