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Beginner's Guide on How To Invest In NFT
NFT. One of the many BUZZWORDS this year.
Whether you want to buy NFTs, sell NFTs, trade NFTs, create NFTs, it can be quite a good investment for digital artists or anyone interested in the NFT community.
But how exactly do you invest in NFTs? Let’s break down the process!
What The Heck is an NFT?
We’re sure this question popped up in your head a couple of times.
Well, an NFT is a NON-FUNGIBLE TOKEN.
A non-fungible asset or non-fungible tokens are one of a kind and cannot be replaced, like the Mona Lisa or the Last Supper.
People can make replicas, but they will NEVER be of equal value as the original asset.
Non-fungible tokens are collectibles’ tokens like a STAMP or CERTIFICATE OF AUTHENTICITY on the digital asset to signify the OFFICIAL OWNER.
How Do NFTs Work?
The ownership is assigned by smart contracts, a series of codes that the blockchain reads to note, “Okay, this person is the rightful owner of this asset.”
A piece of land or real estate is another example of something non-fungible. Real estate is unique to its location, owner, and other characteristics.
Imagine creating a piece of digital artwork, or any digital asset for that matter. If you “stamp” an NFT on it, that makes YOU the rightful owner.
Someone else can now BUY that piece you just created, and THEY become the new owner.
Digital assets can range from:
- Drawings
- Images
- GIFs
- Songs
- In-game items
- Tweets
Oddly enough, Charmin has its line of non-fungible toilet paper.
NFTs are ways to BUY DIGITAL ASSETS using BLOCKCHAIN TECHNOLOGY, a digital ledger that keeps track of all transactions and ownership changes being made in the digital world.
Because it is one of a kind, there is no exact recognized market price, like the paintings mentioned earlier.
There are many NFT marketplaces where creators buy and sell digital art for INSANE prices, so to say digital creations and digital collectibles are high in demand is a big understatement.
How to Buy NFTs
Much like how people buy and sell things in an online marketplace, the buyers and sellers have a money transaction.
1.) Convert to Cryptocurrency
NFTs are like that too, but instead of a dollar bill or any other currency, you use a
CRYPTOCURRENCY EXCHANGE.
Ah, another popular word on the internet.
If you have never heard of cryptocurrency, it is also a digital asset that acts as your money. You must first CONVERT your physical cash to cryptocurrency to work in the digital economy.
Digital art is worth digital currency.
Etereum (ETH)
The most popular NFT marketplace right now is called OPENSEA, with its cryptocurrency for NFTs being ETHEREUM (Ether or ETH).
For example, if you see an NFT worth 0.6 ETH, that is equivalent to a certain dollar amount (roughly $1072 as the value changes a lot).
But you can’t just pay with $1072; you must first CONVERT your money to ETH.
2.) Create a Digital/Crypto Wallet
When buying NFTs, you will be asked to create a DIGITAL WALLET or CRYPTO WALLET.
This digital wallet will house your cryptocurrency, and there are many different ones to choose from (COINBASE is probably the most popular right now).
Of course, keep in mind that converting your money to cryptocurrency also costs a lot of TRANSACTION FEES.
3.) Add Funds
Next, FUND your digital wallet by connecting your bank account or credit card and other personal data to convert your money to cryptocurrency.
Once you have enough money converted to ETH, you can now buy NFTs!
How to Sell NFTs
Before you sell NFTs, you have to make one. And once you have one, you set a FIXED PRICE on it, or you can have people BID on it, and the highest bidder wins the NFT.
Since NFTs have no intrinsic value or real market data, they are only worth the amount that people are willing to pay.
But there is a little extra obstacle.
To sell NFTs, you will have to pay for the GAS FEE.
Because the blockchain network uses a lot of energy to make transactions, the gas fee is used to COMPENSATE for it. It is similar to processing fees made by credit cards when transferring money.
Once you have enough money, your own NFTs are now ready for sale!
Read more: Sell NFT Without Gas Fee
Pros and Cons of NFTs
Remember that getting into buying and selling NFTs is a very high-risk/high reward situation. It is important to know the good and bad sides before starting.
Pros
- Most NFTs are HIGHLY in demand, so much so that people are willing to spend MILLIONS on them, which sounds great to whoever owns it!
- With NFTs, there is now a way for digital artworks to have PROOF OF OWNERSHIP.
- BEFORE NFTs, if you see an artwork on the internet, you can have many copies and not tell which is the original or who the original owner is.
- But with NFTs, there is that feeling of "Yes, this artwork is RIGHTFULLY MINE." And now that people can see who the real owner is or who it changes to on the blockchain, the proof of ownership is never lost.
- Many investors in the NFT marketplace are trying to outbid each other to be the rightful owner of an artwork.
- NFTs also ditch the preconceived notion that "art does not make money."
- Whether you are painting on a giant canvas like Leonardo da Vinci or in your bedroom on your computer, your artwork or asset still holds some value, thanks to NFTs.
- Original artists can also attach a COMMISSION to their artwork to get a percentage of ALL the resells.
- All ownership records are seen on the blockchain, so you are guaranteed to receive a cut every time someone buys the NFT.
Cons
- On the other hand, the main concern with the NFT community is its ENVIRONMENTAL IMPACT.
- While you are not exactly cutting down trees, the blockchain uses up a TON of energy from computers to keeping track of transactions and other calculations, which keeps the NFT marketplace going.
- Believe it or not, they use around the same amount of power and energy needed to power certain countries.
- Given the current state of our ENVIRONMENT, the NFT world may NOT be the best place to be.
- Another thing to look out for is that all artists are susceptible to THEFT.
- It is incredibly common for artists' work to get stolen, misused, or even sold as NFTs without permission and not even receive any compensation.
- This hurts the artist as it could force them to limit their exposure on social media or whatever platform, preventing them from receiving commissions.
- The process of selling an NFT is also COST-HEAVY due to setting up your wallet and the gas fees mentioned earlier.
- If you have no income or money to burn to register your NFT on the market, NFT investing may not be the best investment right now.
- Most investors will also most likely invest in an expensive NFT with a high resell value from a well-established artist instead of yours, which means the actual cash you spent setting up your NFT is out the window.
Should You Invest in NFTs?
How do you know if NFTs are the right investment?
It depends.
Investing in NFTs is a big GAMBLE.
It all comes down to the artist or creator of the digital asset AND the buyer.
Much like before making any purchase, it is important to consider where your money is going, if it is something WORTHWHILE, and if you think it will increase in value over time.
If you have a piece of art that you think people will pay big bucks for, then, by all means, make that NFT.
But consider the RISKS as well. Nowadays, it is very easy to duplicate or even steal someone’s artwork, claim it as their own, and resell it on the blockchain, profit, and there is NOTHING you can do about it.
Not to mention our ENVIRONMENT.
Is the reward worth the risk? It is ultimately up to YOU to decide.
Conclusion
NFTs are reshaping the e-commerce industry as we speak.
Nowadays, any real-world asset can be DIGITIZED into a new asset class and sold for millions of dollars.
But is it just some trend that will be gone tomorrow? Or will we be seeing a new world where non-fungible tokens (NFTs) are one of the biggest investment markets in the world?
Only time will tell.
