Non-fungible tokens (NFTs) are digital assets that represent real-world objects like pictures, videos, music or in-game items. Such tokens provide the owner with exclusive ownership rights for the digital original. While Bitcoin at the time when it appeared was the digital analogue of fiat money, NFTs in their turn have gained popularity as the digital counterparts of physical collectibles that are easy to trade on the blockchain.
NFTs represent unique digital works of art and other items without material form, but with certified ownership of the virtual asset.
In this article we are going to try to figure out the phenomenon of NFTs and analyze how these digital assets are created, bought and sold.
NFT: History and Growth in Popularity
The virtual digital units called “non-fungible tokens (NFTs)” appeared quite a long time ago, back in 2013-2014. The earliest experiments with tokens were carried out in the form of the Colored Coins and Counterparty projects. The first full-fledged Etheria project started in 2015 after the launch of the Ethereum blockchain, but for the next 5 years or more the tokens did not see much demand. That is, having actually existed for such a long time, digital assets did not attract public attention until March 13, 2021.
What is the reason for that? In 2017, the popularity of the Ethereum blockchain increased sharply, and from that moment on the project did not need any third-party platforms to create and store tokens. It was during this period that the concept of a non-fungible token was introduced, after which the US studio Larva Labs started trading NFTs of unique cartoon characters (CryptoPunks project).
What happened in 2021 was quite similar to the famous Tulip Mania of the 17th century, when there was agitated demand for exotic tulips in Holland, and some of them were sold for unbelievable prices. The same story unfolded around the tokens, which were sold for ground-breaking amounts of money. Currently, the two most expensive NFTs were auctioned for $91.8 million and $69 million respectively. The excitement and explosive interest in non-fungible tokens was fueled by Christie’s auction house, which was the first organization in the world to sell a collage of images created by digital artist Bill Viola for a record-breaking price of 63.9 million USD. Recently Christie’s broke its own record, when they sold an work of art by Beeple for $69 million, making him the third most expensive living artist (after David Hockney and Jeff Koons). NFT images as a way to purchase the ownership of an original collectible digital image have attracted the attention of most collectors and investors.
There is a need to clear up the terminology. In economics, a fungible asset implies the opportunity to exchange certain units for something tangible – for example, cash. Let’s say, you can exchange a ten-dollar bill for two five-dollar bills that actually have the same value. If a certain item or asset is considered non-fungible, this means it has some unique properties that make it impossible to replace. However, NFTs can be traded and exchanged for other digital assets.
In fact, absolutely any works of art, images, objects can exist in the form of an NFT digital asset. For example:
- Originals of traditional paintings by famous artists (you can take a picture of, say, Mona Lisa or download an image from the Internet, but the original is always unchanged);
- Video clips – for example, LeBron James’ amazing dunk sold for more than 200 thousand USD;
- Gifs – digital Nyan Cat was auctioned for 600,000 USD;
- Tweets – the founder of the famous social network Jack Dorsey promoted his own NFT tweet; the stakes on it reached 2.5 million USD.
Every non-fungible token (NFT) is a unique, one-of-a-kind asset that can be viewed as the certificate of ownership of a certain virtual or physical asset.
How can you make money on NFTs?
According to the CEO of the New York-based brokerage Artsy, the hype around unique digital assets is largely created by people interested in acquiring the works of independent authors. Of course, collectors always strive to get something unique, one of a kind, and claim ownership of these items.
The recent surge in prices for NFT pictures and games is fueled by the newly minted crypto billionaires and millionaires, who are looking to diversify their crypto holdings, thereby supporting this new branch of the crypto asset system.
If you are considering buying an NFT in order to keep a unique asset or resell it later on the blockchain, you should take into account the following points:
- NFTs are part of the digital content strongly associated with a digital database and the blockchain technology;
- There can never be two identical NFTs;
- Digital assets are created in limited editions, and there is always a deficit of them (e.g., Pokémon cards or Michael Jordan’s rare 23 Bitcoin Bull);
- Purchasing tokens means automatic acquisition of a certificate of authenticity;
- You can consider buying any form of NFTs – from trading cards and images to video game skins, virtual real estate, gif-files, and so on.
We have created our own unique collection of NFT pixel art paintings on one of the largest marketplaces called OpenSea. Follow this link to see our collection. You can become the owner of one of 20 unique images of island nations or purchase the entire original collection. Read more about the auction here.
Comparing digital images in the form of non-fungible tokens with physical art objects, we can see that in the case of the former, the purchase does not require long journeys. When was the last time you have been able to visit, say, Sotheby’s in person to buy rare and unique items? Buying an NFT is much easier – with minimal effort, you can become the owner of contemporary art objects right from your home. All you need is an NFT marketplace (such as OpenSea), a digital wallet to hold the token, and specific cryptocurrency to complete the transaction. It should also be taken into account that niche trading platforms are being created for certain specific types of NFTs.
How Reliable Are Financial Assets in the Form of Non-Fungible Tokens?
NFTs are traceable assets that allow you to copy and distribute a unique image as many times as you like, but the token remains in a single, original copy. Some skeptics claim that the hype around such assets creates a kind of bubble – as soon as information support starts to subside, the value of NFTs also begins to drop. It is, indeed, possible that your acquisition will subsequently be sold at a lower price. This possibility must certainly be taken into account when planning to invest in this class of assets.
Dealing with non-fungible tokens presupposes a certain risk – their future is uncertain, and our society lacks the experience that would help us determine their future effectiveness.
However, similar fears were once expressed in relation to Bitcoin, which is very popular all over the world today. Even though its price is still extremely volatile now, it may so happen that one day it will become a full-fledged replacement for cash.
