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The explosion of blockchain news and events leave many people baffled: “What is going on here?”. When you know that Jack Dorsey sold his the very first tweet for nearly 3 million dollars, or that the pixel GIF of Nyan Cat making its way through the cosmos scooped insane $580 thousand, the natural reaction of many of us would be to raise the eyebrows and drop the F-bomb.
People want to pay house-money sums for digital files that you otherwise can easily download or screenshot from the Internet absolutely for free – NFTs look like the general craze that deprives users of common sense.
You might be wondering: what the thing is with NFTs, and how to invest in those notorious non-fungible tokens to live high off the hog? In this article, we will outline the basics of NFT investing and hold forth on whether NFT crypto makes any decent investment choice.
But first things first: here is everything you need to know about NFTs before you plunge into action.
An NFT can be decoded as “a non-fungible token”. It is essentially a digital asset like a cryptocurrency token, but unique, rare, and valuable. Non-fungible tokens are designed to be “one-of-a-kind”, exclusive, unrepeatable, with no two NFTs ever identical or interchangeable. Since NFTs are matchless, there has been no recognized market price for them so far.
NFTs can be exemplified with an original piece of artwork, such as an iconic painting of Van Gogh “The Starry Night”. It is original, unique, and exists in a single copy (although there are thousands of replicas, none of them are original). The painting is the only of its kind, and nothing can be equivalent to it. It cannot be exchanged like-for-like or reproduced (fake copies never count).
A dollar banknote, on the other hand, can be reproduced in large quantities. You can exchange a dollar banknote for another one and always enjoy the same value. One Bitcoin token is also always equal to another Bitcoin token. These assets are fungible, and interchangeable. NFTs – never.
In a very technical sense, each NFT presents a piece of unique data recorded on some blockchain such as Ethereum, and it is also connected with the cryptocurrency supported by a given blockchain technology. Many NFTs are built on the top of Ethereum and require Ether (ETH) to purchase them. Ethereum even offers the purposefully designed standards ERC-721 and ERC-1155 to enable the production of NFT collectibles.
However, there are many other blockchain networks that support the production (“minting”) of non-fungible digital assets, including Tron, Solana, Cardano to name a few.
NFTs can be linked to easily reproducible digital or real-world unique items, such as portraits, videos, music compositions, video game gear, virtual real estate, virtual worlds, GIFs, memes, trading cards, and others (similar to a certificate of authenticity). Blockchain technology secures the token with public proof of ownership. Copies of the original file are not limited to the owner of the NFT and can be duplicated and transferred like any other file.
NFTs are generated when a blockchain writes records of a cryptographic hash (a set of characters that identifies a set of data), onto previous records, thereby creating a chain of identifiable data blocks. This cryptographic transaction process authenticates each digital file by providing a digital signature that is used to track the ownership of the NFT.
Ownership does not inherently grant copyright or intellectual property right to any digital asset that the token represents. While someone might sell an NFT representing their work, the buyer does not necessarily acquire copyright, and therefore the original owner is allowed to create more NFTs for the same work.
Buyers do not own the copyright in the main work unless the copyright is explicitly transferred. In practice, buyers usually do not acquire the copyright for the underlying artwork –they simply possess the NFT art.
The unique identity and ownership of an NFT can be verified using the public distributed ledger. Ownership is often associated with a license to use the underlying digital asset, but usually does not provide the buyer with copyright. Some agreements only grant a license for personal, non-commercial use, while other licenses also permit the commercial application of the underlying digital asset.
Most people buy NFTs to showcase their “bragging rights.” They have a penchant for expensive masterpieces and want to indulge in the status of the official owner. Many celebrities create NFTs and auction them off to fans that are willing to pay insane bucks for the feeling of “getting closer to their favorite star”.
Digital art was an early use case for NFTs due to the blockchain’s ability to guarantee a unique signature and ownership. A digital collage work titled “EveryDays: The First 5000 Days” by famous artist Mike Winckelmann (known professionally as Beeple) was sold for $69.3 million in 2021.
Another Beeple’s article titled “Crossroad”, a 10-second video showing busy pedestrians passing by the Donald Trump figure, was sold for $6.6 million at the Nifty Gateway in March 2021.
