Non-Fungible Tokens (NFTs) are ubiquitous these days. From art and music to tacos and toilet paper, these digital assets are selling like exotic 17th-century Dutch tulips for millions of dollars.
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Non-Fungible Tokens (NFTs) are ubiquitous these days. From art and music to tacos and toilet paper, these digital assets are selling like exotic 17th-century Dutch tulips for millions of dollars.
Non-fungible tokens (NFTs) are ubiquitous these days. From art and music to tacos and toilet paper, these digital assets are selling like exotic 17th-century Dutch tulips for millions of dollars.
But are NFTs really worth more than money—or hype? Some experts think they're a bubble ready to pop, like the dot-com craze or Benny Babies. Many people think that NFTs are designed to stay and will revolutionize investing.
NFTs are digital assets that can be in the form of art, music, in-game items, videos, and more. They are traded in cryptocurrencies online and they are usually encoded with the same underlying software.
Although NFTs have been around since 2014, they are now gaining popularity as they become an increasingly popular way to buy and sell digital artwork. Incredibly, the market value of NFTs in 2021 alone was $41 billion, almost equal to the total value of the entire global art market.
NFTs are usually in very limited runs and one-of-a-kind and contain unique identifying codes. "Essentially, NFTs create digital scarcity," said Ari Yu, president of the Washington technology industry association Cascadia Blockchain Council and managing director of Yellow Umbrella Ventures.
This is in stark contrast to most digital creations, whose supply is almost infinite. The value of a given asset is increased or decreased by increasing or decreasing its supply based on assumptions.
But in recent days many NFTs that are digitally created already exist in some form elsewhere, such as iconic video clips from NBA games or protected versions of digital art that are already floating around on Instagram.
Renowned digital artist Mike Winkleman, better known as "Bipple," created a composite of 5,000 daily drawings to create perhaps the most famous NFT of 2021, "EVERYDAYS: The First 5000 Days," which sold at Christie's for $69.3 million.
Anyone can view these individual images or entire collages of images online for free, and people can even screenshot or download them easily, so why anyone would be willing to spend millions of dollars on something like that?
Because an NFT gives the buyer the right to own the original item. Not only that, it has built-in authentication, which acts as proof of ownership. Collectors consider those "digital bragging rights" more prestigious than the product itself.
NFT means for Non-Fungible Token. It is usually created using the same programming as cryptocurrencies like Bitcoin or Ethereum, which is their only similarity with cryptocurrencies.
Real currencies and cryptocurrencies are “fungible,” meaning they can be traded or exchanged for each other. Their prices are also of the same quality; One dollar is equal to another dollar or one bitcoin is always equal to another bitcoin. Crypto's fungibility makes it a trusted medium for conducting transactions on the blockchain.
The value of each NFT is different. Each NFT has a digital signature that makes it impossible to exchange NFTs with each other or at par, hence it is called non-fungible. An NBA Top Shot clip, for example, is not equal every day because they are both NFTs.
NFTs exist on a blockchain and is a distributed public ledger that records transactions. You are probably most familiar with blockchain because of its underlying mechanisms that have made cryptocurrency popular.
Typically, NFTs are held on the Ethereum blockchain, but other blockchains also support them.
NFTs are created, or "minted," from digital objects that consist of both tangible and intangible items, including:
NFTs are sometimes created by counting tweets. For example; Twitter co-founder Jack Dorsey sold his first tweet as an NFT for over $2.9 million.
NFTs are basically like physical collector's items, but it's only digital. So instead of getting an original oil painting to hang on the wall, the buyer just gets only a digital file.
This gives them exclusive ownership rights over digital assets. NFTs can have only one owner at a time and their ownership is verified using blockchain technology, making it easy to transfer tokens between owners. Manufacturers can store specific information in the metadata of an NFT. For example, artists can sign their artwork by including their signature in the file.
Blockchain technology and NFTs create a great opportunity for artists and content creators to monetize their products. For example, artists will no longer need to rely on galleries or auction houses to sell their artwork. Instead, the artist can sell it directly to customers as NFT, which will make them a lot of profit. Also, artists can sell products programmed into royalties so that they receive a percentage of the sales when their product is sold to a new owner. This is an interesting feature because artists usually do not get any more after their artwork is first sold.
