The name of the painting was “Everydays: The First 5,000 Days.”
Created by Mike Winkelmann, a 41-year-old graphic designer from Charleston, S.C., “Everydays” is a piece of digital artwork that has found itself near the same financial, if not artistic, level as painting masterpieces by Pablo Picasso and Claude Monet. (Most of Picasso’s “Top 10” paintings have sold for around $70 million, although his “Femme’s d’Alger: Version O” piece went for $179.4 million in 2015.)
On March 11, 2021, “Everydays” was sold for $69 million at Christie’s, the legendary auction house. Before NFTs existed, Winkelmann – more informally known as “Beeple” – had never sold a painting for more than $100.
The painting quickly became part of the lore surrounding non-fungible tokens, or NFTs. This new type of asset, sold on blockchains, has opened new doorways in the investment world. Barging through that door are celebrities like Snoop Dogg and Paris Hilton, and major global entertainment brands like the National Basketball Association and Marvel Comics.
As NFTs emerge onto the global stage, these digital collectibles have already grown way beyond paintings. Now, NFT technology has seeped into music, video, toys, and into collectible mainstream with all the cache of early 20th century baseball cards or 1980s-era Cabbage Patch Kids.
Even billionaire Mark Cuban, of Shark Tank fame, has gotten into the act. He’s offered an NFT of one of his motivational quotes for $1,700, along with NFTs of hype videos for the NBA team he owns, the Dallas Mavericks.
“The crypto natives, particularly Gen Z, their most valuable assets are on their phone,” Cuban said in a 2021 interview with Business Insider. “Unless you have a house or a car, everything that you value, your brand is your Instagram, or Snapchat, or TikTok account. Everything that you’ve ever captured in your life that you find dear to you, you keep on your phone. That’s why people my age don’t fully understand that NFTs are not a transition, this is not hard, this is natural.
“What a game-changer, that just changed the nature of selling anything digital, period, end of story.”
How NFTs Can Add Wealth to Your Portfolio
First things first: This report is just as much about what NFTs aren’t about as what they are about.
In fact, you’re probably wildly misinformed about what they represent.
That’s the bad news. The good news is that what you learn about NFTs in this report could make incredibly wealthy – if you know what you’re doing.
And the first thing to know is that NFTs are about so much more than digital art. In fact, if you think NFTs are only about digital art sales, you are wildly mistaken.
The real NFT story is much more powerful. In fact, NFTs are going to change investing forever, and they’re going to open up what we call the “Own Anything Revolution.”
We’ll explain a lot more in this report, but first, let’s make sure you’re educated about NFTs. As a new technology and investment vehicle, public awareness about NFTs – even among longtime investors – is low.
A January 2022 report from Scalefast, a digital commerce company, reported that just 8% of U.S. adults have bought an NFT.
According to the report, the low purchase figures “stems from a lack of consumer awareness of virtual goods.” The data also shows that 44% of U.S. adults say they have “no clue” what an NFT is, while 36% say the same for broader-based virtual goods, such as the items or characters (“skins”) that players can purchase in a video game.
Yet there’s a sliver of optimism in the Scalefast report that suggests the more investors know about NFTs, the more likely they are to engage with the technology.
NFTs are in their infancy, and investors don’t know much about them, which makes them hesitant.
However, many of those same investors can be persuaded to climb onto the NFT bandwagon, but only if they’re more comfortable with the NFT model, understand the risks and benefits, and know how to properly buy and store NFTs.
This from the Scalefast study:
Of consumers who could be convinced to purchase an NFT, factors which could convince them to do so include:
- If they better understood how they worked – 46%
- If it was going to appreciate or be a sound investment – 42%
- If it came from a brand they trusted – 31%
- If it came with a physical good (i.e., merchandise/swag, printed artworks, etc.) – 25%
- If the process to purchase it was easy – 24%
Of consumers who could be convinced to purchase a virtual good, the factors most likely to convince them to do so include:
- If it came from a brand they trusted – 35%
- If it came with a physical good (i.e., merchandise/swag, printed artworks, etc.) – 30%
- If it came with special features or skills used in its virtual world – 30%
- If the process to purchase it was easy – 27%
- If it was rare or a limited edition – 24%[CS1] [LH2]
The data also points to emerging trends on just who is buying NFTs
According to Scalefast’s data…
- 49% of NFT buyers earn $80,000+ a year, 20% earn between $40,000 and $79,000, and 23% earn less than $40,000.
