NFTs are the latest cryptocurrency trend these days, with bands like Kings of Leon releasing their new album as limited edition "gold tickets," and NBA's digital collectibles selling for millions of dollars.
They are interesting to collectors and cryptocurrency fans, but is there a future for this? In other words: Do you really need to spend money to invest in a digital object?
NFTs, or non-fungible tokens, are a type of cryptocurrency created on a smart contract platform like Ethereum. They are unique digital objects that can be cool to own or even profitable to trade, in other words, they are a kind of digital collector's cards. They usually start out as something only enthusiasts care about, but if you own a rare one, it can become worth a lot more one day.
Cryptocurrencies can be fungible, which means that all units of the currency (tokens) are the same and equal, such as grains of rice or dollars.
Non-fungible tokens are just the opposite, each cryptocurrency unit or token is unique and cannot be counterfeited.
This "non-fungible" token can be used for many things, even certain types of currencies. But the current trend among NFT has come mostly through digital art and collectibles. People have discovered that a unique, digital object can be interesting, cool and even have a significant monetary value. That's why it has grown so much in popularity recently, with thousands of projects centered around artwork, games and sports.
It really depends on the platform, but since the vast majority of NFTs are created and traded on Ethereum, that's what we'll focus on in this article.
NFTs are created on the Ethereum blockchain, which are not modifiable. No one can undo your ownership of an NFT or re-create the exact same NFT. They are also "permissionless," so anyone can create, buy or sell an NFT without asking permission. Finally, each NFT is unique, and can be viewed by anyone.
It's like a unique collection card in an open display window that anyone can admire, but only one person (or cryptocurrency wallet, to be exact) can own it at any given time.
An NFT is usually represented by a digital artwork, such as an image. It is important to understand that it is not just about that image (which can be easily replicated). Its existence as a digital object on the blockchain is what makes it unique.
NFTs are bought and traded just like cryptocurrency based on Ethereum, only instead of buying a number of tokens, you only buy one token.
You start by downloading MetaMask, which is a browser extension that allows you to interact with different facets of Ethereum, such as the exchanges and dApps (decentralized apps). MetaMask is also a digital wallet for Ethereum and all tokens created on Ethereum (both fungible and non-fungible).
After installing the extension, you need to buy some Ethereum (you can do it directly in MetaMask with a debit card or Apple Pay by clicking "Add Funds"). But be very careful with your funds. It is most convenient to store your MetaMask password and the private key of your wallet somewhere safe. When you visit a website that sells NFTs (like NBA Top Shot) or an exchange where you can trade them (like Uniswap), connect your MetaMask wallet to the site (only do so on sites you know are safe), and then you can buy NFTs.
Why would anyone buy an NFT, and why would any buyer ever be willing to spend even more money in the future?
The value of NFTs don't just come from some kind of digital game, where you buy something in the hopes that you can sell it for more later. The NFT should be valuable to you because.... you enjoy doing it. If you're an NBA fan, you might want an official NFT owner representing your favorite player. Or maybe there's a digital cat you like.
Actually, many NFTs are just digital images that you can easily right-click and save to your computer, but NFTs are also on the blockchain. This is what makes it extremely difficult to copy them in their entirety. The blockchain entry also transparently tells you who created the NFT. If a famous musician says, "Yes, that's my Ethereum address that created this digital image," that can be verified on the blockchain.
Some NFTs can be valuable in other ways. For example, suppose you buy an NFT that is related to an online game. Maybe one day that NFT will give you a special prize in the game, or it could be the basis for getting another hard-to-get item; something that only you can have because each NFT is unique. Now, with NFTs, no one can take it from you, not even the owners of the game.
Let's get back to the digital cat and mouse game for a moment. NFTs are an emerging market, and there is a lot of hysteria and scams going on. You may see a particular NFT being sold for millions, and you may think that you too can buy something for a few dollars and get rich off it later by selling it to someone else. This can certainly happen, but it is quite rare. Among other things, this can be manipulated.
For example, a cryptocurrency whale (someone who owns huge amounts of crypto money) can buy a lot of NFTs and then "sell" them to himself (his other cryptocurrency address) for millions, causing the price to skyrocket artificially. So be careful: just because a particular NFT has been traded for a lot of money, it doesn't mean that all other similar NFTs are also valuable.
In the early days, we saw a blockchain game like CryptoKitties sell virtual cats for tens or even hundreds of thousands of dollars. At time of writing this article these are the most expensive NFT’s:
Buying an NFT because you like it or maybe even to make (or lose) some quick cash is one thing, but really investing in NFTs is another. Again, it's just new. Even a painting by Van Gogh or a rare baseball card by Babe Ruth took some time to become valuable.
Given the digital nature of NFTs, it is difficult to compare them to precious physical works of art, such as statues and paintings. On the other hand, we live in a world where one Bitcoin is worth more than $42,000 at the time of writing, so things from the digital world can certainly become very valuable and retain that value even over longer periods of time.
Anyway, if you are planning to invest in NFTs, you will have to dive deep into this complex world, as every NFT market is slightly different. Trading on Ethereum can be quite pricey, as the recent exchange of data on the network increases the cost. Finally, you need to think strategically and follow the often rapidly changing cryptocurrency trends.
So, in short, it is definitely possible to make money investing in NFTs, but you will have to do your homework well.
Keep an eye out for more news from Brickken in the NFT space! We have lots of exciting plans for the coming months.
The picture used in this post is an NFT of one of the CoFounders here in Brickken. It was his first NFT before he became a collector!