What are NFTs?
With the increasing interest in the decentralized world, NFTs have emerged as an essential tool for transferring one's physical assets and other works of art to this decentralized world. Today, it has become a unique function of Blockchain technology that allows digital content ranging from videos, symbols, songs, art images, logos, etc. to be logged in and authenticated on cryptocurrency blockchains, especially on the Ethereum network. The main impact of NFTs is; making it easy to own and sell digital content online. NFTs have become an increasingly popular investment from the tail end of 2021 to the present, even though it was first created in 2014.
This work is vital for all who want to gain more information about NFT, how it works, the difference between NFT and other cryptocurrencies, how to create NFT, and finally, why to invest in NFT.
NFT is an acronym for non-fungible tokens, which are those digital assets that are easily verifiable on a blockchain network. Such assets embrace artwork, music, symbols, and logos, in-game assets such as unique avatars. An attractive characteristic of these tokens is that; their uniqueness marks them. This has made them very outstanding today and increasingly sought after as collectibles.
We refer to these tokens as non-fungible tokens because they are priceless and can't be exchanged for anything. This, in a way, contrasts their uniqueness from any other thing that we can exchange today, starting from fiat money or other local currencies. An NFT is a unique item that can be transferred from one owner to another using blockchain technology. This often creates a long digital trail from the seller to the buyer and helps verify the transactions. The physical world counterpart emerges as a unique collectible asset such as a piece of art, for which you might have a certificate of ownership attesting to its authenticity. The invention of the NFTs with its blockchain technology has replaced the need for certificates of ownership. Many NFTs now use blockchain technology to create a digital ownership certificate for a unique physical asset. This hitherto has not been so common in the cryptocurrency market.
NFTs are usually created by individuals, artists, creators, crypto enthusiasts, musicians, etc., who use them to represent their work of art or other beliefs and values. This makes it easy for people who share the same values or emotions or art enthusiasts to buy them quickly at a spontaneous price. NFT includes the representation in an art form or any of the following: Artworks, Tweets, GIFs, Songs, In-game purchases, Essays, Domain names, etc.
How do NFTs work?
NFTs are the digital equivalent of collectibles designed so that they cannot be copied, stolen, or hacked. Whenever an artist, musician, or other crypto enthusiast decides to turn their work into an NFT, they will transfer it to a digital collectible item and give the buyers the signature or permanent mark of ownership. All these are impossible to be plagiarized. Most NFTs run on the Ethereum blockchain and utilize Ethereum ERC-20 tokens. The blockchain uses the ERC-20 token to issue a smart contract on the Ethereum blockchain network. NFTs can also be purchased with other Cryptocurrencies such as Polygon, Solana, and Polkadot.
So whether you're minting the first timepiece of content or sharing a limited production of your work, you will now be able to create a digital scarcity for it by producing a limited quantity. This allows your work to gain in value continuously over a long period. This is very good in safeguarding the ownership of your work. Assuming you minted a digital artwork, someone else who has a copy of it drawn from any search engine such as Google or Firefox image search or any other search engine may enjoy it privately. Still, they won't be able to sell it. It becomes impossible to cut you out of the ownership chain. Whenever they try to do so, their work will be immediately identified as fake. The reason is that NFTs can only have one owner at a time, and each one is unique.
NFTs, once created, are marketed and distributed through online marketplaces. OpenSea is the best-known NFT marketplace. But more and more marketplaces are launching nowadays, such as Rarity.tools or NFTcatcher.io. Also, some popular crypto exchanges, such as Binance, have started to include NFT on their platforms for investors to buy and sell. Similarly, you can buy NFTs as CFD from some forex brokers today.
How do NFTs differ from Cryptocurrencies?
NFTs are not the same as every other cryptocurrency as it has a fixed price for all their kind everywhere. An NFT only uses cryptocurrency to conduct its transaction. Though it uses the same blockchain technology that Cryptocurrencies use, the asset is always set up differently. Whereas a cryptocurrency coin can be traded or exchanged at its equivalence, the NFTs cannot. Each cryptographic is set up with a unique identification code and metadata that distinguishes one NFT from another. In other words, you can trade one Etht for another Ethereum, and they will remain equal, but NFTs don't trade equally. Often, their prices are determined by individual and or group appreciation of the art, design, music, or value represented by these NFTs. They express their regard for it through the prices they are willing to pay to have them.
How to invest in NFT as a beginner
The best way to invest in NFT as a beginner is to buy and hold. Buying and Holding NFT means buying the token immediately on its launch when the price is meager and holding it over a long time when enough scarcity has been created. This is because NFT tokens are highly limited in quantity minted and then bringing them back finally to the marketplace to resale at a higher rate when a strong demand has been created for them in the market. Below is an easy four-step guide on how a beginner can easily buy and hold any NFT of his choice.
Four easy steps to get started as a beginner
- Open up a wallet at Metamask: The first step for a beginner who desires to invest in NFT is to set up a metamask wallet. First, download the metamask wallet app and set login details and passwords. Metamask wallet is often the most suitable and recommended for beginners who wish to invest in NFT tokens. It ensures the security of his investments and makes it easy for him to buy and sell NFT from the Ethereum blockchains.
- Buy some ETH (which is the cryptocurrency used for trading NFTs) to load your Wallet: The next thing the beginner will have to do is buy Ethereum with his metamask wallet. The beginner can easily buy ETH with a debit card or Apple Pay directly within MetaMask by clicking "Add funds." Next, move to the main screen of the extension or the mobile app, click on the 'Buy' button. Once done, MetaMask will link you to a service provider that is the best choice to buy the desired amount.
