NFT or Non-fungible token is a concept that is now bigger than ever! Many people want to jump on the NFT-train as quickly as possible to be able to make some quick money. In this article we discuss if that is such a wise idea.
What is a NFT?
Non-fungible tokens are ues to represent ownership of unique items. They are often built on the Ethereum blockchain (read our article about cryptocurrencies for more information about Ethereum).
To better explain what a NFT is imagine this scenario: you have a .jpg file of an image on your computer, if you copy that image you have an exact duplicate. A NFT however, is verifiable and you can always go back to the source of whoever created it. You can imagine it as the internet substitute for a real-life signed copy of something.
As of right now the most popular use of NFTs are to create digital art that have been “signed” by the artist, this sort of art is typically sold on websites like Rarible. In the future, NFTs may become more popular and be used in gaming (such as CS:GO’s weapon skins), selling real-life items and using the NFT as a proof-of-ownership and much more.
Should you invest in them?
Many people have started investing in NFTs because they want to jump in on the new technology at the start and make some quick money once it becomes mainstream. However there is a lot of risk involved in investing in NFTs that most new investors don’t think about. We are mainly going to focus on the investment in NFT used in art below.
The two factors that determine the price of a NFT, supply and demand
Supply: The supply of a NFT is determined by the one who creates it. Remember that a NFT that only has 1 copy is more scarce and valuable than one that has 100,000 copies.
Demand: The demand of a NFT is determined by multiple things. First of all the blockchain that it is minted on, if your Non-fungible token is on a more widely used blockchain such as Ethereum it might be worth more than one that is minted on Cardano. Secondly, the minter/creator/artist of the NFT. This is the most important factor that most investors seem to forget. ANYONE can create a NFT out of ANYTHING, this means Steve from your workplace can Google and image of a Banksy painting, turn it into a Non-fungible token and try to sell it. Obviously that should be completely worthless, since it is not “signed” by Banksy, but by Steve. Many new investors seem to be buying NFTs that they think look cool and forget that it is the artist that they are really investing in. Unless the artist becomes more famous, there is no real reason to own a “signed” work of theirs. Lastly, the date at which an NFT was created may also add some value to it.
To conclude: Only invest if you believe that the artist of the work will grow their fanbase and that thereby create a demand for their art. Invest in a token that is on a popular blockchain or one that you believe will become popular. You may also consider buying tokens that were one of the very first ones minted on the blockchain (like CryptoPunks). However no one knows if the stock is gonna go up down, sideways or in circles, it’s all a fugazi. This is not financial advice, make your own decisions.
Disclaimer: Our articles are for educational and/or entertainment purposes only. Nothing on this website should be construed as financial advice or a recommendation to buy or sell any sort of security or investment.