“NFTs are risky because their future is uncertain, and we don’t yet have a lot of history to judge their performance.”
Non-Fungible Tokens: What They Are and How to Buy Them
There are many different types of tokens in the blockchain world. However, there is one type that stands out from the rest: non-fungible tokens (NFTs). These unique and rare digital assets have been making waves lately as more people become aware of their existence. If you're interested in learning about them and how to buy them, then this post is for you!
What Is an NFT?
What is a non-fungible token? A Non-Fungible Token (NFT) is an asset that can be traded and sold on the blockchain. This can include a wide range of assets, including digital goods such as virtual lands and artwork, as well as a claim on physical assets such as real estate or clothing. They are different from fungible tokens, like Ethereum or Bitcoin which can all be interchanged with one another in equal measure.
An NFT has unique attributes that make each token different from every other token in existence. This means you could have two cats on the blockchain - both named Mittens - but they would not be worth the same amount of money because one cat may have rare attributes making it more desirable than another cat who doesn't have those traits.
What an NFT is and isn’t
Any media file; any good, whether digital or physical — that leaves pretty much anything... As an example, consider the following:
Art;
It can be found in video games;
There are audio NFTs in music;
And here's another recent example (it was a self-proclaimed first, but it's probably true):
Someone described how they came up with the "first-ever tokenized crowd-funded equity research report."
Anything can be an NFT... As in, anyone can make something that is one-of-a-kind and can be purchased.
The issue with physical goods is that they must be kept in the custody of someone, so there is a process to ensure that you can audit them in the real world: There's also the possibility that it belongs to multiple people and can't be moved by just one person; so there's that — but otherwise, I find it to be a very broad category.
We've seen some really cool things emerge, such as token-gated content, e.g. you may need a certain number of tokens to access a newsletter. And people are doing things like token-commissioned permission chats, in which these tokens are required to enter the chatroom and begin conversing, so that everyone has some skin in the game. To join these groups, you must own a certain number of tokens: this proves that you have some ownership in the community, which can be adjusted over time. (The idea is that one day, DAOs may be formed where token holders can vote on how many tokens are required to join this newsletter, chat group, or whatever.)
And that piece is kind of tangential to NFTs — I don't think social tokens are NFTs in and of themselves, because sometimes people create tokens that they've minted in the millions; however, if the creator of this group is issuing individual badges or unique items within that, then that can be an NFT.
What Are The Benefits?
The most obvious benefit of NFTs is that they are unique, making them highly valuable. This means that one can sell or trade their token for a much higher price than its original purchase value. Some examples include the Cryptokitties game where players have spent over USD 20 million on virtual cats and the Ethereal Summit where attendees were buying digital art pieces for thousands of dollars. Another benefit is that NFTs will allow you to own something without worrying about it being duplicated or faked.
What Are NFTs Used For?
NFTs are currently being used for unique digital collectibles, but this is only the beginning! As more people become aware of their existence, new uses will be found that could revolutionize how we interact with technology and each other. One use that is currently being developed by a company called Decentraland, NFTs could be used for virtual real estate. This means you would have ownership of the digital land and any buildings on it, much like if you own physical property in the real world.
If you upload files to the blockchain, and those files then become NFTs and behave like other crypto assets, that means they're permissionless and accessible to anyone with an internet connection, anywhere. As a result, any third-party developer can innovate on how media is consumed, such as how the audience sees it, how people can interact with it, or how they can program it.
So, one way to think about what's going on with NFTs is that we're building this universal, open media library — on top of which any developer can build the next Spotify, or the next Instagram, or the next Facebook — and when there's a lot more competition, there'll be a lot more benefit to consumers... and likely to creators as well — because, as Linda mentioned, none of this can happen without the traditional middlemen taking a cut of the value that's flowing through creators and consumers.
How Do I Buy NFTs? Where Can I Buy NFTs?
Right now the best place to buy digital assets is decentralized exchanges. These are different from centralized exchanges because they don't rely on a third-party service to hold your funds. Instead, peer-to-peer transactions of cryptocurrency take place directly between users through an automated process.
Remember, you need an ERC-20 compatible digital wallet to store your tokens. Be sure that you are following the steps correctly and carefully because if not then there is no way for us to recover lost funds!
There are two ways of purchasing non-fungible tokens: crypto-collectables and ERC20 tokens. To purchase a crypto-collectable, you will need Ether (ETH), the currency that is used to buy most NFTs. You can purchase ETH through a fiat-cryptocurrency exchange like Coinbase or Gemini. Once you have purchased your ETH, transfer it from the exchange to an ERC20 compatible wallet (we recommend MetaMask ). With Ethereum being one of the most popular cryptocurrencies out there, many wallets support it.
