NFTs have the potential to decentralize and democratize wealth, leveling the playing field for people of color, women, and those who are marginalized. Creators can take ownership of their projects and promote diversity while monetizing their work without going through a studio or art gallery.
Before, artists were required to give up a percentage of their rights and ownership to a record label, studio, or agency. With NFT art, they have full control over the copyrights of their work, making it an asset instead of a burden.
Aside from generating art, NFTs are also used to build communities. NFT artists can create a new kind of internet, specifically Web 3.0 and the metaverse, to provide opportunities by developing communities around education and grassroots initiatives instead of just accessing news and social media.
The space is expanding beyond what people thought was possible. However, what will the future of NFTs bring? Some experts believe it’s a fad that will pass, while others believe NFTs will change investing forever.
What’s An NFT?
NFTs are modern-day collectibles. Creators can make just about anything an NFT, including artwork, designer sneakers, music, even domain names, and since they are non-fungible, they’re considered one-of-a-kind.
Non-fungible tokens (NFTs) are digital assets stored on a blockchain — a decentralized public ledger. The blockchain network backing NFT marketplaces like OpenSea, Rarible, and Foundation records the transaction, providing transparency of the sale.
NFTs have a public history, so you’ll know if you’re buying directly from the creator or a reseller.
Even though they’ve been around since 2014, NFTs are becoming more popular as more creators are selling their artwork online. Recently, Mike Winklemann, a digital artist better known as “Beeple” created a composite of 5,000 daily drawings and sold it at Christie’s Auction House for $69.3 million.
The 255-year-old auction house has sold some of the most famous paintings in history, from the only known portrait of Shakespeare created during his lifetime to the last-discovered painting by Leonardo da Vinci.
NFTs are disrupting the art world by changing the way art is traded. Artists can sell directly to collectors through platforms, such as OpenSea and Foundation, removing dealers and galleries.
How Do NFTs Work?
NFTs are bought and sold online with cryptocurrency. They are created or “minted” and stored on the Ethereum network — a secure blockchain used to record transactions digitally across many computers.
An NFT can have only one owner at a time, and their use of blockchain technology makes it easy to verify ownership. The artist can also store specific information in the metadata, such as adding their signature to the file.
The goal behind NFTs was to have a platform to sell digital items to a specific audience or marketplace. It allows people to verify that their purchase is the original version, so they can always resell it.
Is There a Difference Between NFTs and Cryptocurrency?
NFTs are designed the same as cryptocurrencies like Bitcoin or Ethereum. What makes them different is that they’re non-fungible, meaning the value of one NFT is not equal to another.
Cryptocurrency and physical money are fungible as opposed to NFTs. In finance, fungibility refers to money and commodities. When goods are fungible, they can be traded or exchanged for another if it’s equal in value. So, one dollar is always worth another dollar, and one Bitcoin is equal to another Bitcoin.
Crypto’s fungibility makes it a trusted means of performing transactions on a blockchain. NFT ownership is also recorded there, but since NFTs are considered assets, they can only be bought with cryptocurrencies.
Cryptocurrencies are slowly going mainstream. Crypto exchanges are now registered and regulated in several countries, and several companies now accepting it as payment.
Crypto has even been quoted by American Investor, Naval Ravikant as, “The smartest people in the world exiting into their own economy.”
How Do You Buy NFTs?
If you’re interested in starting an NFT collection, you’ll need to set up a digital wallet to buy cryptocurrency. Your digital wallet is also where you’ll be storing your NFTs.
Credit card platforms such as Coinbase, eToro, Kraken, Robinhood, and PayPal is another way to get funding. After you buy it, you move the exchange to your wallet of choice. You also need to factor in fees as you research different options as most exchanges charge a percentage of your transaction.
Once everything is set up you can shop at different NFT sites.
Top NFT Marketplaces
Do your research carefully before buying. Some platforms are more lenient than others during the verification process for creators and NFT listings. Even the largest marketplaces have fallen victim to impersonators listing and selling work without the artists’ permission.
These are the largest NFT marketplaces today:
• OpenSea.io: A peer-to-peer platform selling digital items and collectibles. All you need to do is create an account to browse NFT collections. This platform doesn’t require owner verification for NFT listings.
• Rarible: Rarible is similar to OpenSea. It’s an open marketplace that allows artists and creators to issue and sell NFTs. RARI tokens are issued on the platform, allowing holders to weigh in on features like fees and community rules. This platform doesn’t require owner verification for NFT listings.
• Foundation: This community is more exclusive than OpenSea and Rarible. Artists need “upvotes” or an invitation from fellow creators to post their art — they also need to purchase “gas” to mint NFTs. But the cost of entry could result in higher-caliber artwork for collectors. Famed GIF creator Chris Torres sold a Nyan Cat NFT on this platform.
Are NFTs a Good Investment?
If you appreciate the arts and resale value isn’t an issue, it may be worth considering investing in small amounts. To buy or not to buy is a largely personal decision.
Approach NFTs like any other investment. They are considered collectibles and may be taxed at a different rate, and the cryptocurrencies used to purchase them may also be taxed. In other words, consult with a tax professional before adding NFTs to your portfolio.
NFTs can be risky since there’s not a lot of history to judge their performance. Their value is based on what people are willing to pay for it, so demand increases the price instead of economic indicators that usually influence stock prices. If no one wants it, you risk not being able to sell it at all.
Christie’s Auction House has also played a strong role in helping to create space for NFTs. In 2021, Christie’s sold $150 million in NFTs and credited the “new format” for $7.1 billion in total sales. And with the rise of technology and Web 3.0, the next wave of artists and collectors may see NFTs as the only way to buy and sell art.
Should you decide to invest, proceed with a healthy dose of caution.
This article is for informational purposes only, it should not be considered financial, tax or legal advice. Consult a financial professional before making any major financial decisions.
