If you spend a lot of time online, then you might have heard talk about ‘non-fungible tokens’, aka NFTs.
In the most basic terms, an NFT is a token that corresponds to a unique and irreplaceable digital asset – perhaps a piece of art or music, or a popular meme. The term ‘non-fungible’ refers to this quality of uniqueness: each token is one of a kind.
This means that buying and selling NFTs is somewhat similar to art dealership. You are effectively purchasing a piece of digital art (or any other digital asset), and hoping that the value will go up so that you can sell it for a profit at a later date.
When you purchase an NFT, you gain ownership of the item – but you don’t gain the right to stop it being replicated online. So, for instance, somebody who buys an NFT for a popular internet image can’t then stop others downloading and sharing the picture (in the same way that you might own an original painting, but prints and online copies would still be made).
How are NFTs linked to cryptocurrency?
NFTs are not a type of cryptocurrency, however they’re created using similar blockchain technology – and held as part of the Ethereum blockchain. However where coins like Ethereum and Bitcoin are a type of digital currency which can be used to make purchases or exchanged for an equivalent amount, NFTs are a digital asset which can simply be bought and sold.
Are they a sensible investment opportunity?
At the moment, artists and buyers are making a lot of money because NFTs are rocketing in value. Some examples include the first tweet made by Twitter’s founder Jack Dorsey, which is currently valued at $2.5million, and artwork by the musician Grimes which was sold for more than $6million this February.
That doesn’t mean it’s a safe investment though. In fact, the price of NFTs are incredibly unstable – and it’s still far too early to even predict what the market outlook might be over the coming years. You could easily find yourself spending a significant amount of money only to see the value of your purchase crash and never recover. For this reason, we wouldn’t recommend that people start investing in NFTs unless they have an extremely strong understanding of the market and how it works.
How can you get started buying and selling?
For those who do feel that they know what they’re getting into, buying an NFT is a simple process open to anyone. Online marketplaces such as OpenSea and Rarible make it easy to buy your own. You’ll need to use cryptocurrency to make the purchase – typically Ethereum.
The NFT boom also presents a good opportunity to digital artists with something to sell. The marketplaces just mentioned, also allow you to create your own non-fungible tokens. You’ll simply need to upload your image or file and let the platform take care of the rest. Some platforms will charge a small fee for this service, so it’s worth considering how marketable your work is before creating a token. That way you can be sure to make your money back.