Once your ETH is in your wallet it's time to buy some NFTs. There are many different crypto-collectables available, from rare kitties to digital art pieces and more! One popular site for purchasing these tokens is OpenSea. With a few clicks of a button, you can purchase within minutes. However, before buying any token, make sure to do your research to avoid scams.
How Do I Make NFTs?
Non-fungible tokens are highly specific digital assets that can be bought, sold, and traded. They come in two forms: as a tokenized security or as an in-game item. NFTs are the new hot topic of the blockchain world because they offer artists and developers opportunities to create art while still maintaining ownership of their original creations. Non-fungible tokens also provide value for cryptocurrency investors who see them as a long-term investment opportunity due to their growth potential.
You can create NFTs by creating your unique token on the Ethereum blockchain (or another level one crypto platform). You just have to follow a few steps: Get an idea for what you want your token to represent. Create a smart contract that implements all of the features and properties for your token. Write some Solidity code. Deploy it!
As mentioned, it is important to note that tokens are not limited to the Ethereum blockchain. There are also other types of blockchains that support NFTs like TRON, EOS, Qtum, and Cardano.
On that note, let's get down to business and debunk some common myths and misconceptions about everything from energy to whether or not it's a hype cycle. Of course, we'll continue to discuss the applications, but first, let's take a closer look at what it means to own something digital.
Begin with the phrase "It's just a JPEG" — "like oh my god, someone spent f'ing $69 million for just a JPEG?" It's a file. What's more, guess what? Files are essentially worthless on the internet and infinitely replicable.
As a result, the number of times a file has been reproduced on the internet is directly proportional to the value of that file's NFT — the more times a piece of media is shared online, the higher its social value.
Consider a well-known piece of traditional art, like the Mona Lisa. While the Mona Lisa has been copied a million times — on t-shirts and postcards sold at the Louvre; on the internet — there is only ONE Mona Lisa in the Louvre Museum, and owning that piece of artwork is highly coveted and valuable.
Something gains value as it is replicated...
It's fascinating how people have been when they went beyond the limits of Blockbuster shelves in the physical-goods world, it's interesting that Netflix would do things like binge seasons and drops, that created this digital scarcity — like a limited-edition effect; like this thing is going to be on for three months, and then disappears.
It's another example of something not being rare or scarce — and in fact, infinitely replicable in the case of files and JPEGs — but you can enforce this digital owning, or even a piece of it (if you want to get into fractional ownership).
That's the idea — you want to own the media that everyone else sees, not the media that only you can access.
You can now own a piece of internet history or the most viral meme. And I believe these owners will soon be credited socially on platforms where their work is distributed.
Should You Invest in NFTs?
Do you need to buy NFTs just because you can? It depends.
Investing in NFTs is thus largely a personal choice. With enough money, it's worth considering, especially if a piece holds special meaning.
Remember that an NFT's value is solely determined by the market. For the moment, fundamental, technical, and economic indicators will not affect the stock price or at least form the basis for investor demand.
So an NFT may be worth less than you paid for it. If no one wants it, you may be unable to sell it.
NFTs, like stock sales, are subject to capital gains taxes. Because they are considered collectables, they may not be eligible for the preferential long-term capital gains rates that apply to stocks, and may even be taxed at a higher collectables rate. Remember that the cryptocurrencies used to buy the NFT may be taxed if their value has increased since you bought them, so consult a tax professional before adding NFTs to your portfolio.
That said, treat NFTs like any other investment: do your homework, understand the risks (including the possibility of losing all your money), and proceed with caution if you decide to invest.
In Conclusion…
Non-fungible tokens are rapidly becoming more common as their benefits become increasingly apparent. As they make it easier for people to buy, sell, and trade unique digital assets. They will continue to be highly sought after as they change the way people see their money in a blockchain world.
There are many different types of tokens in the blockchain world. However, there is one type that stands out from the rest: non-fungible tokens (NFTs). These unique and rare digital assets have been making waves lately as more people become aware of their existence.
Further Reading:
Crypto Investing Guide: How to Invest in Bitcoin, DeFi, NFTs, and More
NFT and Cryptoart: The Complete Guide to Successfully Invest In, Create and Sell Non-Fungible Tokens in the Digital Art Market
Useful resources
NFT was previously referenced in Issue #44 of David's newsletter.
David Elikwu
External Links
Listen to Tim Ferris Podcast with Vitalik Buterin, Creator of Ethereum, on Understanding Ethereum, ETH vs. BTC, ETH2, Scaling Plans and Timelines, NFTs, Future Considerations, Life Extension, and More (Featuring Naval Ravikant) here.
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