- Investors who have purchased an NFT in the past year are mostly male, ages 18 to 34.
- NFT consumers are more likely to purchase music- or film-related NFTs (22%) than any other category, including artwork or photography (17%), sports memorabilia/collectibles (14%), luxury fashion goods (12%), memes (11%), and early NFT collections like Winkelmann’s “Everydays.”
The study data reveals two key points about NFTs as an investment:
NFTs are ascending but have not thoroughly resonated with U.S. and global investors.
Where there’s a vacuum, there’s an opportunity.
Our job with this report? Giving you everything you need to know about NFTs and the tools to take advantage of good NFT investment opportunities.
Let’s get started…
NFTs in a Nutshell
An NFT basically is a digital collectible, enabling buyers to purchase a digital commodity, which gives that buyer complete ownership of the original copy of a digital file.
NFTs are created on a blockchain, a shared ledger that records transactions and monitors assets on a transparent network. Only permissioned network users have access to blockchain ledgers. With NFTs, a blockchain can keep track of orders and transactions, with all the necessary information available to the buyer.
With a digital commodity like an NFT, the blockchain platform on which it is sold – such as Ethereum, IBM Blockchain Platform, or MultiChain – secures the asset. Once the transaction is complete, the ownership of the NFT is recorded in the blockchain’s software code permanently. In other words, NFT ownership can’t be altered, stolen, diverted, or otherwise changed.
Unlike in the physical collectible realm, where fake copies of high-value art or jewelry are commonplace, original NFTs can be authenticated by blockchain records, making it clear whom the real NFT owner is. That transparency allows NFTs to be treated fairly, easily, and with complete ownership authenticity. Perhaps most noteworthy to buyers, NFTs are counterfeit resistant.
The abbreviation NFT stands for “non-fungible token.” That basically means an NFT is unique to itself and cannot be replaced.
Think about that in investment terms. If you buy one share of Apple Inc. (AAPL) at $164 and sell another at $166, you’ll make $2. But once the transactions are complete, you’ll still own one share of Apple stock.
It’s the same with any commodity. If you trade one Bitcoin (BTC-USD) for another, you’ll still have one Bitcoin. If you trade one 1966 Ford Mustang for another 1966 Ford Mustang, you’ll still have a Ford Mustang.
That’s not the case with NFTs and their “non-fungible” model.
While a 1966 Ford Mustang may be rare, more than one exists. With NFTs, their “one of a kind” uniqueness defines their investment appeal – there is one and only one NFT (although in some cases NFTs are sold as a “limited supply”).
That means NFT sellers have what buyers want – a product of value (i.e., digital art or music, for example) that has scarcity. By curbing the supply, NFT creators offer investors digital scarcity, which boosts the value of an “in demand” – and original – asset.
Consider Twitter Inc. (TWTR) founder Jack Dorsey, who sold an NFT of his first-ever “tweet” for $2.9 million in 2021.
That tweet is widely available in copied or screenshot mode free of charge. Yet the uniqueness of Dorsey’s original first tweet is what makes it an NFT.
Anyone can get a copy of his first tweet, but only the buyer of the original tweet, stored on the blockchain as a verified NFT, can claim ownership to the tweet and its presumably high value.
Just as the collector who owns the “Mona Lisa” can claim to own the original regardless of the number of copies that exist, the owner of Jack Dorsey’s first tweet NFT – and all the value that tweet brings to the table – can claim sole ownership of the digital asset.
A Word on Fractional Investing
In the digital world, a token is a lot like a share of stock. It represents fractional ownership of an asset.
