The popularity of NFTs that exploded during the pandemic has many investors wondering how to buy them. Digital art by artist Beeple, Twitter CEO Jack Dorsey’s first tweet, and pixelated CryptoPunks portraits have all sold as NFTs worth millions of dollars.
As the prices of cryptocurrencies and other digital assets soared, artists, collectors and speculators alike flocked there. Whether this is an unsustainable bubble about to burst or whether this is the birth of a new long-term asset class remains to be seen. But NFTs themselves hold promise for artists and have applications in the business world.
If you’re not sure what NFTs are and how to start investing in them, don’t worry. In this article, we will discuss what an NFT is and seven ways to invest in it.
What is an NFT?
NFT is an acronym for non-fungible token. These tokens are digital representations of real-world things like art, music, videos, and in-game purchases. Each token is unique, which is why it is not fungible. They are very popular with all types of collectors, including sports trading card collectors. They use blockchain technology to process transactions and encrypt the identity of the NFT holder.
Most NFT markets use the cryptocurrency Ethereum, but they can also use other cryptocurrencies, including Polygon, Solana and Polkadot.
These NFT tokens take a physical certificate of ownership and make it digital and secure. Some NFTs actually guarantee ownership of unique physical assets, although the most prominent are digital assets.
Seven ways to invest in Non-Fungible Tokens (NFTs)
Below is a list of ways we can invest in NFTs:
- Create a Digital Wallet: You need to create a digital wallet to store your NFT keys and cryptocurrency tokens. You can use an external hardware wallet or an integrated wallet with a cryptocurrency exchange (e.g. Coinbase has an integrated wallet where you can store your keys).
- Fund your Digital Wallet: Whether you use a cryptocurrency exchange or an external wallet, you need to connect your bank account or credit card to encrypt your transactions. You may need an authentication process running through the software/exchange platform.
- Open an Account on an NFT Marketplace: The NFT Marketplace is an online marketplace that offers NFTs for sale. The most popular are Open Sea and Rarible. Be sure to check who you’re buying from – many creators and celebrities have scammers trying to sell fraudulent NFTs.
- Research Available NFTs: You must select an NFT that you believe has the potential to increase in value. An NFT can be art, music, video, or even an item in a video game. You can search for NFTs on Google or Twitter. Websites like Rarity.tools or NFTcatcher.io have listings of upcoming Ethereum and Solana NFTs.
When reviewing upcoming NFTs, pay attention to the timing of the sale, cryptocurrency requirements, and the number of NFTs sold. This will help you better understand the scarcity behind your chosen product.
- Connect your Crypto Wallet to the NFT Marketplace: Link your crypto wallet to your NFT marketplace account so that it can be stored in your crypto wallet after purchasing an NFT on the marketplace.
- Buy the NFTs: Browse the NFT marketplace and click on the one you want to buy. Bid or buy NFTs at a fixed price on the supply side. Once the NFT is yours, it will be placed in the Collections section of your account.
- Sell the NFTs: Once you own an NFT, you can use the digital asset however you wish. You can save it as a collection, show it to others, or use it as part of a larger digital project. You can also offer for sale. The marketplace charges fees for NFT sales. These fees can vary depending on the blockchain network used by the NFT, as the blockchain computation required to validate the NFT consumes energy known as “gas fees.”
Pros and Cons of Investing in NFTs
Before investing in any asset, it’s a good idea to weigh the potential downsides and benefits. Recently, the value of many NFTs has increased significantly, causing a stir in the investment community. Appreciation of physical collectibles is historically reliable, and many believe the market behaves similarly to digital art. Artists and creators are paid fairly when assets are used or resold via smart contract technology.
On the other hand, NFTs are static assets that do not generate any revenue themselves. Their value is subjective and will vary based on buyer demand. For example, Nyan Cat GIFs were created and sold as NFTs. But who says Nyan Cat will have cultural significance in 20-30 years? It’s hard to say that this is the risk NFT buyers are willing to take. NFTs and other assets using blockchain technology have also received negative attention for their environmental impact. Creating and validating transactions consumes a lot of energy.
This article looks at investing in NFTs, covers all the key points related to NFT investing and shows you how to make a purchase today.
NFTs imply ownership of digital assets, but most NFTs can still be copied or accessed if they can be viewed on the web. NFTs have no intrinsic value and pay no dividends or interest – most people only buy them for personal satisfaction with ownership. Due to the rising popularity in 2021, many investors want to learn how to invest in NFTs. However, due to their lack of value and fashion, they may not be a viable investment. Consider using NFTs as high-risk investments.