Ways to make money with NFTs are not limited to Artworks. Brands like Charmin and Taco Bell auctioned themed NFT art to raise charity funds Charmin dubbed its offering "NFTP" (Non-Fungible Toilet Paper), and Taco Bell's NFT art sold out within minutes, with the highest bid at 1.5 Wrapped Ether (WETH) at a current market value of about $3,723.83.
A GIF of a cat with a Pop-Tart body named Nyan Cat sold for nearly $600,000 in February 2011. NBA Top Shot grossed more than $500 million in sales as of the end of March. A single LeBron James Highlight NFT sold for over $200,000.
Even celebrities like Snoop Dogg and Lindsay Lohan have jumped on the NFT bandwagon as unique memories, artifacts and moments are revealed in secure NFTs.
If you wish to collect NFTs, you need to complete some basic steps:
First, you need to create a digital wallet account where you can store NFTs and cryptocurrencies. Depending on which currency the NFT provider accepts, some cryptos such as Ether may need to be purchased. You can buy crypto using a credit card on platforms like Coinbase, PayPal, Kraken, eToro and Robinhood. You can then transfer it from the exchange to your own wallet.
You should keep in mind the fee as an option even if you want to make a test transaction. Most exchanges charge at least a percentage of your transaction when you trade crypto.
Once you have a wallet set up and funds, there are many sites to buy NFT. The largest NFT marketplaces currently are:
OpenSea.io: This peer-to-peer platform considers itself as a purveyor of "rare digital items and collectibles." To get started, you need to create an account to browse NFT collections You can set up fractions by sales volume to discover new artists.
Rarible: Rarible is, like OpenSea, a democratic, open marketplace for artists and creators to issue and sell NFTs. Introduction of RARI enable token holders fees and community policies introduced on the platform
Foundation: Here, artists get an "upvote" or an invitation from fellow creators to post their art. Community expansion and entry costs require artists to buy "gas" to mint NFTs, meaning it can boast high-caliber artwork. For example, Nyan Cat creator Chris Torres sold NFTs on the Foundation platform. It can also mean high prices — with demand for NFTs at current levels or expected to increase over time, it's a good platform for artists and collectors to capitalize on.
Although these platforms and others host a large number of NFT creators and collectors, you must do your research carefully before buying. Some artists have been victims of fraud who have listed and sold their work without their permission.
Additionally, verification processes for creators and NFT listings are not consistent across platforms, with some platforms being stricter than others. For example, OpenSea and Rarible do not require owner verification for NFT listings. Buyer protections appear to be fairly sparse, so when shopping for NFTs, the old adage "caveat emptor" should be kept in mind.
So why should you NFT? "NFTs are risky because their future is uncertain, and we still don't have much history to judge their performance," said Yu. "Since NFTs are very new, it may be reasonable to invest a small amount to test it for now."
On the other hand, investing in NFTs largely depends on personal decisions. If you have a lot of money, this should be considered, especially if the money is damaged, but you will not lose much.
Remember, the value of an NFT depends entirely on what someone else is pricing it for. Therefore, fundamental demand will drive prices, rather than technical or economic indicators, which typically also affect stock prices and form the basis of investor demand, at least in general.
This means an NFT can be sold for less than the price you bought it for. Or you can't sell it if no one wants to buy it.
NFTs are also subject to capital gains tax when you sell stocks at a profit. Because they are considered collectible, however, they may not receive the preferential long-term capital gains rate of stocks and may even be taxed at a higher collectible tax, although the IRS has not yet clarified what NFTs would be included in the scope of the tax. Remember, cryptocurrencies used to purchase NFTs may still be taxed if they have appreciated in value since you purchased them, which means you should discuss it with a tax professional when considering adding NFTs to your portfolio.
Ultimately, approach NFTs the same way you would invest: do your own research, and get a good idea of the risks. In the meantime, you can lose all your investment capital you have to be prepared for such situations and if you decide to trade, proceed cautiously by investing at a tolerable level
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