Fractional ownership of assets is one of the great financial revolutions in human history. For much of our existence, ownership of valuable assets like gold mines, farms, and castles was crudely handled. Just one person or one family or one warlord could own large, valuable assets.
However, in the 1600s, companies began creating “fractional ownership” versions of themselves. These “joint stock” companies were often formed in the pursuit of large, costly projects… like globe-spanning sailing expeditions to find spices.
This fractional ownership revolution was an enormous change in how people did business and structured societies. It allowed many people to own large, valuable assets.
This revolution led to capitalism and the stock market as we know it today.
Fractional ownership makes it so small investors can own a piece of valuable, profitable corporations like Apple, the Walt Disney Co. (DIS), and Nike Inc. (NKE). It makes it so entrepreneurs can quickly raise money to fund the creation of companies that change our lives for the better – and make the entrepreneurs and their shareholders rich.
Fractional ownership of valuable assets is one of the foundations that modern capitalism is built on.
However, until recently, fractional ownership only applied to finance and investments. A huge and varied world of assets was left out of the fractional ownership revolution.
A huge world of wealth creation was off limits to most people:
- For most of American history, regular people could not invest in the most compelling early-stage private businesses. These investments were only available to wealthy venture capitalists, big banks, and wealthy families.
- For most of American history, most people could not invest in high-end real estate. They could not invest in high-end collectibles, like art, fine wine, and collectible cars. The high price of these assets made it so the little guy could not buy them. Plus, buying them was much more time consuming than buying a stock. The financial infrastructure wasn’t there to support it.
- For most of American history, most people could not invest in the creation of music, films, and television. They could not invest in sports teams, sports stadiums, or sports leagues. These highly profitable industries were only in the realm of the super-rich.
Thanks to NFTs, this is all changing.
Thanks to blockchain technology and the digital economy, society is on the cusp of the “Own Anything Revolution.”
Blockchain is a “virtual ledger.” It’s capable of recording, verifying, and securing digital transactions. A blockchain is a series of confirmed and encrypted data spread across many geographic locations.
Marc Andreessen, the legendary venture capitalist who helped invent the first web browser, says blockchain is “the most important technology since the internet.”
Tech expert Daniel Jeffries calls it “more revolutionary than the cotton gin, the steam engine, the PC, and the smartphone combined.”
The Wall Street Journal calls blockchain “a foundational technology, like the internet and electricity.”
But what really is blockchain?
Put simply, blockchain is really just an ultrasafe and secure way to store information.
It is the safest way to store and transfer information that has ever been created.
That means your financial and banking information… your personal healthcare information… proprietary business information… contracts… tax information… credit card payments… and the list goes on.
Included in the list is the ability of blockchain to function as a safe, secure record of who owns an asset, how much of it they own, whom they bought it from, and how much the asset is worth on any given day.
This goes for a collectible Rolls-Royce… a Picasso painting… a professional sports team… a blockbuster film… a valuable music catalog… a farm… a high-end piece of real estate… an early-stage private company… or anything really.
Thanks to blockchain technology, the ownership of these assets listed above can now be “chopped up” into fractional pieces and owned by billions of people.
In the past, it took an army of expensive clerical workers, regulatory workers, lawyers, security workers, paper pushers, and bean counters to keep track of all the numbers, filings, and contracts associated with asset ownership. But blockchain makes it so all that work can be done instantly and at virtually no cost.
Before blockchain, regular folks could own some things.
But now, regular folks can own anything
For example, we can now “carve up” ownership in collectible cars. Ownership in a collectible car that would sell for $250,000 can be carved up into 100 “tokens” that individual investors can buy and sell.
The same goes for a bottle of fine wine, a premier New York hotel, a Monet painting, or a condominium in London.
We can also now “carve up” ownership in professional sports teams. Very soon, regular people will be able to buy fractional ownership stakes in their local teams.
Thanks to NFTs, people will be able to create fractional ownership stakes in their individual earnings power.
