What Are Non-Fungible Tokens and Why to Invest In Them?
While non-fungible tokens appeared way back in 2014, they are gaining popularity today because of a few reasons. One of the prime causes is that artists are now using this technology to sell their works, although an NFT can come not only in the form of a digital painting but also as a music track, an in-game item, and more.
What Is NFT?
What is a non-fungible token? Many people have a difficult time trying to understand it. To put it simply, it is a digital asset that relates to a real-life object or another digital file, such as digital artworks, music pieces, items from video games, or even screenshots of tweets! Unlike cryptocurrencies, NFTs are usually one of a kind, even though they are both based on blockchains. In addition, non-fungible tokens are usually purchased with crypto.
How Do NFTs Work?
Just like their name suggests, NFTs are non-fungible, which means they do not exist in physical form. All tokens are digital and are built on blockchains like cryptocurrencies. However, NFTs are usually based on the Ethereum blockchain. Each digital token is unique and holds valuable data. Thanks to this data embedded in each NFT, it is possible to verify its authenticity and avoid fakes. One easy way to describe NFTs is by calling them collectibles. For example, even in the real world, there are baseball cards with signatures from players, which makes each card unique. There might be fake copies of certain NFTs, but an original token exists in one copy only. Their value is defined by demand, which means they are bought and sold like artworks in real life.
In most cases, NFTs are used as collectible items. They have a certain value and can be either accumulated or sold for money. However, there are some more interesting uses for non-fungible tokens:
Unique solutions continue to appear and expand NFT meaning. This technology has a huge potential and can evolve into something we cannot even predict yet.
What Can Be Sold As NFT?
When people ask, “What is an NFT?” the answer is usually “digital artwork.” However, many different things can be turned into NFTs nowadays. Here are some of the items or content that can be tokenized and used as NFTs.
NFTs are now extremely popular among content creators, as blockchain technology allows them to protect their unique art pieces and sell them for a reasonable price. Even when posting digital art on various platforms, the creators have full ownership over it.
Digital gaming is another very profitable field, and NFTs offers many new opportunities there. Non fungible tokens in video games can come as characters, skins, weapons, collectible items, and other rewards. Such tokens can enhance your gaming experience. And most importantly, it is possible to sell them after you finish the game or stop playing.
Similar to classic domain name services, NFTs allow the creation of an easy-to-remember web address for your site. There are various metrics that define a high-quality domain name. It should be memorable, not very long, and, most importantly, unique. NFT technology provides secure and unique domains.
While most NFTs are purely digital assets at their core, there are certain tokens connected to physical items. An NFT itself cannot be purely physical, but a certain object can be digitalized. For example, it is possible to take a real-life painting and make it into a piece of digital art, which can then be minted and turned into an NFT. This way, when buying a non-fungible token with its unique data, a person also buys a real item tied to it.
Investments and Collateral
When using apps of decentralized finance, people can receive money via collateral. In this case, a token can turn into collateral. DeFi platforms work with NFTs to deliver new convenient solutions for clients.
There are places in the virtual world, such as locations in video games, where people can purchase digital land and build something on it or combine it with other plots to make it bigger. Some projects allow using such plots of land for playing videogames, earning tokens, governing the whole land, etc.
Musicians, producers, and singers can use non-fungible tokens to their advantage as well. Much like a work of art, any music track can be tokenized and sold as an NFT. Musicians can sell music samples or finished songs, and blockchain technology will ensure that each musical piece is unique by attaching specific data to it.
How to Invest In NFTs
Now that we know the answer to the question “What are NFTs in crypto?”, it is time to look into investing. It is not all that simple because buying an NFT is different from purchasing any regular product online. But everyone can invest in it after some preparations.
Are NFTs Good Investments?
NFTs are currently not as reliable and well-known as cryptocurrencies. Their value depends purely on demand, so you should be able to sell them in order to make a profit. It’s like a mix of gambling and knowing what you are looking for. If you know online trends, love art and music, and have extra time and resources to try NFTs, you can win big by investing in tokens.
NFTs can be purchased from specialized marketplaces similar to exchanges for cryptocurrencies. These tokens are usually bought with crypto, mainly Ethereum. Here is how you can buy non-fungible tokens:
Create a cryptocurrency wallet for storing your digital currency.
