Coinciding with the cryptocurrency boom in 2021, NFTs have also taken the spotlight alongside many cryptocurrencies. Much like the thousands of different tokens and coins within the world of crypto, there is much confusion in regards to what exactly an NFT is and how they function. Continue reading to learn about NFTs and how they can be incorporated into your financial portfolios.
What is an NFT?
The meaning of NFT is “Non-Fungible Token” with the core component being the “non-fungible” part. It means that each NFT is unique and cannot be replaced by anything else. A good example of a fungible asset would be US Dollars or a cryptocurrency such as Ethereum. You can trade one Ethereum for another Ethereum and it would be the same. A great example of a non-fungible asset would be a rare baseball card. If you traded it for another rare baseball card it would be different and unique from the original.
Moving on, the most common form of NFTs currently are digital art pieces, however, they can also be music, a video game, a text document, etc. These digital assets are created and minted by an artist on one of the many blockchains such as Ethereum. To mint the created asset, the artist will assign it a unique identifier within the blockchain. This identifier doesn’t prevent others from copying the digital asset, but it is used to verify and validate the original version that will always be attached to its blockchain identifier.
Why do people buy NFTs?
Plain and simple, the biggest reason why NFTs are bought is to earn money. People will buy an artist’s NFT early on in hopes that it will appreciate and go on to sell it for significantly more at a later date. A most popular example of this would be the Bored Ape Yacht Club NFTs, which started out being only worth a few bucks but are now worth millions. However, don’t use this as financial advice because it’s likely you will lose money as many others have done so before you because similar to cryptocurrency, NFTs are an extremely volatile asset.
The second main reason is for the art aspect itself. Owning special and unique art has always been lucrative for humans. Through NFTs, buyers can now own exclusive art, videos, songs, and more and many owners use the art as a status symbol on their online profile pictures. NFTs also allow for the curation and creation of online museums as well as physical exhibits such as the Seattle NFT Museum.
Where can I find NFTs?
If you still wish to buy and participate with NFTs there are many places to do so online, here are a few:
Participation doesn’t just involve buying and selling NFTs, if you have the skills required you can even curate your own NFTs and sell them on the markets for others to invest in your work. A fantastic guide to get you started can be found here.
Hopefully, after reading this, you will have learned a bit more about NFTs and will be better prepared for their future as they continue to mature.