Fast Facts: An intriguing feature from the creative side of NFTs is that sellers can earn royalties on digital sales.
Types of NFTs
Like Baskin-Robbins ice cream flavors, there are plenty of options when it comes to NFTs.
From an asset management point of view, the following types of NFTs are at the top of that list.
All forms of NFTs come under one of three models: original work, ownership rights, and metadata.
Original work – This is recorded on a blockchain or another distributed ledger technology (DLT). It could be an original digital painting or a file holding a vintage action figure, for example.
Ownership rights – These rights give NFT owners expanded, but not complete NFT ownership.
For instance, NFT buyers can own a digital asset like a collector owns a rare book signed by Ernest Hemingway.
The owner can store, sell, or dispose of the NFT anytime they wish, just as they could the signed book. Of course, NFT owners don’t own the underlying intellectual property rights on the original work, which are valuable in their own right.
Metadata – With metadata, the NFT represents ownership of a metadata file – and not the actual digital asset.
NFT Types by Asset Category
Once the ownership model is established, NFT investors can choose a digital asset from an expanding list of NFT categories.
These select categories are at the top of the most commonly purchased NFT list:
Collectibles – This category includes both old (trading cards) and new (digital kittens) NFT categories.
Artwork – Programmable art represents the bulk of NFT assets and includes digital images, GIFs, and videos.
Event tickets – Increasingly, concert and event promoters are minting tickets through blockchains and selling them on NFT platforms, often on auction sites.
Music and media – Media files and music are now available via NFT, which allows creators to keep 100% of music sales, bypassing the big record labels.
Gaming – In-game components on big gaming platforms are sold as NFTs. Usually, gaming characters, skins, real estate, tools/weapons, and other features are sold – not the actual games.
Virtual items – On metaverse platforms, virtual items – think designer sneakers or handbags – are among the items most often sold as NFTs.
Real-world assets – NFT deeds increasingly allow investors to buy real-world properties and luxury items easily and with more category options.
Memes – Brilliant creators are selling their memes online, which attracts a huge audience of buyers accustomed to using memes on social media and elsewhere on the internet.
Domain names – Creators are levering the NFT market to sell and register internet domain names, without having to go through a third-party broker.
NFTs’ Risks and Rewards
The ability to buy a unique digital asset, created by a legitimate artist or cultural icon, and stored safely on a blockchain are primary reasons to invest in NFTs.
But they’re not the only reasons.
So… here’s a snapshot of the best reasons to steer some portfolio cash into NFT’ – and some reasons not to.
NFTs are scarce and they’re the product of some brilliant creative minds. The fact that NFTs are non-fungible, and thus are truly one-of-a-kind, gives their investors a big advantage: scarcity.
Any savvy investor or collector knows that with scarcity comes value. The owner of a vintage Honus Wagner baseball card (one sold for $6.6 million in 2016) knows – or should know – that the card is extremely rare, is in demand, and thus offers substantial value that only rises over time.
The same goes for NFTs.
CryptoPunks, created by the artists at Larva Labs studio, are one-of-a-kind digital artworks that sell for millions of dollars a pop. Art collectors compare CryptoPunks to works by Leonardo da Vinci or Picasso in both their quality and brilliance… and the fact that CryptoPunks are so rare.
Once a NFT investor applies the “who” and the “how many” when investing in an NFT, they’re on the right path, especially since they have confirmed ownership of the NFT via a blockchain.
The NFT market is still in its infancy. Investors who engage with the NFT market now may not be on the ground floor, but they’re still getting in early.
As the minting, hosting, and trading technologies related to NFTs improve, and as digital creators get a good grip with the “how to” components involved with making and marketing digital goods, both the process and the product will only get better, thus adding even more value to the NFT trading experience.
An outlet for “creative” investors. NFTs are custom-made for investors who appreciate good art, music, literature, and other high-value collectibles.
