What is an NFT?
You might have heard about NFTs, also known as non fungible tokens. They’re all the rage in the investing world right now. But what are they, exactly, and why should you care?
What does it take to Acquire an NFT?
- Purchase Cryptocurrency
- Transfer Crypto to a Wallet
- Decide on an NFT Marketplace
- Sign Up for an Account
- Connect Account with Crypto Wallet
- Purchase NFT
Do you like art? What about music? Have you ever owned a trading card collection like baseball cards? If you answered yes to any of these questions, you may be intrigued by the idea of owning a digital collectible. But not just any digital item—a digital asset that can increase in value, just like a painting or sculpture by a famous artist.
This is the world of NFT artwork. Non fungible tokens are digital artwork made by an NFT creator for NFT holders. An NFT collection is a relatively new idea, one that could only exist because of the blockchain technology developed to secure crypto currency.
NFT tokens are front and center in the world of investing today because it’s a new frontier, just like cryptocurrency was a few years ago. NFT art is likely here to stay because the world we live in is so digitized.
The NFT market is serious business. NFT artist Mike Winkelman (also known as Beeple) recently had an NFT sale of $69.3 million. And auctioneer Christie’s has said that NFT purchase totals in 2021 topped out at $150 million. To put things in perspective, Vincent Van Gogh’s painting Starry Night is estimated to be worth of $100 million. So, while physically tangible artworks made by historically noteworthy artists are still fetching higher prices than digital art, it certainly seems that NFTs are quickly catching up.
What is the History of NFT’s?
As previously mentioned, NFT stands for non fungible token. To investors, it’s a piece of art with significance, possibly even something cool to look at. On the back end, it’s a totally unique and non-exchangeable unit of data stored on a blockchain. There is no physical asset associated with an NFT—you don’t get a canvas, a sculpture, or an artifact. Instead, you get something the rights to a digital item.
As for the term fungible, it relates to the unique status of the NFT in question. Dollars and even digital currencies are inherently exchangeable because they’re all worth the same amount. That’s not the case with an NFT; each one is totally unique. Think of them like concert tickets—each ticket allows you to sit in a different seat.
Returning to the previous example of baseball cards, one could look at a baseball card as a fungible token. This is because even extremely rare baseball cards are printed in sets with multiples of each one. Not so for original pieces of artwork; there is only one original copy, even if the artist makes prints. This is where the idea of NFT artwork comes into play. While the NFT itself can be replicated, there is only one digitally signatured original, which makes it a very collectible asset.
Though NFTs can be replicated, their ownership cannot. Each NFT has a unique digital signature stored on a blockchain, which is essentially a public and decentralized ledger. The security of the blockchain—a technology endemic to cryptocurrency—is that the data is not stored in one place where it could be stolen. In this case, the ownership of the NFT is secured on this ledger where everyone can view the certificate of ownership and nobody can steal it or claim that they are the owner. This gives NFTs a benefit that tangible artworks don’t have: NFTs can never be subject to theft or forgery.
Returning to the example of NFT artist, Beeple, who sold an NFT for almost $70 million entitled The First 5000 Days. It was basically a collage compilation of the artist’s other NFT artworks that he made every day for 13 years, which range from fantasy art landscapes of glass cities to pop art pieces featuring the likes of Jeff Bezos and Donald Trump. His NFT project is a lot like a piece you might buy and hang in your home. And while his artwork may not be your particular style, there are lots of NFTs on the market in a variety of niches, so you’re almost guaranteed to find something you like.
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How to Buy NFT
Now that we’ve explained what an NFT is, let’s talk about the process of buying one:
1. Purchase Cryptocurrency
As digital assets, NFTs are not set up to be purchased with fiat currency like dollars or pounds. Instead, NFTs are purchased cryptocurrency. This, of course, means that in order to purchase an NFT, you’ll need to obtain some sort of crypto. This is easy enough to do using a cryptocurrency exchange, like Coinbase or Crtypto.com. In these crypto exchanges, you can use a debit card, credit card, PayPal, or checking account number to exchange fiat currency (dollars, for instance) for crypto like Bitcoin, Ethereum, and Dogecoin.
