What are NFTs? And why is everyone suddenly talking about this popular crypto-adjacent asset? Essentially, non-fungible tokens are digital assets that represent a variety of tangible or intangible items. You could purchase a virtual sports card, cat, artwork or even a pair of sneakers. Dive in below for the top things to know about NFTs now.
To start, investors should know that NFTs are rapidly increasing in popularity. As Morning Brew wrote earlier this week, the market for the digital assets ballooned to $250 million in 2020. This comes alongside broader interest in digital currencies, especially as Bitcoin (CCC:BTC) hits an all-time high above $58,000.
With that in mind, here is what you should know about NFTs right now.
- According to experts, one of the benefits to owning NFTs is that they come with identifying information that proves they are distinct.
- In other words, because they are verifiable and traceable, they would not support a market for fake collectibles like with physical assets.
- Another thing to note about NFTs is that you can not directly exchange them.
- This is because no two are the same.
- You also cannot divide one NFT into two parts. They only exist as whole items.
- Most of these NFTs come from two different Ethereum standards, ERC-721 and ERC-1155.
- However, there are other NFT standards available from other blockchains.
- Investors should note that while there is a rise in popularity in NFTs, they are not new.
- Some trace their existence back to 2012.
- Additionally, most credit CryptoKitties in 2017 as bringing NFTs into the mainstream.
- On CryptoKitties, you can purchase digital cats to collect or breed.
- Other applications include platforms for digital sports cards and Nike (NYSE:NKE) sneakers.
- More recently, we are seeing artists use NFTs to sell digital work.
Why NFTs Stand Out Right Now
So why are NFTs so popular right now? And why should investors care about buying and trading virtual sports cards or artwork? Well, the sheer size of the market should be a good enough reason to pay attention. Some of the top NFT artists are seeing $6.6 million for a single piece of work.
But beyond that, trends that support the cryptocurrency space are also contributing to the rise of NFTs. As Felix Salmon wrote for Axios, the timing is right for NFTs to take off. There is excess wealth and liquidity in the market, especially for early crypto winners. Tech stocks are (mostly) soaring and interest rates are at near-zero levels. There is also the rise of gamification and speculation. Who wants to miss out on enormous profits in the newest hot thing?
For investors, there is also a two-prong incentive to buy in. The first is that there is a sort of nostalgia or emotional attachment to some NFTs. Not sure what I mean? One of the most expensive NFTs remains a CryptoKitty worth 600 Ethereum (CCC:ETH). But there is also a chance for investors to buy an NFT and make money from selling it for more.
And lastly, there is reason to believe this benefits artists and other creators. Although mainstream players like the auction house Christie’s are getting into the game, NFTs historically allow artists to bypass those systems. In other words, they can make more money from each of their sales, paying less to the middle men.
Keep a close eye on the NFT space. It’s only going to heat up.
On the date of publication, Sarah Smith did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Sarah Smith is a Web Content Producer with InvestorPlace.com.