NFTs Explained In Under 5 Minutes
They sell for millions. Here’s what they are, how they work, and how it affects everyone who has invested in the crypto market.
The NFT market is still blowing up. This technology makes people spend thousands -even millions- of dollars on fully digital assets. No cash flow, no physical attachment, nothing “real”. They can simply be JPEGs or GIFs. So what makes them worth a ton of money? And how can you know that this is not a get-rich-quickly scam like many others? I hope that by the end of the article, you will have a clear answer to these questions, and you will be introduced to a whole new investment class.
WHAT IS AN NFT?
NFT stands for Non-Fungible Token. Basically a unique and non-replaceable digital item. For instance, bitcoin is fungible, meaning that you can trade one bitcoin for another and have something of the exact same value. So is “real” money. A valuable trading card is non-fungible. You can not have the exact same card twice, and its rareness is one of the reasons it can increase its value over time. Most of you will have heard about pokemon collectible cards selling for hundreds of thousands of dollars; Internet stars and artists endorsed it, such as Justin Bieber, Logic, and Logan Paul, and Graham Stephan.
So the name is quite descriptive. NFTs are Non-Fungible Tokens.
HOW DO THEY WORK?
NFTs are part of the Ethereum blockchain. The Ethereum blockchain supports the data needed to make a token behave as an NFT and not as an ETH coin. Other blockchains also support their versions of NFTs, but Ethereum is by far leading the market. That is quite impressive and gives us an insight into what blockchain is capable of achieving in the near and distant future.
WHY DO PEOPLE PAY MILLIONS?
To make it as clear as it gets, not all NFTs are expensive, and blindingly diving into the marketplace will probably make you lose money. The reason NFTs have value is the reason any collectible has value. By purchasing an NFT, you are not being sent an email with a picture in JPEG format. Instead, you have confirmed possession of this one-of-a-kind digital asset. You possess the collectible token, and this is backed by blockchain technology.
But what stops people from simply copying an NFT?
The answer is… Exactly what stops people from printing the Mona Lisa and hanging it on their walls. Nothing. But it is clear that the Mona Lisa is unique, and there will only ever be one original painting. And its rarity and uniqueness are what make the original painting worth billions, while a replica, no matter how precise, remains worthless in comparison.
Using that logic and adapting it to the digital world has lead to a series of insane investments. For example, videos of NBA highlights selling for a total of 230 million dollars, the beloved Nyan cat GIF selling for 3.5 million, and the first tweet -listed by Jack Dorsey himself- selling for 2.5 million.
Countless aspiring digital artists have found a brand new way of monetizing their work, and many early investors have made a significant profit.
TREND OR ASSET?
While I am not a financial advisor, I am going to share my thoughts on this, as it seems to both confuse and divide people in the crypto space. In my opinion, NFTs are here to stay. Realistically the hype around the community won’t remain as high as it currently appears to be. But in my opinion, it is a revolutionary blockchain technology with unlimited potential. It has created numerous opportunities and enhanced the true capabilities of blockchain, other than digital decentralized currency. Their impact on the market is far from finished. It’s just now starting.
HOW AND WHAT TO BUY?
Purchasing NFTs is currently a somewhat complicated procedure compared to conventional online shopping or investing. There are various marketplaces, such as OpenSea, Beeple, and Crypto.com, where you can browse NFTs and exchange them for cryptocurrency, mainly ETH coins. An impressive solution to the complexity of NFTs for an average retail investor is applications like VEVE. VEVE makes NFT collecting not only entertaining but also shockingly simple. You need not own or know about any cryptocurrency to participate in investing. You simply need Google Pay.
Now what to buy is a bit more complicated. Thankfully on most marketplaces, it is quite clear which items are rare and which aren’t. Obviously, a rare item is most likely to increase its value, as there is a higher demand. My advice would be to participate in NFT drops. These are events where collectibles go up for sale on a marketplace and typically sell out within the first few minutes. The price of an item in a drop can be many times lower than the market price after it sells out, depending on rareness and demand. It is a fast and easy way to either make a quick profit or invest in digital assets long term; You can even simply buy something cool for yourself to keep!
In conclusion, the digital revolution has given us yet another investment asset. The investing opportunities obviously go beyond just NFTs, as there are tokens and companies you can invest in behind the platforms. Even if NFTs become less relevant, I believe the fundamentals of this technology and form of investing will remain and evolve over the following years.