Note that platforms like Robinhood do “sell” cryptocurrency, but you don’t actually hold it in a wallet. Rather, it is held as an investment, just like a stock. If you want to purchase an NFT, you’re going to have to purchase cryptocurrency you can actually use to make digital purchases.
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2. Transfer Crypto to a Wallet
The most commonly used crypto coin for the NFT market is Ethereum. At the time of this article, one Etherium coin is worth roughly $3,345. But more likely than not, you don’t need to spend that much to get an NFT. You will probably just need a fraction of an ETH. Check the prices on the NFT marketplace you plan to buy from. Chances are you will need less than $50 to buy an NFT you find interesting.
As for sending your ETH coin to a wallet, you simply need to sign up for a wallet account with a service provider like XT.com, Metamask, Binance, or Coindesk. The wallet is a place where you will store your digital currency until you’re ready to buy an NFT. You can even set up a cryptocurrency wallet that is a dedicated Ethereum wallet for NFT trading.
3. Decide on an NFT Marketplace
The world’s largest NFT marketplace is OpenSea. If you have no idea what an NFT looks like, this is your chance to browse around and see what artists, musicians, and celebrities are creating.
Some of it will make you wonder why people are paying thousands of dollars for pixelated images of washed up B-list celebrities. Some of it is actually fun, creative, and quite artistic. Take a look around at the marketplace and see if there are any NFTs that catch your attention. Because OpenSea is so large, you’ll find all types of artists and creators with NFTs for sale. Other NFT marketplaces cater to more specific niches.
For example, AXIE is a marketplace where you can buy NFTs specifically related to an online video game of the same name. MELOS is a marketplace for music NFTs. In addition to OpenSea, there are other platforms that offer a wide variety of NFTs. Some of them, like Rarible, require you to use specific digital tokens that are unique to that marketplace.
4. Sign Up for an Account
Signing up for an account on these NFT platforms is usually free, though you will have to provide basic contact information like an email and a username. Other than that, though, it’s actually far easier than opening a checking account. You don’t need to provide a Social Security number or an address or anything like that.
In fact, privacy is one reason so many people have learned how to invest in cryptocurrency. Digital currencies are anonymous, and the use of a decentralized blockchain ledger makes them fairly impervious to theft. The same is true for the NFT market. You can create an account with your own name or an anonymous name for whatever reason (like, for instance, if you want to keep your love of collecting My Little Pony related NFTs on the downlow).
5. Connect Account with Crypto Wallet
Once you’ve signed up for a marketplace or NFT platform, you will need to connect your crypto wallet. This is usually as simple as copying the wallet address from the platform where your crypto is stored and pasting it into wherever the marketplace prompts you.
If you are familiar with the world of day trading cryptocurrency, then you probably have experience linking your wallet address to different marketplaces. If not, most marketplaces make it a fairly intuitive process. Many times, there will be a transaction fee for making an NFT purchase, just as there might be for purchasing ETH coin with cash in your bank account. Remember to leave a little room for the fees you might incur, though they are often extremely nominal.
6. Purchase NFT
Now, you’re ready to purchase a non fungible token. Of course, if you’re looking to make money off NFTs, there are a few other considerations involved. At this point, the NFT market is still very young, so it’s hard to gauge how it will pan out over time. There is speculation that the NFT bubble will pop, and many, many NFTs will float off into the netherspace of unpurchased and forgotten artworks. There will be a few winners who remain, it’s just hard to pick which pieces of digital artwork will stand the test of time.
For most investors-turned-collectors, investing in an NFT for the purpose of making a profit on it is still a bit like gambling vs. investing. Though it’s a different story if you genuinely admire a certain NFT or follow a certain artist, musician, or celebrity, and are interested in owning one of their unique digital creations.
NFTs are Collectible, Investable Pieces of Digital Art
NFTs are an exciting opportunity to get in on a new form of investing, one that’s associated with art, music, and creativity. And while some NFTs are bizarre graphic compilations of non-sequitur material, others are fantastic works of art. All of them make use of a unique digital signature recorded on the blockchain that ensures the original is yours, and only yours; even if replications are sold by the creator.
NFTs use cryptocurrency for their marketplaces, not fiat currency like dollars or pounds. That said, if you need a little more information on the basics of investing in and using cryptocurrency, be sure to check out one of our weekly Crypto Rooms. We can’t wait to see you there!
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