What are NFTs?
NFTs, also known as “non-fungible tokens”, are digital assets that represent unique physical and/or digital items, tangible and non-tangible.
Unlike regular cryptocurrencies, NFTs cannot be exchanged directly for each other – no two NFTs are the same. Each NFT represents ownership of a unique asset. A key feature of NFTs is their ability to show a record of ownership of digital goods, something that counters the physical world concept of counterfeiting. NFTs are verifiable, allowing the token to be traced from the original creator to the current holder of the token, using the Ethereum token standard and blockchain.
NFTs have some unique features:
- Indivisible: unlike Bitcoin, which can be divided into satoshi’s, NFTs cannot be divided because they exist exclusively as one unit.
- Indestructible: NFTs exist on the blockchain, and therefore cannot be altered, removed, or replicated.
- Immutable ownership: owners of NFTs actually own and possess the token, not some derivative of it, such as when purchasing rights or licenses to access something, such as a license to use a software product.
- Authenticable: NFTs can be verified and authenticated without the need for a third-party, such as with the need for an authenticator when purchasing physical art or collectibles. The historical ownership of the NFT can be traced on the blockchain back to the original creator.
Real Life Uses of NFTs
NFTs offer the opportunity for creators from all kinds of industries to share their work with the world, and profit directly from the sale of their creations.
Artists are able to sell artwork in digital form to a global audience of buyers, all while skipping the need to use an auction house, gallery, or broker that would otherwise take a portion of the profit from the sale. NFTs also allow artists to set a royalty for the artwork, so that every time the NFT is sold to a new owner, the creator receives a portion of the sales profit.
Investing in NFTs
Like all investable assets, price is a function of supply and demand. NFTs are no different, with many well-known people entering the NFT space, certain pieces with limited supply and high demand will certainly have a high price, and offer the opportunity for investors to own an appreciating asset.
How to invest in NFTs
There are a number of NFT marketplaces popping up, but from our research, we’ve found the following to be the most reputable and interesting:
- Foundation: an artwork auction marketplace allowing creators to place their digital art up for auction, allowing investors to bid for ownership of the NFT.
- OpenSea: a decentralized marketplace for digital goods, including collectibles, gaming items, digital art, and other digital assets.
Are NFTs a good investment?
If you believe that NFTs are where the future is heading, then getting in now as an early adopter could be quite profitable for you. Traditional fine art investing had a market value of $64B in 2019, and investments made in fine artwork have had annualized returns of around 7% for the last 35 years. Given the increasing prevalence of digital assets and cryptocurrency, it’s not crazy to think about the future value in this space.