If an investor can take a well-formed eye to digital works, and knows the right questions to ask (i.e., who’s the creator, how unique is the NFT, what is the history of the asset, and how can money be made from the product, for example), that investor can plug into a brand-new collectibles market that’s just getting off the ground, with unlimited potential.
NFTs Pros and Cons
The NFT market does have its upside and downsides. Here’s a capsule look at the pros and cons of NFTs.
- Historically, classic works of art have demonstrated the ability to hold and build value. With NFTs, digital art could forge the same path.
- The NFT market is growing at a rapid pace. That means more buyers for established NFT products.
- The blockchain gives owners confirmed authorization of purchases, identifying them as the sole owner of the NFT. It also provides a safe platform to store and trade digital assets.
- The digital collectibles market, like the traditional collectibles market, is highly speculative and thus can be a risk to inexperienced investors. There’s a very real possibility that an NFT may fall in value, and significantly so, as digital art is subjective. Price depends highly on buyer demand.
- If an investor is environmentally oriented, that “green” investor should be aware that the process of creating, minting, and storing NFTs can require significant use of energy.
- NFTs aren’t physical art, so you can’t hang an NFT on the wall and admire it with friends and family. Also, although images of physical art can be digitized, the physical art cannot be digitized, and investors should know that going into any potential NFT purchase.
How to Invest in NFTs
Buying an NFT is fairly straightforward but does require some setup work. Here’s the step-by-step process.
1. Start by obtaining an Ethereum-compatible cryptocurrency wallet – MetaMask is the most dominant Ethereum wallet.
MetaMask features a standard browser plugin, and works with most internet browsers, such as Google Chrome. Simply download and install your Ethereum wallet. You’ll need to create a password and sites like MetaMask will provide a “secret recovery phrase” (a 12-word phrase that unlocks your account) that should be stored safely, in a bank deposit box or home safe.
Once you’ve chosen a platform and your wallet is up and running, purchase some Ethereum and store it in your cryptocurrency wallet. You’ll use that digital currency to purchase NFTs.
2. With your cryptocurrency wallet funded, choose an NFT platform to start shopping. Think of your ideal NFT platform like Amazon or eBay – it’s a widely used place to easily buy NFTs that interest you.
Here are the primary NFT marketplace platforms.
OpenSea.io: This NFT market operates on a peer-to-peer basis, allowing anyone to buy or sell digital items and collectibles. Simply open an online account and start browsing different NFT categories and begin making purchases.
Rarible: Rarible is more of a populist NFT marketplace – it’s as its driven by actual NFT creators and artists, as well as other active members of the NFT community, operating in a democratic and fully open marketplace. If you want to buy NFTs from the digital creators themselves, this is a good place to start.
Foundation: Digital artists need to earn the right to sell their NFTs on Foundation. To gain acceptance as a marketplace creator, NFT artists must either earn “upvotes” from the Foundation community or obtain an invitation from accredited community members to mint and sell their digital assets. That NFT marketplace model may lead to higher asset prices, but at least the buyer knows that digital creators are being vetted on Foundation.
Fees and Verification
Expect to pay transaction fees to purchase NFTs on credible platforms. You may also have to pay a so-called “gas” fee on NFT marketplaces like OpenSea. The fee is variable, depending on the site’s traffic flow at a given time.
With any of the above NFT marketplaces, buyers know they’re operating on a platform where NFT creators are verified. That’s important when buying NFTs at a time when impersonators and fraudsters thrive online and buyer protection programs are only just starting to roll out.
How to Sell An NFT. The same transactional process used to buy an NFT is used to sell an NFT.
All an owner has to do is transfer their digital asset to the NFT marketplace of choice and click the “sell” tab on the same NFT page where your digital asset resides.
Expect to pay trading and marketplace listing fees when you sell an NFT, which cuts into your return on investment. You may also have to pay royalties to the original NFT creator who produced the digital asset you’re selling.
Five Myths About NFTs
Why are so many people misinformed about NFTs?
The fact is that NFTs, like many emerging digital assets such as Bitcoin or Ethereum, aren’t fully formed yet. Most investors aren’t even generally aware of NFTs (although that number is trending upward.)