Buying an NFT should be a very personal decision, especially if the digital item or image you are considering is of some value to you. Perhaps it makes sense to invest small amounts as an experiment, thereby forming a separate class of assets in your investment portfolio. In any case, you should get a very good idea about the risks, because non-fungible tokens are highly unpredictable, they do not depend on economic and other changes in the world, and the price is determined only by demand.
In other words, prices for NFT pictures do not depend on the fundamental, technical or economic factors, which normally form the prices of certain traditional assets, such as shares, for example.
Let’s summarize all the reasoning given above to get an answer to the question of whether it is a good idea to buy such unique crypto assets:
- The idea of owning an original work has always attracted collectors, which may have a long-term positive effect on the price of tokens;
- NFTs can be compared to autographed prints due to their exceptional uniqueness;
- Marketplaces trading such tokens do not interact with each other, which creates additional risks;
- This new mechanism of uniqueness has every chance of becoming a new investment area for many years to come;
- With a well-designed investment strategy, you can almost endlessly receive interest from secondary sales.
Speaking in simple terms, if in the past an artist could sell a well-known painting as the author of the original and lose all rights to it after handing it over to the buyer, today the owner of a tokenized work receives a certain profit as long as it is resold. You can always ask our experts for more details. Contact us at email@example.com to get more information from one of our specialists.
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How Are NFTs Created?
Generally speaking, anyone can create this type of digital assets. In order for it to work, you will need a digital wallet; you will have to purchase a small amount of Ethereum and get registered in a marketplace, such as OpenSea, where you can independently upload unique content and turn it into non-fungible tokens. Cryptocurrency in this case acts as a kind of “fuel” to complete the transaction in the block chain. You can purchase the cryptocurrency with a bank card through well-known financial platforms, such as PayPal or Coinbase.
Actors, artists, athletes and other public figures willingly use the opportunity to make good money on unique NFT pictures, gifs, video clips, etc.
The most famous examples of collections of native non-fungible tokens include the following:
- Football cards Sorare for fantasy football;
- The cult meme of Chloe Clem from “Puzzled Chloe”;
- Gods Unchained game assets;
- 10,000 of CryptoPunks digital avatars;
- Portraits of the Hashmasks mystical demon.
There is no talking of a decline today – on the contrary, the excitement is growing, and more and more unique objects are transferred to the blockchain by the authors of unique works of art. To list just one example, in February 2021 Justin Blau (better known by his artist moniker, 3LAU) raised $11.7 million from the sales of his album Ultraviolet, an electronic dance music collection containing 33 different NFTs.
Would you like to become part of the unique community of NFT token collectors? Contact our experts for detailed advice.
NFT Trading – Are They Worth Buying?
Nobody can give you any guarantees concerning this class of digital assets. They are an unregulated unit in the blockchain, which means they depend solely on the demand and the hype around them. The decision to buy NFTs should be entirely yours – it is a high-risk, totally predictable investment, just like with Bitcoin or Ethereum. However, many investors and ordinary citizens have already earned millions and even billions of dollars by selling unique tokens. For example, a lot of people prefer not to do any physical work to earn money, but to get engaged in the Axie Infinity blockchain game made by the Vietnamese studio Sky Mavis, in which you can sell characters and earn money by winning battles. In April 2021 there were about 45,000 Axie holders, and that number had grown by about 5,567% to 2.55 million people by April 2022! Today, the number of daily active users of this game today has reached 1.15 million.
To sum up, the choice is always yours, but in deciding whether to buy an NFT or create such a token it is very important to choose the right platform. Some trading platforms charge serious commissions, some may include an additional fee for converting your money into Ethereum, and others would charge certain commission on closing transactions. When placing your content turned into non-fungible tokens on the market, you need to specify all the features of the asset, the description of the work, and its price. In most cases, you can buy NFTs for Ethereum, as well as WAX and Flow.
These days, tokenized items are only gaining popularity, and it is impossible to predict how long they can remain popular. If you are interested in buying non-fungible tokens or need to build an individual investment strategy with different asset classes, contact our experts right now.
What are NFTs?
They are non-fungible tokens that provide proof of originality of particular digital assets. Unique properties cannot be replaced by anything else, and for the owner it is a kind of digital acquisition certificate of authenticity. Anything can become NFTs – paintings, football cards, tweets, trademarks, gifs, original pixelated images, even X-rays. It is a modern way of owning an original digital image that can be sold, but cannot be copied.
How much are non-fungible tokens on blockchain?
The cost of NFTs almost always depends on the demand and the hype around them. It is impossible to predict the price of a particular token, because it does not depend on any traditional technical, economic and strategic factors. Looking at popular examples, the price of an NFT can range from a few hundred to a million or even several million dollars. For example, the digital GIF and the popular Internet meme Nyan Cat brought its owner 600,000 dollars, and Jack Dorsey, the founder of Twitter, sold his tokenized tweet for 2.6 million dollars.
How risky is it to invest in NFTs?
This is a high-risk class of assets. There is no way to make an accurate prediction of the changes in the price of an NFT over a certain period of time. Like with digital currencies, you may subsequently sell your NFTs for a lower price than you bought it. However, the situation may be exactly the opposite. This, for example, may be confirmed by the crazy rise of Bitcoin in April 2021, which brought huge profits to many crypto investors (even though the rate of Bitcoin has dropped again recently). In any case, we are ready to advise you on NFT investments, including the choice of a trading platform, creating a portfolio with different asset classes, and opening the right type of bank account for high-risk business.