What Are NFTs? Your Best Guide To A New Digital Investment (2024)

Cryptocurrencies and NFTs are all the rage right now. But what are NFTs? Search no more because this post is all about NFTs and what you need to know before investing.

By now, you have probably heard about NFTs. Even heiress Paris Hilton has made and sold her creations (“Iconic Crypto Queen” priced at $1.1M) and bought over 150 NFTs as investments.

All this hype makes you wonder: what are NFTs? What makes it a popular investment? Read on to find out.

What Are NFTs?

Simply put, Non-Fungible Tokens, or NFTs, are a new asset class of digital assets that you can acquire by paying with cryptocurrency, like Bitcoin. NFTs can be in-game items, music, art, or other collectibles.

What all of these have in common is that they are disruptive, unique, or part of a very exclusive batch. That means either you are the only one to own it or part of the lucky few who got their hands on it.

You might be wondering how can a digital asset be owned when it’s on the web? Well, NFTs operate on the basis that if you “own” a token, it’ll be one of a kind, and that will, in turn, increase its value.

However, there is one thing to consider: an asset’s value only increases if people want it. An unwanted asset that has no demand has no value. As with the other cryptocurrency tokens and coins, supply and demand determine how much you pay.

An NFT is saved using blockchain technology, where you can use digital currencies and virtual money (like Bitcoin, Ether, or Ripple) to pay for the art.

Examples of NFTs

Imagine if Vincent van Gogh were alive in this crypto-era, he could have minted his “Starry Night” and earned millions from the NFT.

Here are other examples of NFTs in the market today to give you a clearer idea:

• Digital artwork. Unlike Vincent van Gogh, who sold only one painting in his lifetime, today’s visual artists have found NFTs a profitable income source. For example, Genesis by Trevor Jones and Jose Delbo is an intriguing take on Batman and sold for $111,377.
• Sneakers in a limited-run fashion line. Online sneaker-selling and reselling platforms have jumped on the NFT bandwagon, releasing tokens associated with the most popular physical shoes on their platform. Industry biggies, like Nike, have also followed suit.
• In-game item. Digital assets, such as pictures, video clips, memes, or NFT games, can now be traded. NFT games come with a play-to-earn model, which provides players with opportunities to earn money as they play.
• Literature. An NFT platform created for literary works is like a distribution chain where writers can charge a percentage royalty when any of their work is resold, thus, continuing to earn money for them. An example of a short story that is now an NFT is “Pure,” a Japanese sci-fi story that is the first work released as an NFT.
• Digital collectibles. These cannot be copied like regular data on a computer, but one owner can easily transfer ownership to another person using blockchain technology.

For example, instead of physical trading cards, sports fans, and card collectors can now buy Crypto Strikers, a collection of 10,261 digital soccer trading cards featuring 100 players from the 2018 Fifa World Cup.

Why Do People Buy NFTs?

Considering how you can view all the NFTs owned by everyone, why would anyone put their hard-earned cash into one? The answer is simple, and some might even go on to say—stupid. It’s all about being able to brag that you’re the owner of his particular digital asset.

All NFTs have identifying codes that make them “exclusive.” One of the most expensive sold NFTs was “EVERYDAY: The First 5000 Days,” which went for $69.3 million in 2021. This NFT gained a lot of traction, and people jumped into the digital asset scene.

The aspect of becoming a millionaire overnight like Mike Winklemann seemed very tempting and, hence, started the great NFT adventure. But, of course, everyone hopes to score that one shot that’ll lead them into a life of luxury and fame.

Difference between an NFT and a Cryptocurrency

The main difference between NFTs and cryptocurrencies is “fungibility.” NFTs are assets built on the blockchain, using the same kind of code used in cryptocurrency. Ethereum blockchain supports NFTs, which contain additional information that lets them function differently from cryptocurrencies.

It doesn’t mean that NFTs have to be made only on the Ethereum blockchain; other cryptocurrencies can use their blockchains to implement NFTs.

So let’s get back to the “fungible” aspect of NFTs. “fungible” means something that can be replaced with another thing of its kind. Mutually interchangeable in simple terms. You can trade a red apple for a green apple, the color might change, but you’ll still have an apple. Or trade Dogecoin for Luna; both are cryptocurrencies, so you’ll end up with the same thing.

NFTs, as their name implies, are “non-fungible.” This is because every NFT has a unique identifying code, and they aren’t mutually interchangeable. For instance, you have a custom-made table; you choose the wood, the polish, and the design, and you know that there is no other table like it in the world.

Your next-door neighbor, Mr.X, did the same, according to his aesthetic sense and needs. If you were to exchange tables with Mr.X, you’d get a unique, one-of-a-kind table, but it wouldn’t be your table. Instead, it’s a different table.

That is the main difference between an NFT and a cryptocurrency.

How Does an NFT Work?

The thing that makes NFTs possible is blockchain. Think of blockchain as a decentralized public ledger that everyone can access – an open ledger. The most popular blockchain to hold NFTs is Ethereum. However, using Ethereum isn’t a requirement to make Non-Fungible Tokens.

NFTs directly link buyers or collectors to the artists, cutting out the middleman. Other than that, NFTs have a lot of uses due to their one-of-a-kind development. Virtual and physical assets can be represented with Non-Fungible Tokens.

