Blockchain has created a whole new type of investment with cryptocurrencies. However, NFTs are another trendy blockchain-based investment that has exploded recently. They’re growing in popularity, and more and more investors are looking to buy them. Artists, connoisseurs, and even speculators are also joining this movement to make a profit.
NFTs are relatively new and are considered a high-risk investment. Yet, they can be profitable but should be handled wisely. In this article, we will take a close look at NFTs and try to understand if they are a good investment. We will cover the pros and cons of NFTs, how they work, why some of them cost millions of dollars, and much more.
NFT stands for non-fungible token. It is a unique crypto token that runs on a blockchain and cannot be copied. NFTs are digital assets that represent various items. Examples include artwork, music, in-game tokens, tweets, and even real property. In a nutshell, NFTs provide documentation that proves that the digital asset they represent is the original. When it comes to objects in the real world, NFTs serve as digital certificates of ownership.
Let’s start at the beginning and define tokens. Tokens are digital assets that store value on a blockchain, a globally distributed digital ledger. It can be added to or read, but not corrupted or manipulated. So you can have a token representing 5 bitcoins, 100 company shares, or any other digital asset.
Most tokens on a blockchain are fungible assets. This means such assets are completely interchangeable and indistinguishable from one another. For example, any $100 bill is exactly the same, any share of Tesla is the same, and any token representing 1 BTC is the same.
NFTs allow users to create unique data on a blockchain. As such, they hold their own codes and are therefore scarce. Thus, a non-fungible token is unique or one-of-a-kind. Therefore, it has no recognized market price and cannot be exchanged for an asset of equal value.
Non-fungible tokens exist on two types of blockchains, specifically Proof of Work (PoW) and Proof of Stake (PoS). PoW blockchains protect public ledgers and store information, but such blockchains require enormous amounts of energy and computing power. As a result, proof-of-work blockchains are expensive to operate and have several limitations.
Proof-of-stake blockchains secure digital ledgers and store valuable data, including NFTs and other tokens. Proof-of-stake blockchains don’t require hashing or mining, so they don’t require electricity or computing power. As a result, proof-of-stake blockchains are more efficient on certain levels.
Most NFTs are backed by Ether (ETH), the native cryptocurrency of Ethereum. When an NFT is created, it becomes available on a blockchain so that users can buy and sell it. Each time a token is purchased, the transaction is recorded on the blockchain network and the owner is given an access code.
Each NFT is unique and has a unique digital signature, which makes it valuable and guarantees ownership. Additionally, having a unique digital signature means that one NFT cannot be exchanged for another, unlike cryptocurrencies such as BTC, USDT, etc.
Thus, an NFT serves as a digital certificate of ownership for a work of art or other digital assets. However, you must understand that other users can still view or copy the digital asset. For example, if you own a digital photo and it is posted somewhere on the Internet, someone else can download it or take a screenshot. Because you own the photo, you’re the only person who can access the original digital file.
The value of NFTs is determined by buyers and sellers. Each token or NFT collection is limited and scarce, but these are not the only variables that affect its value. For example, NFTs produced in limited quantities and used for specific purposes are worth more than others. Founders, artists, and the community can also have an impact on the demand for an NFT and its price.
Some NFTs sell for thousands and even millions of dollars, and there’s another reason for such pricing – the community and the hype around the project. Let’s look at some of the most expensive NFTs sold, and you’ll see that the NFT price ceiling is high.
1. The Merge by Pak ($91.8 million). For a work of art sold publicly by a living artist, this is a record price. The artwork was sold to nearly 30,000 collectors, divided into 312,686 individual NFTs. However, no one knows for sure who Pak is. Some people say that it is a single artist, while others claim that it is a group of artists.
2. The First 5000 Days by Beeple ($69.3 million). This is the most expensive NFT that has ever been sold to a single investor. The artist started his project in 2007, and the idea was to create a new piece of art every day. In this way, Beeple created a collage made up of 5000 pieces of his work.