In a vacuum, someone will come along and fill in the blanks – with good intentions or not.
To avoid absorbing the wrong information about NFTs and losing money in the process, here’s a look at the most pervasive – and sometimes dangerous – NFT myths right now.
NFT is a blockchain. Not exactly.
While NFTs and blockchain reside in the same digital neighborhood, the fact is that NFTs only use blockchain technology to store digital assets and provide clear proof of ownership.
A key difference between NFTs and blockchain lies in the definition of “fungible” and “non-fungible” tokens. NFTs stand in the non-fungible category, as digital art like “Everydays” is separate, indivisible, and stands on its own. That’s what makes NFTs so valuable as an investable asset – they’re one of a kind.
Blockchain and cryptocurrencies are fungible, meaning they’re “non-unique” – there’s more than one Bitcoin, and one Bitcoin can be replaced by another one.
It’s the same as one share of Apple stock. One share of Apple stock owned by an investor in San Francisco is the same as one share of Apple stock owned by an investor in Boston.
NFTs have no real value. Again, that’s just not so.
The investment banking firm Jeffries values the NFT market at $35 billion in 2022 and forecasts it to rise in value to $80 billion in 2025.
Plus, by their inherent structure, NFTs are actual investment vehicles that can grow in value to their non-fungible status. That value is boosted by the efforts of thousands of artists and creators vying to produce the best and most valuable NFTs in their niche – just like stocks, bonds, and funds do on Wall Street.
That value is protected by a blockchain, which provides NFT owners with a unique record of ownership and protects their investments from duplications and other forms of asset fraud. That makes NFTs both safe and transactional for investors, which boosts NFT values. That’s the case not only for digital art, but for collectibles, event ticket sales, and verifying important documents.
NFTs aren’t an investment – they’re a scam. The asset management industry certainly has its hands full with fraudsters and scammers who “pump and dump” stocks, engage in insider trading, and apply false statements on the value of a specific security.
NFTs aren’t exactly in the same category, although con artists have been known to leverage NFTs for phishing and data-fraud schemes.
Once again, NFTs stand alone as a safe and secure investment due to the protective abilities of blockchain and the unique “one and only” status of an NFT. Not only is it virtually impossible to duplicate or steal an NFT, but the digital creators who shape the NFT landscape are credible and widely recognized for their works.
That separates NFTs from other investable assets and builds a firewall against potential fraud artists and scammers.
NFTs are too complicated to figure out. At first blush, the concept of transactional digital assets stored on a blockchain may be difficult to understand – especially for investors accustomed to easily buying a stock in a matter of minutes.
Yet NFTs are easy to understand. For a similar asset ownership concept, consider an individual who buys a home. Once the deal is completed, the owners get a document – i.e., the property deed – that confirms they are the owner of the property.
NFTs work the same way. Once an investor buys a digital asset on a blockchain, ownership is automatically authenticated and the buyer takes legitimate ownership of the NFT asset.
That purchase comes with an immutability of transaction record, a visual record of the NFT’s unique serial number, and confirmation of transactions and ownership of the NFT asset stored on a blockchain.
NFTs? They’re just a fad. Conventional wisdom among some investors places NFTs in the same “easy come, easy go” realm as Beanie Babies and adjustable-rate mortgages.
A 2021 survey from Piplsay, a market research firm, says otherwise. In the report, 59% of Americans not only believe that NFTs “are here to stay,” but they also believe that digital assets “are the next big thing.”
With NFTs backed by high-profile creators like Twitter founder Jack Dorsey, billionaire Mark Cuban, and the NBA, the sentiment is growing that NFTs have long left the fad phase and are now entering the “look how fast it’s growing” phase.
As long as artists create art, music, books, and videos, NFT will stick around, too – especially as digital assets continue to grow in demand and in value
Five Mistakes Investors Make When Investing in NFTs
Digital assets are still fairly new on the investment landscape and many investors aren’t exactly sure how to trade them for optimal outcomes.
