NFTs are the newest, trendiest investment on the block.
Some people see them as a temporary craze, while others see them as having boundless future potential as a means to sell and own digital files.
Like crypto, NFTs are still new – just under a decade-old – so you are not the only person wondering what they are, why people are investing in them, and whether they are actually worth investing in.
This simple guide to NFTs aims to answer all your questions.
Below, read everything you need to know about NFTs, including what NFT stands for, how NFTs are valued, whether NFTs are worth investing in, how to make money with NFTs, and more.
What Is An NFT?
NFT stands for non-fungible token. And, put simply, NFTs are a unit of data that serves as a certificate of ownership for a digital file, bought using cryptocurrency.
NFTs are stored on a blockchain, which is a system that records and encrypts digital data.
As a result, NFTs can be any kind of collectible digital file or piece of art, including photos, artworks, memes, videos, films, viral videos, game files, and more.
By buying an NFT, you are buying a piece of code that represents ownership of a digital file. This is also known as a smart contract.
Once owned, that NFT can be kept or resold. Unlike cryptocurrency, however, NFTs cannot be exchanged or traded for other NFTs.
As NFTs are bought and sold using cryptocurrency – mostly Ether, due to NFTs being typically stored on the Ethereum blockchain – NFTs are decentralized.
This means that NFT transactions are not maintained by banks or governments.
How Are NFTs Valued?
Since NFTs can be any kind of digital work or digital file, how are NFTs valued exactly? And why would anyone buy an NFT?
Like any creative work or artwork, NFTs get their value from factors that include the reputation or popularity of the artist or creator, collectability, rarity/scarcity, creative effort involved, backstory or history of the artwork, and so on.
Ultimately, the purpose of NFTs is to own a creative digital asset to be able to sell it (at a higher price) or simply retain the ownership of that digital asset.
So, for collectors and investors, NFTs are an interesting prospect.
How Do You Buy NFTs?
So, how exactly do you buy an NFT?
NFTs are bought with cryptocurrency – Ether, in most cases – using NFT marketplaces.
So, to be able to buy an NFT, you have to invest in crypto. It is not possible to buy NFTs using traditional payment methods.
If you are interested in investing in/buying NFTs, the first step is to choose the kind of NFT you want to buy, based on general interest or market value.
While this isn’t necessary, it’s worth taking an interest in what you are investing in.
The next step is to set up a cryptocurrency wallet, using a platform like Coinbase or Mycelium.
This is where you will be able to buy cryptocurrency.
After that, choose an NFT marketplace. Popular NFT marketplaces include OpenSea, Rarible, SuperRare, Mintable, and Axie Marketplace, to name a few.
Once you have chosen one, link your crypto wallet to your account.
The final step is browsing the marketplace for NFTs you want to buy.
These are typically bidding auctions, but some NFTs can be bought for fixed prices.
Make a bid, complete the transaction (service/commission fees can apply), and then ownership of that NFT will be yours.
How Do You Make Money With NFT?
Before getting into whether NFTs are a good investment, the profitability of NFTs is worth addressing.
In other words: how do you make money with NFTs?
Remember that NFTs are much like artwork, but digital. So, as a result, there is a potential that the value of an NFT can increase over time and then be sold at a higher price.
Of course, this depends on the NFT itself, general interest, and the current state of the crypto market.
But, overall, reselling an NFT at a higher price than what you paid for it is the main way to make money from NFT investments.
The other way would be to create the NFTs themselves and sell them for a profit.
Are NFTs A Good Investment?
Now for the central question: Are NFTs a good investment?
As mentioned above, investing in NFTs is done for the purpose of reselling at a higher price to earn a profit.
Of course, this will depend on the NFT itself, general interest, and the current state of the crypto market.
These factors do mean that NFTs are a volatile, high-risk investment, which you might consider worthwhile or not depending on the size of your investment, your personal value of the NFT, and how much time you are willing to invest in that NFT’s increase in value (if it does increase).
It’s also worth noting that buying NFTs on NFT marketplaces comes with fees.
These service fees, known as gas fees in cryptocurrency, account for, and are based on, the computing energy needed to complete all blockchain transactions.
Last but not least is the security factor, considering how NFTs are a non-tangible digital asset that, like all things digital, come with the possibility of being hacked or going offline.
So, despite the downsides to investing in NFTs, you might consider it to be a worthwhile investment if you have a flexible budget and/or are interested in “digital collectibles” and the future potential of NFTs on the whole.
Can I Create My Own NFT?
Another way to invest in NFTs is by investing your time in creating NFTs, which can then be sold for profit.
Creating NFTs is the process of, first, owning the intellectual property rights of a digital file and, secondly, listing that NFT on an NFT marketplace.
If you are an artist or someone who has created a viral video, for example, listing it as an NFT can be a profitable venture.
Similar to buying NFTs, however, marketplace service fees can apply.
This includes NFT “minting” fees, which is a term that describes the process of uploading and storing a digital file on a blockchain to guarantee its authenticity as an NFT.
Conclusion
The short answer? NFTs are a high-risk, long-term investment that depend on market value.
To make a profit from an NFT, you are betting on its market value increasing over time so that you can sell it at a higher price than what you initially paid.
But, despite the negative factors that come with investing in NFTs – such as digital security, NFT marketplace fees, and general uncertainty around ownership rights – NFT investment can be considered worthwhile if you have the money to invest and see NFTs as a valuable commodity with a bright future.