3. Clock by Pak and Julian Assange ($52.7 million). This NFT is literally a clock. It represents the number of days since the WikiLeaks founder has been imprisoned. The NFT was created to help raise funds for Assange’s legal defense.
4. HUMAN ONE by Beeple ($28.9 million). This NFT depicts an astronaut walking through different backgrounds that change over time. It is a combination of virtual and tangible components, i.e. the NFT is displayed in a transparent glass box.
5. CryptoPunk #5822 by Larva Labs ($23.7 million). This NFT is from the 10,000 Cryptopunks collection, with the most expensive NFTs having rare attributes. There are only 9 alien Cryptopunks, and this one wears a blue bandana.
Some people buy NFTs to support their favorite artists or athletes. Others are willing to invest in NFTs for the opportunity to make a profit by buying and selling digital collectibles. Therefore, just like any other cryptocurrency investment, investors can make money by trading NFTs. Let’s look at some reasons why investing in NFTs is worth considering.
Study the market
The best way to study the market is to look at some of the leading NFT marketplaces, follow artists you love, and check out artists at the same career level as you and in your niche. Following collectors who are your target audience is also an important step. You need to understand what sells and for how much. It will help you make better decisions about your own NFTs.
In the world of NFTs, the most successful artists are often the ones who engage the most with the community on social media and generate the most interest. Therefore, you need to join the conversations, ask questions, and pay attention to what people are saying. Another way is to communicate with artists who are at a similar stage to you, as they can share their experience with you and provide feedback as you grow.
Consider the rarity
Just like physical collectibles, limited edition NFTs will have higher prices than NFTs issued in bulk. However, creating a certain number of copies will allow you to sell your digital artwork to more collectors at a lower price.
There’s no right or wrong attitude, but you should find the one that works best for your target audience. Another way is to mix common and rare works to see which ones are most popular with collectors.
Be realistic and start selling your NFTs for a few hundred dollars. Since you’re a new artist, it’s better to start low and then raise your prices than the other way around. The idea is to build loyalty and interest.
It looks more trustworthy to potential collectors if you have some sold items than if you have no visible history. So you can start by listing a set of numbered copies at a lower price to build your customer base.
You can build stronger relationships with your followers by offering them exclusive content. For example, you can offer collectors physical prints, high-resolution digital files, studio visits, and more to go along with your NFTs. Think outside the box to make sure you’re offering something memorable.
Tailor your prices to your needs. If your artwork sells faster than expected, raise your prices accordingly. It’s always a good idea to do periodic reviews as you grow and gradually increase your minimum price. Keep an eye on what your NFTs are selling for on the secondary market and use that information as an indicator of when to raise your prices.
Don’t expect your NFTs to sell immediately, and don’t compare yourself to other artists, as this can lead to frustration. When creating NFTs, approach them with a long-term mindset. Take your time to enter the market, tell your story, and share your artwork so that your target audience can find you.
A basic understanding of computers and cryptocurrencies is crucial to investing in NFTs. If you don’t manage your digital assets properly, then you may perpetually lose access to your NFT.
Investing in NFTs is not a foolproof way to get rich. Even though some NFT investors have made substantial profits, you can’t guarantee that your particular digital asset will increase in value, or at least hold its own.
If you’re looking for passive income or retirement savings, NFTs may not be the best solution for you. NFTs are prone to high volatility and may not appreciate over time. They also don’t pay record dividends or interest.
Non-fungible tokens are a high-risk investment, and savvy investors build a diversified portfolio of reliable low- and medium-risk investments first. This way, if they lose money on the high-risk investment, the losses will be covered by the steady dividends from other investments. Consider using this strategy to invest successfully.
Your potential profit depends on your target audience and whether they are eager for your NFTs. As a beginner, you may want to lower your expectations to be more down-to-earth.
The value of NFTs is determined by supply and demand. The higher the demand for an item or its features or services, the higher its value. Factors that influence demand include the application potential, utility, and uniqueness of NFTs. You should also remember that you can assign different values to different attributes within a category.