That scenario can lead to unforced errors that may derail the most well-intentioned NFT trading strategy.
Avoid that fate by avoiding the following NFT trading mistakes.
Not bringing enough funding to the table. As NFTs can be highly speculative in nature, investors need an abundant Ethereum funding supply to efficiently compete in the digital asset investment market.
With Ethereum selling at about $3,000 in the first quarter of 2022, funding a suitable amount of Ethereum may not be easy. Depending on the NFT category you’re targeting, you may need to gradually build up your Ethereum reserves over time.
Too often, however, NFT investors don’t have the funds ready to buy their favorite NFTs. Avoid that by having a short-term and long-term Ethereum wallet funding plan.
Not checking to see the NFT creator is verified. NFT platforms like OpenSea assign “blue checks” to verify a seller is legitimate and not an impersonator account.
If an investor is anxious to get going with an NFT purchase, they may overlook the verification check, which could lead to problems with the seller, particularly in the sale of scam or duplicate digital products.
You can bypass that scenario by verifying a blue-check seller and reviewing the seller’s social media accounts to ensure they have a large follower base and stand as a well-established NFT creator’s account.
Not having a good grip on pricing. NFT investors new to the game may feel compelled to buy a piece of digital art and rush the transaction. That’s not a good idea, as prices fluctuate all the time. You may find you’re buying the NFT at a premium when you could have waited a few days and bought the item at a discount.
The fix here is to fully review the seller’s account and previous sale prices for items in the same NFT category.
That’s easy to do – simply scroll down to the item table and see what the NFT was selling for a week or two ago. Also, make sure to check the bottom of the pricing table, specifically the value range. That’s the so-called “floor price” for the NFT, or the minimum sales price determined by the seller.
If you’re still unsure, leverage an NFT pricing site like NFT Stats, which provides financial data on specific NFTs.
Not being aware of NFT trading fees. Not all NFT trading platforms treat fees the same, and investors need to know that.
OpenSea, for instance, charges a 2.5% transaction fee to the seller but doesn’t charge any fees to buyers.
Rarible, on the other hand, charges a 2.5% buyer’s fee, on top of the transaction price.
Investors should know about so-called “gas” fees as well. Those are the fees NFT buyers and sellers pay to Ethereum for operating on its network. Gas fees are variable and dependent on network traffic at the time a transaction is made.
Not getting involved with NFT communities. Just like stocks, commodities, or even baseball cards, NFTs have abundant online communities that swap news, trends, and secrets for specific digital asset categories, like art, memes, or pro football images.
Before buying any NFTs, spend some time on the online communities that focus on the specific NFT category. Get involved with discussions, ask questions, and swap tips with other like-minded NFT investors. You’ll not only learn more about your favorite NFTs, but you’ll also likely make a friend or two.
The Last Word on NFTs as an Investment
There’s little doubt that NFTs are resonating with investors.
In fact, investors of all stripes are beginning to see digital assets as a new market that offers a path to significant wealth. Simultaneously, also a market that comes with significant risk.
Perhaps the best way to leverage the NFT market is to take incremental steps, with smaller and less expensive purchases, and deploying no more than 5% to 10% of your entire investment portfolio funds when buying NFTs.
By doing that, you’re doing what savvy investors always do – getting educated, doing your due diligence, practicing trading strategies, and diversifying your portfolio.
Those habits can turn rookie investors into empowered investors, which is what it takes to make it as a trader in any investment market – but especially in NFTs.
In the future – probably sooner than you think – people will be able to create and sell shares in themselves.
For example, in the near future, someone could agree to sell 25% of their lifetime earnings for $2 million. Ownership stakes in that earnings stream would trade on digital asset exchanges.
Thanks to blockchain technology and the NFT marketplace, the world of finance is on the cusp of a “tokenization” boom that will open a huge new world of assets to individual investors.
We hope you enjoyed this introduction to the world of NFTs and how to invest in them. Once you get started, you can refer back to the following FAQ as a quick reference.
