Aspiring investors know to keep their finger on the crypto pulse. You’ve probably seen some fuss about NFTs lately, notably the multimillion-dollar sales made by the artist Beeple (Michael Joseph Winkelmann) and the CryptoPunks (led by John Watkinson and Matt Hall).
If you would like to join the emerging story, here’s the laydown of the basic info you need about the new asset that’s sweeping the stage.
What are NFTs and how do they work?
NFT stands for Non-Fungible Token. It’s a digital asset that is linked to a piece of content as a way to prove ownership. The content can be physical, like a piece of art, or digital, like a video game item.
The identifying information contained in the token is recorded on its blockchain and stored in a smart contract. This makes each NFT unique and impossible to replace with another token. They cannot be exchanged, even if they’re worth the same, unlike banknotes for instance.
Some examples of non-fungible assets outside of the crypto context would be things like land, unique gemstones, or signed collectibles. Examples of non-fungible digital items would be tickets to a conference or a domain name.
Each NFT works through its contract. When a token is minted (created), the smart contract records its unique identifying information onto the blockchain as if it were a public ledger. When someone buys it, such as by purchasing digital artwork, the ID address changes and that can be seen on the blockchain. The contracts can record other attributes in addition to the owner’s identity, such as file links.
Ownership of the asset linked to the token (the artwork) can now be traced to the buyer to prove the legitimacy of the transaction. All information linked to the NFT – changes in ownership, sale records, prices at which it was bought – exist on the blockchain and are viewable by the public. It makes the whole buying and selling process more transparent and secure.
How to value NFTs
Before you decide to purchase a token, ask yourself some questions to decide if the value is worth the investment.
Why is the asset desirable? Is it unique, limited supply, authored by a celebrity or important expert? Is the thing the NFT links to just a novelty, or is it valuable in the long term? Try starting with solid, mainstream NFTs like thematic collections. These already have cultural momentum and have withstood the test of time.
Is the asset useful beyond the initial purchase? Is it just a collectible for your personal pleasure, or can it be utilized for something more practical? Will you maybe want to resell it in the future? In that case, what are the chances that there will be a market for it? Will it age well and become more valuable, or be rendered obsolete?
Has the creator been successful in crypto before? If you’re buying a token linked to art, check the artist’s portfolio for previous NFT sales. How did they do? Is there a strong community purchasing their stuff? Is the communication transparent? Are they a reliable investment?
How to buy NFTs
In order to buy one of these tokens, you need to have some cryptocurrency available. So the first step is to buy some crypto. You’ll need to choose a cryptocurrency marketplace, join, and fund it.
Then sign up for a crypto wallet, where you can store, access, and freely control your cryptocurrency and other digital assets.
Next, transfer your coins from the crypto platform (marketplace) to your wallet so you can freely use them across different markets. Then find an NFT marketplace and join up. Sync your wallet and start making your purchases.
