We are all probably tired of three-letter abbreviations but I’ve got one more that is catching everyone’s attention. So what are NFTs? NFTs, stands for Non-Fungible Tokens and are in simpler words a digital asset that represent real-life objects. Are you maybe an art collector? Well, now you can own art NFTs. The NFTs create a digital scarcity and that is the reason why some are quite expensive.
Most of the NFTs today are digital images that exist on the Internet. Why would someone pay a significant amount to view images available for free? NFTs allow the buyer to own the original item. Not only that, it contains built-in authentication, which serves as proof of ownership. Collectors value those “digital bragging rights” almost more than the item itself.
Now you may ask if there is any similarity between cryptocurrency and NFTs, the only similarity is that they are built using the same kind of programming. Other than that, there really aren’t any similarities or connections between the two. Cryptocurrencies are “fungible” thus they can be exchanged for one another. However, NFTs are “non-fungible” and thus one NFT is not like another.
How do NFTs work?
So, how do NFTs work? NFTs exist on blockchain. Quick recap on blockchain, it is a distributed public ledger that records transactions. An NFT is minted from digital objects that represent both tangible and intangible items, including:
- Art
- GIFs
- Videos and sports highlights
- Collectibles
- Virtual avatars and video game skins
- Designer sneakers
- Music
- Tweets
Think of it like an art collector, but digital. You become an exclusive owner of that NFT. Pretty cool right?
Now if you are one of those folks that question why art is so expensive, you might be asking, why are NFTs expensive? Why would I ever want that? Same tho. I asked that question a lot while writing this article. However, as they say, beauty is in the eye of the beholder. Individuals believe that NFTs are the next big thing and owning one could be priceless in the future.
Now if you are fully convinced on buying an NFT, you might be wondering how to buy one. First, you’ll have to get a digital wallet, and that might mean owning some cryptocurrency. Once you have a digital wallet, there are some popular marketplaces such as Rarible or Foundation. Find the marketplace that works for you! Some important things to consider are the fees involved, and research regarding the owner.
Risks associated with investing in NFTs:
- It’s uncertain especially since there is no history to understand how the prices fluctuate. However this risk also comes with optimism, anything new is also exciting. It bring about much needed opportunities for growth. Imagine when the first person mentioned computers. Risk and opportunity – go hand in hand!
- NFTs value is based entirely on what someone is willing to pay for it – thus there is a chance that your asset might not be worth what you paid for. As with any investment, there is a risk that you might lose your entire investment.
- Check in with a tax professional but there is a slight possibility that you may have to pay taxes on the cryptocurrency you used to purchase the NFT if it increases from the time you bought it.
TLDR; NFTs are kinda like artwork or baseball cards but digital. They are available in marketplaces and only are worth the amount that others are willing to pay. Happy Investing!
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