Go to crypto exchange and buy ETH with another crypto or fiat currency.
Transfer the crypto to your digital wallet.
Go to an NFT marketplace and find a token you like.
Buy it for a fixed price or join an auction.
Users can sell NFTs for a fixed price, which means you can purchase them right away. However, there is also a bidding system available. Certain tokens are put up for auction, and buyers need to place their bids to buy them for a higher price. In addition, the prices depend on the demand, which can increase them significantly.
How NFTs Are Safe
NFTs use the same blockchain technology as cryptocurrencies, which is a secure tech solution. One of the benefits of cryptos is their decentralized nature, while non-fungible tokens are centralized. It is possible to protect your NFT storage and tokens themselves by using multi-factor authentication. In addition, something as simple as an elaborate and secure password should make your NFTs much safer. There are numerous online storage solutions that provide additional security. Take your time to find a reliable storage option to be sure that all your assets are safe.
What Risks Are Associated with NFTs?
People are now very invested in NFTs and continue buying and selling tokens worth thousands or even millions of dollars. This, of course, attracts all kinds of hackers and scammers who want to take advantage of such popularity. NFTs use smart contact security, and there is a chance for DeFi networks to fall under hacker attack. There have been instances already when scammers hacked into such networks and stole millions worth of NFTs.
Another challenge that NFT creators might face is uncertainty about the pricing. There are really no strict criteria regarding prices for non-fungible tokens. The quality of an NFT and its rarity might define its price, but it will be worthless if there are no buyers. It is crucial to monitor all trends in pop culture, the Internet, the crypto community, etc. This way, it will be possible to predict which NFTs will become popular.
Top Most Expensive NFTs Ever Sold
While almost anything can be turned into an NFT, there are some examples of the most successful sales. Some tokens were sold for millions of dollars, and it is not an exaggeration. Here are the most expensive non-fungible tokens sold up to date:
The Merge. This art piece was designed by an anonymous artist. Their online alias is Pak, and the artwork was sold for more than 90 million dollars. However, it was purchased not by a single owner but by many people. Almost 30 thousand buyers purchased their share of this art piece, making it so expensive.
The First 5000 Days. This artwork created by Beeple, a well-known digital artist, was first offered at a regular auction. The highest bid was about 100 dollars, but members of the crypto community started offering more money, which led to selling this piece for 69 million dollars.
Human One. It is an ever-changing artwork that features an astronaut in various environments. Once again, it was created by Beeple, and he offered to change it regularly. It was sold for almost 30 million dollars.
Such prices sound insane, but it is definitely not the limit for NFTs.
Pros and Cons of NFTs
NFTs are so popular for a reason. More and more investors continue to purchase unique tokens, increasing the demand. Here are some of the pros and cons of NFTs:
While the main meaning of NFTs lies in collecting them, there are so many opportunities open for their creators and owners. These tokens are incredibly valuable, and a single successful NFT can save its creator from working for the rest of their life. However, this market is still very young. NFTs are not as secure as cryptocurrencies, and a lot needs to be done to increase safety. Non-fungible tokens are usually purchased with cryptocurrencies, which means it is also important to have financial knowledge, understand how cryptos work, and be able to invest in them. Even Reuters has articles about this phenomenon. NFTs have a big future ahead of them, and now is prime time to make or buy a few tokens.
Frequently Asked Questions
Why Are Non-Fungible Tokens Important?
NFTs deliver a new solution for monetizing art, which is especially important for artists who live off their creations. Now all artists (and everyone else, really) can create a piece of digital art in any format and sell it as an NFT without looking for galleries or intermediaries that will help them. In addition to the high value of such tokens, which allows artists to make great profits, there is also a possibility of earning a royalty each time a certain NFT is traded or sold to another person.
Are There Any Risks in NFTs Investments?
While people are crazy about NFTs right now, and the value of tokens continues to increase, one of the main concerns is the inability to predict their future. They are extremely valuable right now, but unlike cryptocurrencies, there are not many guarantees that they will remain so popular. The NFT market is highly volatile, and such tokens have low liquidity as of now. However, it might be a good thing, as it adds to their value.