What are NFTs? How are they different from Cryptocurrencies?
Imagine a digital image sold for millions of dollars. It’s not in a physical form, you can’t touch and feel it. It’s completely digital. How would you react if someone told you that a couple of years ago? You would probably just laugh since you think it’s a joke, right?
$69.3 Million Dollars, this is the price of the most expensive NFT ever sold to an individual in February 2021.
It’s called “The First 5000 Days” digital artwork by graphic designer Mike Winkelmann, also known as Beeple. This wasn’t just the most expensive NFT sale ever, this event also created a snowball effect on the mainstream media and more users became aware of NFT marketplace.
Non-Fungible Tokens, NFTs in other names, are causing a paradigm shift across nearly every sector of society. They’re transforming everything from finance to art, and there’s good reason to suspect that almost no corner of society will be left untouched.
So What’s an NFT?
NFTs are tokens that we can use to represent ownership of unique items. They let us tokenize things like art, collectables, even real estate. They can only have one official owner at a time and the Blockchain technology secures them — no one can modify the record of ownership or copy/paste a new NFT into existence.
How Is an NFT Different from Cryptocurrency?
Physical money and cryptocurrencies are “fungible,” meaning they can be traded or exchanged for one another. They’re also equal in value — one dollar is always worth another dollar; one Bitcoin is always equal to another Bitcoin. Crypto’s fungibility makes it a trusted means of conducting transactions on the blockchain.
NFTs are different. Each has a digital signature that makes it impossible for NFTs to be exchanged for or equal to one another (hence, non-fungible). One NBA Top Shot clip, for example, is not equal to EVERYDAYS simply because they’re both NFTs. (One NBA Top Shot clip isn’t even necessarily equal to another NBA Top Shot clip, for that matter.)
What Are NFTs Used For?
Blockchain technology and NFTs afford artists and content creators a unique opportunity to monetize their wares. For example, artists no longer have to rely on galleries or auction houses to sell their art. Instead, the artist can sell it directly to the consumer as an NFT, which also lets them keep more of the profits.
In addition, artists can program in royalties so they’ll receive a percentage of sales whenever their art is sold to a new owner. This is an attractive feature as artists generally do not receive future proceeds after their art is first sold.
Even celebrities like Snoop Dogg and Lindsay Lohan are jumping on the NFT bandwagon, releasing unique memories, artwork and moments as securitized NFTs.
Conclusion
Investing in NFTs is a largely personal decision. If you have money to spare, it may be worth considering, especially if a piece holds meaning for you. But keep in mind, that an NFT’s value is based entirely on what someone else is willing to pay for it. Therefore, demand will drive the price rather than fundamental, technical or economic indicators, which typically influence stock prices and at least generally form the basis for investor demand.
That said, approach NFTs just like you would any investment: Do your research, understand the risks — including that you might lose all of your investing dollars — and if you decide to take the plunge, proceed with a healthy dose of caution.
