A lot of focus lately is on Bitcoin as it has been experiencing a lot of volatility. It has always been a bit volatile, but this year has seen some dramatic swings. Just a short time ago people were predicting that it could reach over $70,000 in value. Then, before the words had left their lips, it crashed down and lost about half of its value.
This creates a lot of news and diverts attention away from other NFTs. Non Fungible Tokens (NFT) are digital assets similar to Bitcoin or Ethereum. What makes them different is that they are not fungible like Bitcoin in that they can’t be exchanged for other cryptocurrencies.
Are they worth investing in for the average person? As long as cryptocurrency is around, people will be investing in them. Knowing how they work can help you decide for yourself if an NFT is worth it for you. In this article, we will go over the things to keep in mind before you invest in an NFT.
What makes it an NFT?
An NFT is a unique digital asset that only exists for the person who owns it. So, it isn’t exactly a currency. It is on the blockchain so it has its own identifiers making it one of a kind and can’t be altered in any way.
In this regard it is like a cryptocurrency as it has its own hash with keys that can be stored in your Canadian crypto wallet or cold digital wallet. The item itself can take on many different forms. It can be a piece of digital real estate or even a piece of art. In fact, some of the most expensive NFTs are digital artworks that can fetch amounts in the millions of dollars at auction.
Even memes are now NFTs with the person who might have inadvertently become the subject and now own the rights to it. What makes a digital artwork NFT a bit odd is that anybody can see it. In the case of a meme, as the owner you will have to be alright with anybody online being able to see it for free.
How are they valuable?
What makes art valuable? It can be that it is a rare piece because the artist has been dead a long time or something that has special cultural significance.
What actually gives a work of art its value is that people are willing to spend a certain amount of money on it. A Picasso is obvious because he is a household name all over the world. But, there are other lesser known artists that command in the millions of dollars when they reach auction.
The reason is that art is simply a store of value. Most art collectors are not much interested in the art itself as much as they are just trying to keep pace with inflation so they can store their money.
The same is true of digital art. It is easy to reproduce and many people can have a downloaded version, but the person who spent millions on it doesn’t care. They have the original so it is worth what they paid for it. If they decide to sell it, there will be somebody else willing to do the same.
Investing in NFTs
Buying an NFT is much like winning an online auction. Many pieces are listed on platforms like OpenSea and Rarible. There is even a platform called Top Shot run by the NBA or National Basketball Association in which you can buy moments of a game.
Unfortunately, since these pieces are unique and can only be owned by one party, you have to bid on them and the prices can reach astronomical heights. There’s no telling what makes one NFT take off and become a huge commodity and others remain low priced bargains.
In many cases, you will need to use cryptocurrency like Bitcoin to buy them since they are bought, sold and stored on the blockchain. They can’t be used as a currency so once you buy it, that money is tied up in it until which time you decide to sell it.
Should you invest?
Although cryptocurrency is by its very nature speculative, NFTs are on another level entirely. They have value because somebody decided that it does. Some people don’t see how a digital asset can be valuable when it can be duplicated over and over without losing any of its integrity. At least Beanie Babies were a physical item that could be kept in pristine shape to retain value.
If you decide to jump on the NFT bandwagon you have to understand that this could be a trend that doesn’t last. As soon as people decide that they are not worth anything, then they will crash and you will lose your money. If you can’t sell it then it has no worth and doesn’t matter how much you paid for it.
With that said, people have made fortunes buying and selling their NFTs. In fact, many digital artists are creating works of art and selling them for millions while cutting out the middleman. Can you ride the wave and make money yourself as others have been doing?
It takes a keen investor that understands the digital space to be able to navigate these waters. If you are only just hearing about NFTs, then you may want to steer clear of this type of investment. If you have a sense of adventure and have been dealing with cryptocurrency for a while then it may make sense.
It’s wise with any type of investing to only invest what you can afford to lose. This is doubly true when dealing with NFTs.
Cryptocurrencies have been around for about ten years now so people are more or less used to them. NFTs are in uncharted territory and it is very difficult to predict what will happen next. They may not be around in a few years, or they may overtake the rare art world in terms of being the top place to store value.