Non Fungible Tokens, or NFTs, have gained massive popularity lately. NFT collections worth thousands of dollars like Crypto Punk and Bored Ape Yacht club are launched. Former Twitter CEO, Jack Dorsey, sold his first tweet as NFT. Even superstars like Amitabh Bachchan, Rajnikanth etc., couldn’t keep from it and launched their collections. They are becoming a popular investment vehicle, but before you invest in NFTs, it’s important that you understand some of its basics.
NFTs are the web 3.0 way to represent ownership of art. People have been investing in physical art like paintings, sculptures, collectables and more for a while; however, there are discrepancies in the process. Often, fake items get sold, there is a lack of traceability to the original owner and more. NFTs are thus emerging as an effective medium to buy and sell collectables. But before we talk about how to invest in NFTs, let’s take a step back and understand its fundamentals.
What are NFTs and How Do They Work?
NFTs stand for Non-Fungible Token. Non-fungible refers to irreplaceable, and token implies cryptocurrencies. For instance, two ten rupee notes can be exchanged for one another because they have the same value; hence it would be considered fungible. However, the value of two music tracks cannot be the same, and they can’t be exchanged for one another.
Through NFTs, such unique digital and physical artwork are tokenised on the blockchain. You can make an NFT of a music track, a video, a picture, a painting, and tweets. NFTs are used to represent ownership of a unique asset on the blockchain.
Anybody can create an NFT from their creations and auction it off on one of the NFT marketplaces. If you think you are a great artist, through NFTs, the world can be your market. Christie’s sold a JPG file made by Beeple for $69.3 million, and Jack Dorsey’s first tweet was sold for nearly $3 million.
How do they work?
NFTs solve two of the most daunting problems of the global collectables market. Traceability and Counterfeiting.
Since the collectable is tokenised on the blockchain, there is complete transparency about its ownership. The blockchain keeps a record of who its current owner is and all the data about its previous owners. So anybody who doesn’t own a particular NFT can’t steal and sell it, unlike how it happens today, where identification of the actual owner of a piece of art is complicated.
The counterfeit market for such unique art pieces is also huge. People copy the original art and sell it as the original. This can’t happen with NFTs. Now you would ask, how? People can easily screenshot the image that is an NFT and sell it as original, na? Nope.
Though you can screenshot or download the image or video, which is an NFT, you can sell it since its ownership is recorded on the blockchain. Anybody trying to do so will be immediately caught. Besides, it gives artists from all across the globe a global platform to showcase their work.
How to Invest in NFTs – A Step By Step Guide
There are 3 ways you can make your first NFT investment:
1. Create an NFT
Probably the best way to invest in NFTs is to make one.
But what can be an NFT? To be honest, anything. This includes designs, audio and video clips, gifs, memes and even a Tweet.
So if you are an artist, you can upload some of your designs and sell them as NFTs. Even if you are not an artist, you can partner with or commission an artist to make designs for you and sell them as NFTs.
This is probably the most challenging yet rewarding way to make money off NFTs.
2. Buy NFT in the marketplace
Let’s say you don’t want to sell something you created as an NFT just yet. It doesn’t mean that you can’t invest in NFTs. You can simply go to an NFT marketplace, buy an existing NFT and resell it when its value increases.
OpenSea and Rarible are two of the biggest NFT marketplaces to buy from. However, the challenge here is you need to have an eye for undervalued NFTs that can potential rise in prices.
3. Invest in NFT tokens
Now, what if you don’t want to buy an NFT?
As a new investor, it might be overwhelming to invest in an NFT directly. It may take a lot of time and research to study NFTs, and you may still not be sure which one to invest in. Plus, the price tag itself may not allow you to buy multiple or even one NFT to fit in your portfolio. If you are one of them, don’t worry, you can still benefit from NFTs indirectly by investing in NFT tokens.
These tokens represent NFT projects building the infrastructure for creating and selling NFTs. You can buy individual tokens or invest in the NFT Coin Set via Mudrex. Coin Sets are a basket of cryptocurrencies representing a particular theme. It will allow you to invest in multiple top NFT tokens associated with NFT projects.
What are the Benefits of Investing in NFTs?
NFTs have evolved to be more than just digital pieces of art. Besides appreciation in value as an asset, here are some other benefits of investing in NFTs:
1. Secure investment – NFTs are based on blockchain and relish its security. It is tough to steal or counterfeit NFTs.
2. Access to exclusive content – Popular artists may release NFTs that can give you access to their exclusive content, such as music and videos. Imagine BTS launching their next album as a limited edition NFT. Buying that NFT could give you access to their exclusive music.
3. Exclusive memberships – The Bored Ape Yacht Club NFT is an entry point to the Bored Ape community; likewise, various NFTs may give you access to premium communities.
4. Support creators – And finally, just like you would buy a painting to support an artist, you can buy NFTs to support the creators and their mission.
The Risks and Potential Rewards of Investing in NFTs
Art is subjective, and NFTs are nothing but a way to represent ownership of art. So it is very difficult to identify which NFTs will garner popularity and which will just turn out to be a fad. For instance, Jack Dorsey’s first tweet was sold for $2 Million only because people found it to be a symbolic asset.
If you are an investor looking for returns, this is probably the biggest risk you must factor in while investing in NFTs.
Besides, some NFTs also have utility; they are more than a piece of art. For instance, in the Metaverse, pieces of land are sold as NFT. You can use those lands to build houses, rent, and much more. This is also a good factor to consider before investing in an NFT, as its utility can help with price appreciation.
P.S. Learn more about Metaverse here.
Factors to Consider Before Investing in NFTs
Here are two additional factors to consider before you make your first NFT investment:
1. Transaction fees – Yes, buying and selling NFTs is not free. A transaction fee (often referred to as the gas fee) is involved in such trades. The fees depend on two things – the NFT marketplace where you decide to buy or sell the NFT and the blockchain upon which the NFT itself is created.
2. Dependence on Cryptocurrencies – Certain NFT marketplaces will allow you to purchase NFTs using your native currency, such as the US Dollar or Indian Rupees. However, this is rare. NFTs are mostly transacted using the native cryptocurrency of the blockchain on which it is built. Since most NFTs are based on the Ethereum blockchain, you will need ETH to buy them.
The use case for NFTs though started as a way to streamline how the collectables market operates, it has swiftly gone beyond. Most NFTs now have additional utility in the Metaverse. Investing in them could be a great idea provided you research well and weigh the potential of your investments.
FAQs for Rich Snippets
1. Are NFT a good investment?
NFTs are an emerging asset class. They can be excellent investment options if done rightly. The key is to do your research and manage risk. It could prove disastrous if you blindly follow someone while making your NFT investment.
2. What are the best NFTs to invest in?
Depends on what you want your NFTs to be. If you are purely investing in them because of creativity and will sell them when the collectable appreciates in value, you could be investing in Bored Apes, CryptoPunks and other such NFTs. If you want your NFTs to be more than collectables, you can invest in them based on utility. However never forget to DYOR before making any investment decision.
3. How do I start NFT investing?
As a retail investor, you can start your NFT investment journey by investing in NFT Coin Sets. This way you do not have to have a big portion of your portfolio exposed to NFT and you can get diversification benefits.
4. Where can I find the best NFT to invest in?
To find good NFT Investment options, you need to be a part of the crypto communities and stay up to date with crypto projects. Most announcements and updates are shared in these communities.
5. How can I invest in NFTs from India?
You can either invest in actual NFTs via OpenSea or a crypto exchange that allows NFT trades. Or you can invest in NFT tokens via NFT Coin Sets on Mudrex.