In March 2021, a blockchain company Injective Protocol bought an original screenprint called “Morons (White)” for $95,000 from English graffiti artist Banksy and filmed someone burning it with a cigarette lighter. The video was minted and sold as NFT. The man who destroyed the artwork, calling himself “Burnt Banksy,” described the act as a way of transferring a physical artwork into the NFT space.
While Blockchain and cryptos have been around for a fair decade, NFTs are truly a new asset class in the economy. Since there is much hype around them, non-fungible tokens (NFTs) are gaining momentum, with some NFT arts being sold for millions of dollars.
But the increasing popularity and advocacy from icon celebrities do not immediately make NFTs the right asset for a long-term investment.
You need to be aware that NFTs are speculations, and their demand is determined entirely by customer willingness to buy and sell them, not by market factors.
If you do decide to try your hand in NFT investing, make sure you put at stake as little personal finance as you can safely afford to lose. Given its novelty, the market performance for NFTs is hard to predict, and these digital assets have yet to be tested by time. They also do not provide any steady cash flows, such as interest or dividends gained from stocks.
The demand determines the supply. Since NFTs are rather sought-after products nowadays (despite their inherent riskiness), there are many online NFT marketplaces offering you all sorts of NFT files to pick from.
The most popular platform is OpenSea, a peer-to-peer marketplace for NFTs, rare digital assets, and crypto collectibles. This marketplace also offers the ability to create and sell your NFTs. There are other NFT marketplaces available, including Rarible, NBA Top Shot Marketplace, Nifty Gateway, Larva Labs among others.
The main way to make money from NFT investment is to buy it at one price and then resell it at a higher price to another buyer. It is hard to imagine any better profit-making scheme, especially for an asset as novel as NFTs.
The best strategy could be to search for digital artwork that you think is particularly attractive or may be of a greater importance in the future.
Putting all eggs into one basket is not the best plan when it comes to investing in non-fungible tokens. Consider limiting your investment in any particular non-fungible token. It will also help you follow one of the best investment rules, which is diversification across multiple tokens.
If you want to learn how to become an NFT investor, let’s satisfy your curiosity.
Once you have done your research and picked a perfect NFT marketplace with a stellar reputation, it is time to obtain a digital wallet to hold and secure your virtual possessions. The wallet must be funded with cryptocurrency, such as Ether (ETH). A good rule of thumb is to explore, which wallets are supported by the NFT marketplace of your choice to avoid any hurdles when making a transaction.
Once your wallet is up and running, you need to go to your NFT marketplace and connect your digital wallet. By doing so, you will officially create an account with your chosen NFT marketplace. It will further guide you throughout the process prompting on what you should do next, so connecting your digital wallet and creating an NFT marketplace account will be a breeze. Once you are all set, you can participate in the marketplace and start investing in NFTs.
A wallet acts like a physical wallet that stores your banknotes as well as debit and credit cards, but a digital wallet is specifically designed to hold cryptocurrency.
Generally speaking, your best bet is a digital wallet that uses enterprise-level security measures making sure your wallet will be hard to get hacked. Crypterium is exactly this type of wallet.
You will need a digital wallet that works with your selected NFT marketplace (for example, OpenSea is built on the Ethereum blockchain). Your wallet must be compatible with the cryptocurrency you want to buy and sell on the platform. For example, Crypterium supports cryptocurrencies like Ether, Bitcoin, Ripple, and other trendy coins.
You need to purchase a cryptocurrency like Ether to be able to trade on an NFT marketplace platform.
You can do so quickly and easily through Crypterium, a multi-asset wallet that offers fiat-to-cryptocurrency purchases. This high-end solution allows users to buy their first coins like Bitcoin and Ethereum paying as little as €2.50 from their bank cards. A full-fledged storage solution, Crypterium lets you buy, sell, and store your cryptocurrencies. It also offers plenty of tools to manage your tokens with the uttermost efficiency.
Once your wallet is loaded with some cryptocurrency, you can go to an NFT marketplace and buy an NFT.
When your digital wallet is running and contains enough cryptocurrency, you are ready to make a purchase.
It is important to understand that NFT marketplaces usually sell NFTs through auctions. You will need to submit a bid for the token you want to acquire. The deal will be concluded if you offer the highest bid, or if you are the only bidder.