Fast Fact: Smart contracts enable any digital asset to convert to an NFT.
NFTs: Frequently Asked Questions
You’ve got questions… and we have answers. Here are the most common queries – and replies – when it comes to investing in digital assets
What are NFTs? An NFT basically is a digital collectible, enabling buyers to purchase a digital commodity, which gives that buyer complete ownership of the original copy of a digital file.
NFTs are created on a blockchain, a shared ledger that records transactions and monitors assets on a shared and transparent network. Only permissioned network users have access to blockchain ledgers. With NFTs, a blockchain can keep track of orders and transactions, with all of the necessary information available to the buyer.
Why should investors buy an NFT? NFTs are one-of-a-kind digital assets whose value is derived from the property the NFT represents. The digital asset could be a piece of art, tickets to a Rolling Stones concert, or 30 minutes of time with a billionaire business tycoon, among other assets.
The value in an NFT is its inherent uniqueness. NFTs are scarce, one-of-a-kind assets and, just as importantly, they’re the product of brilliant creative minds. The fact that NFTs are nonfungible, and thus are truly one-of-a-kind, gives investors a big advantage when buying, holding, or selling an NFT.
How does the NFT process work? Old-school collectibles like paintings or coins have historically proven to be popular with investors who value scarcity and uniqueness.
There’s a problem with that idea in the digital asset market, as digital files are often easily duplicated.
NFTs solve that problem with the tokenization of digital assets. They do so by digitally certifying NFT transactions and securely holding the record on a shared ledger (a blockchain). By storing NFTs on a blockchain, digital asset owners can avoid having their assets forged or otherwise compromised by bad actors, giving them a solid layer of authentication and protection.
The records cannot be forged because the ledger is maintained by thousands of computers around the world. NFTs can also contain smart contracts that may give the artist, for example, a cut of any future sale of the token.
Are NFTs a cryptocurrency? No, nonfungible tokens are not cryptocurrencies, which are fungible (i.e., not unique) and widely traded in global markets.
That said, NFTs rely on some of the same technologies used by cryptocurrencies like Bitcoin and Ethereum. Both NFTs and cryptos exist on a blockchain, which authenticates a digital asset’s ownership and identity. Also like cryptocurrencies, a blockchain stores NFTs, records any transactions, and keeps the assets safe from cyberthieves and other financial fraudsters.
To date, most NFTs exist on Ethereum blockchains.
What type of investors are attracted to NFTs? While investors of all stripes can engage with digital assets, NFTs are likely most attractive to investors who appreciate great art, music, and other collectibles.
NFTs should also appeal to a new generation of collectible investors who favor particularly unique digital assets like GIFs, tweets, and memes – assets that are proving to be especially in demand in the NFT market.
Where can you buy NFTs? The NFT purchasing process starts by getting an Ethereum-based cryptocurrency wallet, widely offered by crypto companies like Coinbase or Crypto.com.
After funding your digital wallet, you can easily buy NFTs on digital asset trading platforms like OpenSea.io, Rarible, and Foundation.
What are the primary risks when investing in NFTs? The digital collectibles market, like the traditional collectibles market, is highly speculative and thus can be a risk to inexperienced investors. There’s a very real possibility that an NFT may fall in value, and significantly so, as digital art is subjective and price depends highly on buyer demand.
Additionally, environmentally minded investors should be aware that the process of creating, minting, and storing NFTs can require a significant use of energy, which may be a disqualifier.
Are NFTs the future of collectibles-based investing? There are no guarantees in the asset investment market, and NFTs are fairly new – and thus less understood – than investment mainstays like stocks, bonds, and funds.
Even so, NFTs are increasingly drawing interest among investors, especially younger ones who are accustomed to the digital lifestyle. Additionally, NFTs should be a big draw for investors who appreciate and value collectibles, like art, music, literature, and newer categories like GIFs and memes.
If scarcity and uniqueness matter, and historically that’s been the case, NFTs should emerge as a widely used asset category for a new generation of investors.