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NFTs: 10 things you should know before investing

Non Fungible Tokens, otherwise called NFTs, are hot new cakes in digital assets. We at Tech Funding News have covered various topics around the NFT spaces like the hottest NFT startups, eToro’s debut in the NFT market, Serena Williams joining Sorare, and much more.

NFTs have gained immense popularity and are looked at as the most powerful technology. As a result, the art and content creator industry is going through a paradigm shift as the space is witnessing several artists hoping to capitalise on the innovation, authenticity, and power of blockchain technology. So what exactly is NFT? How does it work?

The whole NFT topic might look complex or tricky due to the involvement of technical terms, but trust us, it is much easier to grasp than it seems. To make the concept simple, we at TFN have dissected the topic in a way that you can understand easily and explain to your friends and family. Let’s start

What is NFT?

NFT is the short form of Non Fungible Tokens. It is a unique (one of a kind) digital asset that can be purchased and sold like any other physical item, but they exist only in the digital world. For example, if you buy an NFT of a dinosaur, it exists only in the digital world, and it will have a record of the transaction attached to it. However, the nonfungibility is part of what separates NFTs from cryptocurrencies. Meaning, that if you buy an NFT, you cannot trade it for another. If you buy it, it’s yours. You can sell it but cannot trade it! 

How does NFT work?

Digital assets such as Artwork, images, videos, game characters, memes, and others, can be sold as NFT. The digital asset will be taken and then tokenised.

Tokenisation is the process of converting tangible and non-physical assets into blockchain tokens. Once tokenised, each NFT will have its own blockchain assigned. 

For starters, blockchain keeps transaction records in the digital ledger, making it easy to validate and verify their ownership. Once the NFT is placed in the market, you can buy and sell the NFTs based on their worth. 

Making money in the NFT market

Are you a creator and wish to monetise some of your creations? People in the NFT market can make money from selling digital art, music, videos, audio clips, tweets, and more. Besides, creating and selling NFTs, you can make money by trading NFTs, NFT-based gaming, Staking NFTs, and the last resort – investing in NFT startups. If you buy an NFT, you can always resell it at a higher price to make profits. 

Risks in NFT

Every industry has its own risk and NFT is no slouch! Like any other investment, the demand for NFT can fluctuate depending on various factors, which can affect the reselling price.

Secondly, the NFTs are available across a lot of marketplaces – Coinbase, Binance, OpenSea, and much more. Consequently, an individual investor can be looking at a fake or copy of an artwork from a seller disguised as a legitimate owner. 

Thirdly, different countries have different laws when it comes to NFTs. There are many uncertainties revolving around NFTs including being subjected to anti-money laundering laws in various countries. 

It’s better to be wise and informed before getting into the NFT market. 

Most expensive NFT 

Last year, Metakovan, an Indian-origin, Singapore-based blockchain entrepreneur, Vignesh Sundaresan bought an NFT art piece by digital artist Beeple for $69.3M. The NFT named ‘Everydays: The First 5000 Days’ is about detailing his (Beeple’s) journey into the NFT and crypto world.

Some of the popular and best NFT selling collections are CyberBrokers, BoredApeYachtClub (which raised a whooping $285M of crypto in virtual land sale), CloneX, MutantApeYachtClub, Dippies, and Invisible Friend. 

Many celebrities like Snoop Dogg, Jack Dorsey, and Shawn Mendes are participating in the NFT craze by releasing unique memories and artwork and selling them as securitised NFTs.

How to buy NFTs

Last year, several NFT marketplaces like Opensea, Rarible, Binance NFT, Coinbase NFT, Crypto.com, and more have emerged. 

To buy an NFT, create an account on the platform and go through the items. Each NFT creator will have an individual page for themselves, where you can check out their present and past creations. 

You can purchase NFTs in various currencies (according to the seller), including bitcoin, ethereum, and physical currency. 

Is it environmentally friendly?

NFT is a digital asset and the majority of it resides on the Ethereum blockchain, a distributed public ledger that records transactions. To record the transaction, it needs a heavy spec’d computer, which in turn consumes high electricity and emits high levels of carbon. However, some companies are trying to move away from Ethereum-based blockchains for NFTs. Unlike Proof of Work, the Proof of Stake concept requires little to no electricity to function and has less of an environmental impact. However, the latter is less secure than the former. 

Is it safe to invest in NFTs?

According to DappRadar, an app store for decentralised applications states that total NFT sales hit $25M in 2021, a huge improvement over the year before $94.9M. So should you join the bandwagon? Similar to crypto, NFTs are risky and speculative assets, as a result, you need to determine the level of exposure to them.

According to Humphrey Yang, personal finance expert behind HumphreyTalks, “From an investing perspective, buying an NFT is “even riskier” than buying crypto because it’s “almost like a leveraged bet on crypto. It’s essentially gambling but people don’t really know the difference and they buy them because they’re fun.”

“For the average investor, I think that it’s generally a bad idea unless you just want to buy into it for the artwork, and you’re OK with never seeing that money again,” says Yang. “There’s so much inherent risk in NFTs.”

What does TFN say?

Our suggestion is that if you want to buy an NFT, buy it for fun with your pocket money like buying a ticket sporting event or a concert, but not as a serious investment. You should consult a financial advisor for serious investments. TFN is not responsible for your investments.

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