These days, non-fungible tokens (NFTs) appear to be everywhere. These digital assets, which range from art and music to tacos, are selling like toilet paper back in 2020 pandemic height. But many people are confused on what they are and why they are hyped up so much. So here we are going to take a look at what they are.
An NFT is digital asset that involves real-world elements like as art, music, fashion, and films. They're bought and traded online, often using cryptocurrency, and they're usually encoded with the same software as many other cryptos are.
Despite the fact that they've been there since 2014, NFTs are gaining popularity currently as a popular means to buy and sell digital artwork or memes. The market alone for NFTs was approximately worth $41 billion in 2021, which is closing in on the whole value of the entire global fine art industry.
Much like the fine art industry, NFTs are also one-of-a-kind, or at the very least one of a very small run, and contain unique identifying codes which acts as proof of ownership
The kicker is typically that these individual images can be viewed for free on the internet by anyone. So why are individuals prepared to spend millions of dollars on something they could easily screenshot or download for free?
It has become more of a modern day digital status symbol. That is because an NFT entitles the purchaser to claim ownership of the original item. The "digital bragging rights" are seen as almost as valuable as the item itself for collectors.
This is unlike most other digital products, which seem to almost always have an unlimited quantity. If a certain asset is in demand, cutting down the supply should theoretically increase its value (or at least that is the idea). Because of their perceived high value, these are built on the blockchain like crypto to help keep them safe and secure. Their purchase records are kept on a ledger that is public as well, again like their precursor. They are commonly using the same blockchain as Ethereum, though other crypto blockchains can be used.
Here are a few examples on what can be turned into an NFT:
- GIFs of graphic art
- Highlights from sporting events and videos
- Collectibles
- Skins for video games and virtual avatars
- Sneakers by a designer
- Music
- Tweets
They are often viewed and considered as a collectors item, only digital instead of tangible. Each NFT can only have one single owner at a time, but they can be traded or sold among each other as the owners see fit. However, unlike typical collectors items, the original creator of the NFT can strike a claim on future sales if someone re-sells it to a different owner. Thus generating royalties for the future, which they can keep for themselves or use to raise cash for a charity. Companies like Taco Bell have used them as a way to raise funds for a charity that they support, so not everyone is trying to get rich off of these.
In order to start your veryown NFT collection, you'll need to acquire the following items:
You will be required to have digital wallet that can hold both NFTs and cryptocurrencies. Depending on what currencies your NFT provider takes, you'll probably need to buy some cryptocurrency, such as Bitcoin or Ether. A lot of different crypto providers now allow you to buy cryptocurrency with a credit card, like Robinhood, eToro, or Paypal. After that, you'll be able to transfer it from the exchange to your preferred wallet and can start using it to buy your desired NFT. Just be careful of which provider you purchase from, as sometimes you will come across impersonators who are trying to make a quick buck. So be sure to always check your research before making a purchase.
Now that you know who or what they are NFTs, are they worth the money—or the hype? Some analysts believe they, like the dot-com mania and Beanie Babies, are about to burst. Others feel that NFTs are here to revolutionize the investment market. Since they are newish, it is hard to say what the future will hold for them. Unlike some things, they don't really hold much value as they are only worth what others deem they are by what they are willing to pay for them.
Be warned that capital gains taxes apply to NFTs, just like they do when you sell stocks at a profit. Because they're considered as a collectible, they may or may not qualify for the lower long-term capital gains rates that stocks do. They may even be taxed at a higher collectibles rate, the IRS still hasn't decided what NFTs are for tax purposes. Keep in mind also that the cryptocurrencies you used to buy the NFT may be taxed if their value has increased since you last purchased them, so you should advise with a tax specialist before buying into NFTs for portfolio.
How do you feel about NFTs and are they something you wish to invest into in the future?