This makes the list of things that can be turned into NFTs very extensive, ranging from real estate to in-game skins to music to videos and even Tweets.

How Can You Use NFTs?

Traditional art galleries used to charge a lot for artists to display their work. Even then, a sale wasn’t guaranteed, and if you were lucky enough to land a sale, the art gallery would keep a portion of it.

Artists faced a lot of limitations due to how this system worked; not all of them could afford to put their masterpieces in a gallery for the world to appreciate and buy them.

NFTs revolutionized this old system, and now everyone with artistic talents or passion can step up and show off their creation. Furthermore, no intermediary keeps a share of the sale, and the seller gets to keep the profits.

Due to the nature of NFTs, artists aren’t the only ones who can take advantage of this, as NFTs come in all shapes, sizes, and formats. You wouldn’t have found a toilet paper NFT or a Tweet as an NFT in an art gallery.

This system also introduced the aspect of royalties which was absent from the traditional method. Every time your NFT gets sold to someone else, you’ll receive a part of it.

Let’s turn things around for a moment, shall we? This revolution made things better for the sellers and easier for the buyers. People looking to buy NFTs have more options than ever. All types of art are available, so feel free to pick whatever you like as long as you can afford it.

NFTs as Investments

You wake up one day thinking you will get yourself a nice piece of art. This will mark the start of your journey as a Collector. However, there are specific prerequisites that you need to fulfill to acquire NFTs. You’ll find them listed below.

First, you will need a digital wallet or a web wallet. So, what is a digital wallet? A digital wallet is an application you can install on your mobile phone. It keeps your information and whatever virtual currencies you might have ready to go and secure. This cryptocurrency wallet will also store and keep your NFTs and cryptocurrency safe from attacks and hackers.

Once you have a digital wallet, you’ll have to buy a digital currency. It doesn’t matter which type, but some research before you buy virtual cash wouldn’t hurt.

If you have already decided on the virtual currency you want, head on to a crypto exchange. Crypto exchanges are platforms for buying or selling cryptocurrency. You can purchase the currency using your credit card or other payment methods like PayPal.

Some renowned places to buy crypto-currency are listed below. Plus, they give you free cryptocurrency. Who doesn’t want that?

Are NFTs For You?

Start small while getting a feel for how things work in that world, and then gradually move your way up.

On the other hand, people who played it smart and invested at the right time have seen a turnover of enormous profit. Keep in mind that crypto and NFTs are totally different things.

The value of an NFT will increase if there is a demand for it. It’s not like there is a definite guarantee that it’ll go up in value.

It might go for less than what you paid for, or it may not even sell at all. When it comes to NFTs, demand is the name of the game. On the flip side, you might make a bank if its demand increases. It may or may not be a Ponzi scheme, as some people say, but what I can say with certainty is that it’s risky.

One last thing to note is that NFTs are not tax-free. Capital gains tax is applied to them. Since there are so many types of NFTs, the IRS hasn’t given out which one will be taxed but keep in mind that they might face taxation soon.

As crypto is often used for money laundering and is untraceable, financial institutions want to verify your digital assets holdings.

Thus, it’s completely up to you whether to buy an NFT or not. In the words of Austin Powers, if you like to live dangerously and have enough in your bank to invest a little bit and see how things turn out, then, by all means, go for it.

Here are some tips before starting:

• Read about the cryptocurrency market, cryptocurrency trading, and volatility in the market. Do your own research before investing.
• Follow the Bitcoin news, stay up to date on the exchanges, and follow the latest fintech ins and outs.
• Never share your private key with your virtual coins or online wallet.
• If you want to find out if an NFT project is worth butting your fiat currency (US dollar) into? Check out their community on Discord or Telegram. That is a simple way to verify if the project is worth putting your digital money into.

Frequently Asked Questions – What Are NFTs?

What Are NFTs?

NFT Stands for Non-Fungible Tokens. These digital assets can be anything, such as real estate, art, music, GIFs, etc. You can buy NFTs with cryptocurrency.

Can Anyone Make an NFT?

Yes, anyone can make an NFT. You need not be a digital artist, but you should do your research and check your expectations. If you want your NFT to be marketable while your artistic talents are not that good, it would be best to commission an artwork instead.

Are NFTs A Good Investment?

NFTs are like any other investment. They have their fair share of risk and reward. Art and similar rare collectibles usually appreciate in value, so investing in NFT collectibles could give you good returns. However, NFTs’ high prices may be temporary since these are buyer-driven. As NFTs do not generate income on their own, they could later lose considerable value.

How Much Does It Cost To Buy an NFT?

The cost varies from NFT to NFT. Some are dirt cheap and will cost you a few cents, whereas others can cost thousands to millions of dollars.

Conclusion – What Are NFTs?

Are NFTs a Ponzi scheme? No one can say with 100% certainty. But are people buying and selling NFTs? Definitely.

Like the crypto market, the one word that would explain the whole NFT scene is “volatile.” Other than that, there is the risk of getting hacked. The legality of NFTs is still being discussed.

At the end of the day, think of it as an investment; it may turn out to be really good, or you might not get anything at all. Just be sure you don’t find yourself a couple of hundred or thousand USD short. Investments come with risks that you can’t avoid.

So be smart, research a lot, start small, see if it’s for you, and you’ll be good to go.