If you’ve been on the internet recently you have probably run into an NFT or non-fungible token. Investors are pouring millions of dollars of capital into these digital assets that run on a blockchain, the underlying technology that makes popular cryptocurrency Bitcoin possible.
What are they and are they really a good investment?
NFTs explained
NFTs have been around since 2014 but have just recently gained in popularity as a new-age way to buy and sell digital artwork. Since 2017 over $174 million has been spent on NFTs.
In this digital era one would assume that simple digital representations of artwork would be abundant, but NFTs control the supply of certain assets increasing the assets value.
NFTs are digital creations of assets that already exist and allow a buyer to own the original digital art.
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A built in digital signature serves as proof of ownership and provides the owner with bragging rights for owning the asset.
The digital asset is typically powered by Ethereum blockchain technology and can be traded online, frequently in exchange for cryptocurrencies like Bitcoin, LiteCoin and Ethereum.
These assets are stored in digital ledgers that hold more information about the NFT making them work differently than the typical cryptocurrency token.
NFTs have become a new way that artists and content creators alike can further monetize their creativity without relying on brick and mortar galleries or auction houses. They can be sold directly to the customer, allowing artists to retain the majority of the profit. The sale can even be structured to earn royalties if the NFT is resold, a privilege artists rarely enjoy.
One thing that NFTs have done for creators is to limit the ability of bad actors from using their works in manners not authorised or copying their work.
Is investing in NFTs a smart move?
The current hype around NFTs is reminiscent of the investor boom at the turn of the millennium that resulted in one of the biggest financial busts in history. Experts are quick to tell new investors to only invest capital that they are willing to lose.
That said, solely investing in NFTs would be considered fool-hardy and making them a cornerstone of your investment strategy is probably not the best move.
While anyone can purchase an NFT, obtaining one may prove to be difficult for many investors. Typically NFTs are being traded using the popular cryptocurrency Ethereum. Most NFTs are Ethereum-based and most marketplaces only accept the tokens as payment.
So, in order to purchase an NFT the investor needs to understand how to obtain Ethereum tokens and, at a minimum, open an account with a trusted cryptocurrency exchange to facilitate the purchase.
No doubt some will experience a windfall by investing in NFTs however they will be in the vast minority.
How much are NFTs going for?
Several notable NFT transactions occurred in 2021. The first Tweet ever sold for more than $2.9 million and a Doge NFT — a popular meme cryptocurrency — sold for a staggering $4 million.
A Rick and Morty NFT, based on the popular adult animated TV series, sold for $1.6 million and a copy of the World Wide Web’s source code sold for a cool $5.4 million.
The Hashmasks NFT sold for a whopping $16 million.
Hasmarks is a living digital art collectible created by over 70 artists worldwide. It is a collection of 16,384 unique digital portraits. The NFT was the creation of Suum Cuique Labs located in Zug, Switzerland. The owner of the NFT accumulates NCT, or name changing tokens on a daily basis and allows the owner to choose a name for the portrait on the Ethereum blockchain. NCT tokens are the native tokens of the Hashmasks artwork.
