Hi, folks! NFTs are a quite new and fascinating phenomenon. We know something about that ;)
We have written this little guide for beginners and those who bought NFTs only for fun, not considering them as an investment tool. This is not an in-depth study, but a few simple theses that underlie the NFT market.
Around since 2014, they’re unique digital assets that are bought and sold online using cryptocurrency. One-of-a-kind tokens used to indicate ownership of a particular digital item (often a digital artwork), NFTs are disrupting markets around the globe from art to gaming, from events to insurance.
Confused? Don’t worry — it’s a lot to take in. That’s why we’ve broken it down into an easy-to-understand guide to everything you need to know about NFTs. Let’s dive in!
What does NFT stand for?
NFT stands for non-fungible token. Let’s start at the very beginning — what does non-fungible mean? “Fungible” is an economic term that refers to a good or asset that can be exchanged for another good or asset of equal value. For instance, a dollar bill is fungible, because it can easily be swapped for another dollar bill of the exact same value.
If something is “non-fungible,” it means it can’t be swapped for something of completely equal value. A tract of land would be non-fungible, since land is unique, and finding another tract with the exact same value would be difficult to impossible. Art is another example of a non-fungible asset since its value is highly subjective — and this is where NFT’s come in.
An NFT shows exclusive ownership of a particular digital asset (e.g., a piece of art, an in-game purchase, or a tweet). You might purchase an NFT at a certain price, but because it’s non-fungible, its market value is likely to fluctuate.
How do NFTs work? Are they cryptocurrency?
While NFTs are often bought and sold using cryptocurrencies such as Bitcoin and Ethereum, they are not cryptocurrencies themselves. Like dollars and other currencies, cryptocurrencies are fungible. If you trade one bitcoin for another bitcoin, they both have the same value. You’ll still be left with one bitcoin. Since NFTs are unique, they have no equivalent value other than what the market is willing to pay for it.
What do you get when you buy an NFT?
Since an NFT can only have one owner at any one time, when you buy an NFT, you purchase the exclusive ownership of a particular digital asset. However, this doesn’t mean that you own the exclusive rights as to who gets to look at or share that particular artwork.
Beeple’s Everydays: The First 5000 Days, a 5,000-piece digital collage. The owner of this NFT is Vignesh Sundaresan, founder of the Metapurse NFT project and the bitcoin ATM provider, Bitaccess.
While Sundaresan is the official owner of this NFT, this image has been copied, shared, and seen by millions of people around the world — and that’s fair game! So, when you buy an NFT, it’s a little like buying an autographed print. The NFT is signed exclusively to you, but anyone can view the work.
An NFT can be any digital asset. So far they’ve included:
- In-game purchases
- Domain names
Why would anybody buy a non-fungible token?
The more you try to wrap your head around the weird and magical world of non-fungible tokens, the more you may ask yourself why anybody would buy an NFT. Well, there are a few reasons why those with spare cash are choosing to invest.
There’s nothing like a perceived sense of rarity to increase interest in a particular item. As NFTs can only have one owner, they create this sense of scarcity by the bucketload. This encourages potential buyers to fixate on a particular piece and worry that someone else may become the exclusive owner of an NFT that they want.
Think of it like when you find a pair of sneakers you want to buy and the site tells you that there’s only ‘one pair left.’ If you’re like most of us, this increases your sense of scarcity and encourages you to commit to making the purchase — even if it doesn’t make financial sense for you.
Like swapping baseball cards on the playground, NFTs are essentially trading cards for the super-rich. While there’s no inherent value in these cards other than what the market ascribes to them, their fluctuating worth makes their collectability and trading potential like a high-risk gambling game. As a result, it’s easy to make comparisons between the NFT and the art market.
However, unlike the art market, NFTs give artists more autonomy as they no longer have to rely on galleries or auction houses to sell their work. By cutting out the middle-man, artists can sell their artworks directly to buyers and keep more of the profits by doing so.
Is it worth investing in non-fungible tokens?
Appealing to the risk-taker investor, NFTs offer a unique, high-stakes opportunity to make some huge profits — but be warned, this only happens rarely. Though not as flashy, and without the same cultural cache, if you’re looking for a more reliable way to invest your money, consider investing in an index fund rather than a Pop-Tart cat GIF.
However, if you want to take your chances and enter the world of non-fungible tokens, you’ll first have to open a digital wallet. This is where you’ll store your cryptocurrencies and your NFTs. You’ll then need to look for NFTs on the likes of OpenSea.io or Rarible, find one you like, then buy the right cryptocurrency for that particular NFT then make your purchase.
Then it’s a waiting game. As the value of your NFT is dependent upon how much someone else is willing to pay for it, you and your Pop-Tart cat are at the mercy of the market.