Introducing the NFT: What Makes This Investment Unique

What is NFT

You may have heard people using the term NFT and wondered what it meant and why it was such a great hit. NFT stands for non-fungible token - this is a digital identifier that helps people certify who digital assets belong to and whether they are authentic. Once you purchase an NFT, this ownership becomes part of the blockchain transactions, enabling you to establish ownership. But that's not all - this token (identifier) is non-fungible, i.e., it is unique and cannot be replicated. As such, you don't have to worry about someone else coming in and taking your investment away from you, as this has often been a concern in digital spaces where replication and cyber theft can hinder honest transactions.

How do NFTs Work

An NFT works by assigning ownership to a digital asset, ensuring that others cannot replicate it. But how does this all work?

Creating the NFT

Since an NFT is a token assigned to a digital asset, the process of "creating NFT art" starts with creating a digital asset - it can be a song, an image, a video, etc. They then "mint" the digital file to turn it into an NFT, allowing them to create a new block on the blockchain where information on the asset ownership can now be accessed.

Making the NFT Unique

All NFTs have different identifiers, so even if two pieces look the same, they will have different attributes. This differentiation is made possible during the NFT creation process, where the person who "mints" it also includes details about what the digital asset entails, who it belongs to, and what makes it special.

Protecting and Monetizing the NFT

Besides assigning attributes to the token, the creator must also include rules on how people can purchase the NFT and how it can change hands. For example, a creator may include royalties payable to the original owner. All this information goes into the smart contracts, which allow other people to buy, trade, or sell the NFT - all these transactions show up on the blockchain. Since such transactions are immutable, people cannot change or remove information about who owns the NFT, which allows the current owner to enjoy exclusive assets to the asset.

Then comes the use and transfer of the NFT. If you buy the NFT, you get control of it, and this change of ownership will show on the blockchain. You thus get the rights to use, sell, or trade the digital asset as you deem fit.

Should You Invest in NFTs

Investing in NFTs

In recent years, multiple NFT trades have garnered interest from investors worldwide. Take the example of the Nyan Cat meme - it sold for $590,000 in 2021! Jack Dorsey sold his first tweet from 2006 for a whopping $3 million! Many other assets have sold for hundreds of thousands to millions of dollars. Should you consider investing in this obviously lucrative market? Let's consider why this would be a good move:

  • You have access to a global market - Since digital assets comprise a wide range of items, you can get a good deal from anyone in the world. You only need a good internet connection to see what's available and make the trade. And since these tokens come with smart contracts, the purchase processes are easy to complete.
  • You can retain ownership - The immutability of blockchain transactions works in your favor. Compared to physical assets, which people can easily take away from you, changing or deleting ownership information on NFTs is almost impossible. Of course, you must protect your data to avoid tampering even with this high-security level.
  • You can enjoy partial ownership - Did you know you can purchase NFTs through fractional ownership? This option enables you to invest in hot ticket items even when you cannot afford the full price, allowing you to reap big from the final amount.

Of course, investing in this market is also profitable—if you acquire an item that others wish they had, you can sell it at a much higher price.

What Should You Look For in NFT Investments

NFTs are pretty much like other investments. Think about buying a parcel of land. What would you consider? You would likely review its location, possible uses, and market value. In the same way, you must consider the value an NFT gives you and whether this would resonate with the market. Let's look at how you can review assets before parting with your money:

Is the asset rare?

The harder it is for people to get their hands on an asset, the more they will pay for it. Take the example of William Shatner's digital memorabilia collection - it sold out in under 10 minutes as no comparison held water to it.

How much demand does it have?

This point ties in with rarity but goes an extra step. An item may not be rare, but its supply may be less than its demand. Think of a creator who releases two images a month. Such a creation would have a lot of demand, making the asset valuable enough to give you a good return on investment when you are ready to sell.

What is the quality of the asset?

Many people are not just buying NFTs to trade. They want to keep the assets, much like people do with rare paintings in their homes. So, if the quality is good, the NFT will sell like hotcakes - but if it barely hits the mark, investing in it will not give you the returns you want.

How good is the creator?

One key thing to note about the NFT market is that some creators garner more attention than others. The more popular a creator is, the more sales they make, and the easier it is to trade their items. Review creators and determine the ones whose assets would give you the demand you need to resell items at higher prices.

Can you use the asset? Does it serve a functional use?

For example, you can use gaming NFTs to level up in games. As such, by the time you sell the asset, you will have reaped profits from using it. Moreover, it will attract a lot of demand since other buyers can see this usability.

Finally, you must consider the potential value of the asset over time based on market needs and demands. Speculation is not always a good idea, but if you know enough about a creator and their market, you can be right on the money.

The Best NFT Arts

NFTs gain popularity and value based on how the market perceives them. The examples below have made their way to the top of the charts and attracted sales in different ranges.

Beeple's "Everyday: The First 5000 Days." This collage, comprised of digital illustrations created for more than 13 years, attracted a $69.3 million sale price. To date, people praise it as one of the pieces that legitimized NFTs, paving the way for other creators to share their art with the world. Kevin McCoy's "Quantum." This octagon sold for $1.47 million and attracted buyers due to its diverse pixels and colors. This piece is yet another iconic asset that pioneered developments in the NFT world. As such, it holds a lot of historical value that has improved its pricing over time. Trevor Jones and Jose Delbo's "Genesis." This piece combined digital art with a comic book style, thanks to the collaboration between a digital painter and a comic book artist. It featured a mix of traditional and modern styles that attracted enough interest to sell at just over $550,000.

These pieces continue gaining traction thanks to their role in shaping the current NFT markets by blurring the lines between physical and digital art. Of course, many other pieces have garnered a lot of interest and sold within these ranges—the sale prices are not always available, but you can always get more information by looking up NFT sales.

Conclusion

The value of investing in NFTs is evident - not only can you do it from the comfort of your home, but it also allows you to own unique digital assets and use or trade them as you wish. As you enter this market, buying pieces that will accrue market value over time is important, as this helps you recoup your capital investment and turn a profit. Rarity, demand, and usability are some factors you can consider as you look at comparables in the market.