Many artists are trying to sell their NFTs because the buyer pool is quite limited. To purchase NFTs, a potential buyer must appreciate art, understand non-fungible tokens, and buy cryptocurrencies. Nowadays, there are no problems only with art appreciation, and this prevents a wider audience from entering the world of NFTs. NFTs are likely to become mainstream enough to remove these barriers and allow people with no crypto experience to buy tokens with cash.
All in all, it’s important to get started by doing some thorough research before investing. Make sure you understand what kind of return you can expect in the future, and watch the market closely. This will ensure that you don’t buy at the top and sell at the bottom. Another useful piece of advice is to consult with industry experts, as they can provide valuable insights and give you an edge over other investors.
The value of some non-fungible tokens has skyrocketed in recent years, attracting a lot of attention from the investment community. Let’s dive in and discover the benefits of investing in NFTs.
However, there are some drawbacks that you should be aware of before investing in NFTs. Let’s take a closer look at them.
Now that you know the cost of NFTs and their strengths and weaknesses, you may be ready to purchase your own NFT. Buying one can be quite time-consuming and difficult if you don’t know where to start. Here’s a step-by-step guide to help you invest in NFTs with ease.
1. Buy Ethereum at a cryptocurrency exchange
You need funds to purchase an NFT. You need Ether (ETH), which is a native cryptocurrency of the Ethereum blockchain, since most NFTs exist on Ethereum. So you need a crypto trading platform to buy ETH. There are many of them, so it makes sense to choose one that is easy to use, secure, and has low fees.
Once you’ve chosen a platform, it’s time to set up an account. This usually requires an email, basic personal information to verify your account, and a connection to your bank for funding. Once you’ve verified and funded your account, the next step is to purchase Ether. However, if the project is built on a different blockchain, you will need to purchase a cryptocurrency that is compatible with that blockchain.
Finally, it’s time to buy the right cryptocurrency. Enter the required amount and you’ll find the funds in your portfolio.
2. Transfer your ETH to a crypto wallet
To connect your balance to NFT projects, you need a crypto wallet. Cryptocurrency wallets allow users to manage their funds and purchase NFTs. For instance, download MetaMask if you are on the Ethereum blockchain.
Once you set up your account, you’ll receive a wallet address. It is a string of 64 characters that holds the data related to your wallet on the blockchain. Go back to the crypto trading platform with the wallet address and send ETH to your wallet. To verify that you have the correct information, send a small amount first. After the verification, transfer the remaining amount.
3. Search for an NFT and make a purchase
It’s time to go to an NFT marketplace and search for the NFT you want to buy. Some of the most popular and trusted NFT trading platforms are OpenSea, LooksRare, Nifty Gateway, FTX, and Mintable. Then connect your digital wallet to the exchange.
Most NFT marketplaces act as auction houses and allow users to browse NFTs by category. Once you’ve found a project that suits your needs, you can either place a bid or buy the NFT outright. As you already know, the price ceiling for NFTs is high, so it’s better to do your research first and then buy a token with whatever you’re comfortable spending.
When purchasing NFTs, be aware of gas fees. Crypto transactions come with an additional gas fee, which is the amount of money paid to complete the transaction. Sometimes buyers have to pay more in gas fees than for NFTs, so you may want to postpone your purchase if gas fees are high and wait for them to come down.
In general, NFTs are a modern investment and can be a perfect match for those who are interested in art and want to benefit from the latest trends. Although NFTs are gaining popularity, that doesn’t mean they won’t be replaced by something new in the future.
NFTs have several obstacles, including high fees and a limited buyer pool. They’re also too volatile to be considered a safe investment. Remember, it’s never a good idea to invest money you can’t afford to lose. Therefore, you can use non-fungible tokens as a high-risk investment to diversify your portfolio but prioritize low-risk investments first.
If you have any questions or ideas, don’t hesitate to contact our blockchain experts.