As a beginner, you are also to note that you can request funds from a friend by sending them a payment request showing your QR code or sharing your public address with them if you do not have the investment capital to buy ETH yourself.
- Open an account at OpenSea and connect your Wallet: After buying Ethereum on your metamask wallet, the next thing the beginner has to do is open an account at OpenSea and connect his metamask wallet to it. The OpenSea is the most popular platform recommended for every beginner as the safest place for buying and selling NFTs.
- Proceed to buy the NFT of your choice: The final step is to buy the NFT of your choice at OpenSea or any other exchange and keep it in your Wallet to sell after some time when the market price has increased.
How much money do you need to start investing in NFT?
Another pertinent question is the amount of money a beginner needs to start investing in NFT. According to NFT's Street, the cost to mint and list an NFT for sale is around $85. And you'll also owe the exchange a portion of your selling price. Prices can vary wildly depending on your chosen platform and the value of ETH that day, plus the spread/transaction fees charged by the exchange.
Five reasons why you should invest in NFT
Often, there are many enticing reasons why the beginner may be attracted to invest in NFT. These reasons are stated below:
- NFT projects offer huge profits when successful: Most often, NFTs offer some high-staking opportunity to make enormous profits from the markets. This is if the version of the NFT produced is greeted with high value and market appreciation of it. For example, NFT bought at $10 could easily be sold in the future for over $1000, depending on the scarcity and demand created in the market.
- NFT has futuristic demands: The massive embrace of NFT and its beauty suggests it could easily be the future of our traditional markets tomorrow. Some investors see NFTs as a modern approach to investing in art. Investing early enough at this point in NFT could be an excellent decision in the future when it becomes the traditional market token. Many people are buying up NFTs today because of the belief that they will later be more valuable to someone else tomorrow.
- Safeguards investment from attack: Many investors believe that NFTs help to safeguard their assets from attacks when held in wallets. Also, inside the wallet, a unique link allows the content to be displayed and for performing transactions.
- Protects your work from plagiarism: NFT often gives the artist's work a unique and digital signature that makes it impossible to plagiarize or steal them elsewhere.
- It makes investments very easy and portable: NFT functions like crypto in its possibilities, so you dont have to carry your assets alongside you all the time but can store them in your device.
Five Successful NFT Investments
Here's a selection of five successful and strange NFT Investments that existed.
- Lindsay Lohan's electronic single Lullabye, which was accompanied a GIF of her upper torso adorned in butterflies that flap their wings to the beat.
- A digital image of Shawn Mendes gold embellished vest that he wore while on tour.
- A video clip of one of Banksy's artwork being burned, the original artwork was sold for $95k, the NFT of the artwork being burned and sold for $380k.
- The viral internet YouTube video Charlie Bit My Finger was removed from YouTube and then sold as an NFT for $693k.
- The co-founder of Twitter, Jack Dorsey, sold his first tweet which read just setting up my twitter for nearly $3m.
Five major drawbacks from investing in NFT
- Essentially a speculative market: The crypto market is largely theoretical. None is sure of any crypto asset in the market as the price depends mainly on demand and supply. The cost of a given NFT depends on the buyer's appreciation of the token based on the amount in circulation and its value to the buyers. One can only attempt to guess the market sentiment regarding any newly launched NFT.
- Lacks guarantee for sustainability: The Crypto market is currently striving to survive amidst the increasing government strife to control and regulate it. Even though the crypto market had survived all these external struggles from the government since its inception back in 2009, when the first cryptocurrency was created, none is sure what will become of the market in the years to come. Many crypto projects have been known to fail in the past, and the trend has continued. There is no guarantee that a particular NFT will always survive the regular pump and dump mentality in crypto, leading to failure in some crypto projects.
- Taxes are charged for them: Some NFT tokens are today viewed as securities; hence they are taxable in some countries when cryptocurrency trading is permitted. Largely NFTs are regarded as collectibles, and taxes are charged for them at the maximum of 28% on all gains. Often investors are taxed when they buy and sell NFTs with cryptocurrency and sell an NFT for another NFT. There are also some charges from both the government and Exchanges for converting cryptocurrency into US dollars.
- Mining and Storage constitute hazards to the environment: Mining of Cryptocurrency, including NFTs using computers and other storage devices, releases harmful energy into the atmosphere. Mining causes environmental pollution and is not suitable for a healthy environment.
- Risky business: All cryptocurrency investments carry high risk. This is because Cryptocurrency is not readily converted into cash as it is not yet accepted by all countries officially. Similarly, converting an NFT into a dollar or any other fiat currency could be hampered if insufficient liquidity. Finally, the volatility involved in trading Cryptocurrency. NFTs place the investor's capital at high risk.
Should you invest in NFT?
Even though NFT has some risk attached to it, it is not a sufficient reason to deter investors from investing in it. Everything in life has always got its own risk. We can always learn to contain and manage our risks effectively. The beginner is in no way discouraged from investing in NFT, but it is equally essential that he does so with calculated risks. It was investing only the amount he could afford to lose.
Spending money, say from $1 to $100 million or more, on anything auctioned or traded as an NFT does not give you legal ownership over the underlying media associated with that token. What you own when you buy an NFT are the keys to a non-fungible token. That token is yours to trade, hold, or display on a Blockchain. However, the idea and creativity remain and go to its original inventor. NFT has offered a great advantage to so many artists today to partake in the decentralized world reality. It has further enabled artists to sign their works and ensure its never plagiarized. This is because they are used as proof of ownership. Therefore they serve as digital receipts or signatures for the artists/owners.