What Investors Need to Know about Buying NFTs
Many experts predict their breakthrough into the mainstream this year: NFTs. What is cryptic new territory for most, others have already been using as a financial investment for years.
Prominent names are also following the trend. Some examples are Eminem and Justin Bieber who have been investing their money with a million digit amount. But what are NFTs? And how can interested parties buy NFTs? An overview.
What is an NFT?
NFTs are non fungible tokens. This means tokens that cannot be exchanged or replaced. The owner of an NFT is certified via a so-called smart contract. Like cryptocurrencies that you can exchange with the best Kraken trading bot, the latter is based on a blockchain, i.e. a digital data protocol.
This makes it possible to transparently track who currently owns the unique item and when it changed hands. Therefore, NFTs act as a kind of digital proof of ownership or authenticity.
In principle, NFTs are not limited to a specific area of application. All sorts of valuable items are thus now traded on the blockchain. Exemplarily, Non-Fungible Tokens can be proofs of authenticity for:
● Gadgets in games or in digital worlds (for example, Metaverse)
● Trading cards
At the end of last year, for example, the lyric sheet of the song "King of Rap" by musician Kool Savas was auctioned off as an NFT. Purchase price: more than 30,000 dollars.
Unlike cryptocoins such as Bitcoin or Ether, which function as a means of payment with identical equivalent value, NFTs cannot simply be exchanged among themselves.
Their price depends on demand. Trading cards, for example, increase in value the more limited and outlandish they are.
NFT-Art: Why Are NFTs so Common in Art?
The technology behind NFTs can solve a variety of problems that have plagued the art market for decades. For example, countless counterfeit artworks continue to change hands. Here, an NFT acts as a kind of guarantee of authenticity. In this context, the tokens can represent both digital and analog artworks.
On top of that, artists can program automatic sales participation into the smart contracts. If an NFT is resold, the artist receives a defined percentage of the resale price. The exorbitant sums that sometimes flow into NFTs are demonstrated by the most expensive NFT in the world to date.
A digital artwork by US artist Mike Winkelmann, "Everydays: the First 5000 Days," fetched a whopping $69.3 million.
Buy NFT: How Safe and Sustainable Are NFTs?
NFTs enable a whole new asset class from an investor's perspective. For example, experts at U.S. bank Goldman Sachs estimated the market volume at $17 billion in October 2021. In 2020, according to the market research website Nonfungible.com, it was still around 340 million dollars.
In 2022, NFTs will finally reach the mainstream, according to forecasts. Despite rosy future prospects, buyers should consider purchase risk. If demand and hype for a property decline, the NFT can rapidly lose value.
What's more, the fact that an NFT is available for purchase does not guarantee actual ownership of an item of value. Since in principle anyone can create and sell NFTs, buyers should inform themselves well in advance about the object and its potential value.
The fact is that anyone who wants to resell an NFT must find a buyer. However, since there is currently still a lack of market liquidity, this can be difficult in case of doubt. Accordingly, the risk of an investment is high.
Where Can I Buy NFTs?
If you want to invest in Non Fungible Tokens, you need access to a corresponding platform. Trading venues where you can buy NFTs include:
● Coinbase Wallet
● Nifty Gateway
Currently, Opensea is the largest trading platform for digital art. In a new round of funding, the startup raised $300 million - and is currently valued at $13.3 billion.
In the process, the business areas of NFT trading venues are already expanding. For example, the US crypto exchange Kraken is currently developing an NFT marketplace where tokens can be used as loan collateral. Kraken founder Jesse Powell told the Bloomberg news agency at the end of December.
Instructions: How to Buy an NFT in 2022?
Since the majority of NFTs are currently based on the Ethereum blockchain, on which the cryptocurrency Ether is also based, the latter is the preferred means of payment. Accordingly, an Ethereum wallet is often a prerequisite for buying and trading NFTs.
In turn, users have to purchase the cryptocurrency Ether via a corresponding online broker or crypto platform, for example Coinbase.
Example: This is How Buying NFTs via Coinbase Wallet Works
At Coinbase, one of the largest crypto platforms in the world, the NFT purchase works via the in-house wallet app.
The latter is available exclusively as a mobile app for Android and iOS devices. After installing the Coinbase wallet app, it needs to be linked to a Coinbase account where cryptocurrencies can be held.
Following the link, navigate to the "Trade" tab in the wallet app to exchange ETH for any NFT compatible with the Ethereum standard "ERC-20 token". Tap "Choose Coin", select NFT and an appropriate trading venue, for example, Opensea.
Enter the amount of ETH you want to invest in NFT. You should take into account any transaction fees that may apply.