While this nascent class of asset might seem complex, creating your own NFTs is surprisingly easy. In this guide, we will use OpenSea marketplace as an example because this platform offers everything you need to design and verify your creations.
From opensea.io, navigate to your profile icon and click “Create” in the upper right corner.
You will land on the page for creating an item. This page will allow you to upload the NFT file, give it a name, and add a description.
By completing these fields, you can further customize your NFT. This includes putting it in an existing collection, or adding properties, levels, statistics, and even unlockable content.
You can even choose the distributed ledger that you want to mint your token on.
When you’re done with customizing your NFT, hit the “Create” button. Congratulations, you’ve just created your first NFT!
There is no cost to set up an NFT with this marketplace, but there is a 2.5% fee to be deducted from you if your product is bought.
Let’s assume you deal with OpenSea and are willing to sell your NFTs on this platform. This is how you can do so.
From opensea.io, select your profile picture in the upper right corner and press “Profile”.
Select the NFT you want to sell from your collection.
Choose an NFT and press “Sell” in the upper right corner to be redirected to the listing page.
You will be taken to the listing page, where you can select the price and type of sale.
The Fixed Price sale is a sale, in which the price remains fixed. Alternatively, you can opt for the Timed Auction sale, herein the value of your product will be suggested by bidders.
You can also set the duration of the sale. The default options are 1 day, 3 days, or 1 week, but you can also set an individual duration using the calendar.
You can also include an item in a bundle (grouping of NFTs from different collections).
Finally, you can also reserve an item for a specific person. To do this, simply paste their address into the field called “Reserve for a specific customer.”
In all of these options, you will see the potential fee deducted from the sale. OpenSea charges 2.5% for the deal, and 10% for “Creator Royalty.” Depending on your choices, you may end up paying 12.5% from a single NFT sale.
You will then be asked to confirm the sale by signing the transaction.
Please note, if the item you are selling was not minted by OpenSea but at some other platform, additional approval and signature may be required to allow OpenSea to trade that item on your behalf.
Once your item is successfully listed for sale, you will receive a pop-up notification. It only remains to wait for the right buyer to come and get inspired with your NFT, so you can earn some (or pretty many) bucks. Connecting your NFT inventory to your social media pages will increase your chances for a lucrative deal.
Investing in an NFT is not without its risks, the biggest of which is being unable to resell the item for the money you spent on it. In the worst-case scenario, you may not be able to sell it at all.
NFTs should be considered collectibles. Whether you are buying or creating a token, it could be difficult to further sell one. There may simply not be a market for this item right now. But there may be a market for it in the future as global events and trends can facilitate the increase of its value.
This is why it is vital not to invest more money in NFTs than you can afford to lose. The best approach might be to create your own NFTs. Since it will cost very little or even be cost-free to create your own non-fungible tokens, any money you make from the sale will be pure profit.
NFTs have been increasing in value since March 2021, and this trend is not showing any signs of subsiding so far. If this trend continues, investing in NFT crypto can be highly profitable.
The creation of your own NFTs costs as little as nothing. Even if you sell it for a petty price, you will still benefit.
As nearly everything else in the economy goes digital, collectibles can go digital as well. This could mean that the future of one-of-a-kind digital artworks is indeed bright.
There are already established online marketplaces for NFTs. This makes it easy to buy, sell, and even create exclusive, rare tokens.
Non-interchangeable digital assets present a new and insecure asset class.
There is no efficient way to predict how much any given token will cost in the future.
It is impossible to know if NFTs represent the future of collectibles, or if they are just a bubble on the verge of popping.
Since anyone can create an NFT, the market can soon become oversaturated.
The recent price spike makes current and future NFT purchases even more risky.
There is a possibility of copyright infringement if your asset uses part or all of someone else’s work. It is even possible that your own work will be easy to duplicate.
Given that NFTs don’t have a lot of history and any proven market performance, it’s impossible to forecast their future. Surely, digital art is rapidly developing, and creations of artists need their own market, so this may give NFTs a good impulse. But it’s hard to say whether it is the art itself or general crypto-frenzy that encourages people to buy NFTs for megabucks.
At the moment, NFTs are new. Consider any participation as speculation and invest as much money as you can afford to lose lightly. Buying NFTs now does not guarantee any profits in the future.
This article is not investment advice and is for educational purposes only.