What Are Non-Fungible Tokens (NFTs)? Is It Worth Investing In NFTs?

 Introduction To The Hottest New Trend In Crypto Markets: NFTs

Some call it a bubble, while some claim it’s nothing more than a glorified version of Crypto Kitties. The truth is, NFTs tend to be somewhere in the middle, with tons of real value being generated and the technology itself lending well to the future of digital goods.

Amidst all kinds of blockchain art, paintings, collectibles, and other rare digital assets, there is a fair share of junk out there still fetching a fortune. The following in-depth guide will introduce you to NFTs, explain the meaning behind the unstoppable new crypto trend, talk about the underlying assets attached to each digital masterpiece, and much more.

What Is An NFT? What Does NFT Stand For?

NFT stands for non-fungible tokens. Fungibility refers to “the property of a good or a commodity whose individual units are essentially interchangeable, and each of its parts is indistinguishable from another part,” according to Wikipedia.

In the simplest of terms, an NFT is a token created, usually on the Ethereum network, that no other token in existence is exactly alike, and is can be used to commodify digital goods.

Specific non-fungible tokens might be released from the same artist, with a similar design, or as part of a limited edition set, however, when it comes to NFTs, they are entirely unique digital tokens. These digital files are typically attached to artwork, or some other type of collectible, acting as a digital certificate of ownership.

How Do NFTs Work? And Why Do NFTs Matter?

These certificates of ownership can be transferred, sold, or stored via the Ethereum network or whichever layer one blockchain technologies they’re built on and cannot be duplicated.

This is all possible due to the underlying token tied to each digital file. All data pertaining to ownership of the token, including past transactions, the current address held, and more, are stored within the blockchain’s distributed ledger technology.

NFTs: Why Do They Have Value? Is It Just A Bubble?

Non-fungible tokens have appeared so quickly, and because you now can’t go anywhere without NFT news on TV, on the web, on social media, and more, it sure feels like a bubble.

And because outsiders genuinely don’t understand the value, these non-fungible tokens offer the prices that these rare items are going for, further make a case for bubble-like behavior.

But sometimes, innovation combined with scarcity leads to high valuations. Take simple website domain names, for example. Once upon a time, three, and four-letter dot com domains were in abundance because there wasn’t much demand for websites at first. Fast forward to now, and the right three- or four-letter dot com domain could fetch six figures quickly.

Digital ownership over NFTs is similar, as these users essentially are the first to own the piece of digital property. And while the utility of a domain and a valuable NFT artwork or painting is arguably different, traditional forms of such art have sold for millions in the past. Then why is it so hard to imagine a world where digital goods are selling for that much as well?

Part of the reason people are skeptical is that it is new, still very early, and yes, unfortunately, there are some instances of bubble-like behavior that is likely to lead to some unexpected market volatility in these assets, much like Bitcoin and other crypto assets eventually experience with enough time.

For now, these digital goods are the hottest thing going, so the bubble could continue to inflate. And much like the earlier dot com examples, just because the bubble pops doesn’t mean there isn’t tons of real value waiting to grow from here on out, even if there are some downsides in the near to mid-term future.

Examples Of Non-Fungible Tokens: Various NFT Types

NFTs can exist across just about any category you can think of, and the use cases for this new type of digital certificate of ownership are growing by the day. Here are some of the most common examples of how non-fungible tokens are used today.

• Artwork
• Video game items
• Collectibles
• Music
• Exclusive fan content
• Digital merch
• Sports gear

The variety has attracted celebrity names ranging from EDM artists Steve Aoki and 3LAU to Grimes, Twitter CEO Jack Dorsey, Dallas Mavericks owner, and investor Mark Cuban, and so many more.

Non-Fungible Tokens: Why They’re Important And The Next Big Thing In Digital Goods

NFTs represent a growing shift in digital rights and ownership over digital goods. Digital services are rapidly expanding, and there are centralized marketplaces all over the world.

Currently, video games represent one of the best natural areas to show how NFTs are critically important for digital rights ownership.

For example, most downloadable content, even the video games purchased on platforms like PlayStation Network or Xbox Live, aren’t actually the property of the person who is buying the digital, in-game item.

Instead, these users purchase a license to use that item within that game on that particular platform or ecosystem. And because of this system, if a user logs on and, for some reason, the centralized servers are down, the in-game item cannot be verified, so it cannot even be used.

That doesn’t sound like the same type of ownership as physical, tangible items. Thus far, things haven’t translated well into the digital world, but NFTs allow for any type of digital good to be tokenized so that ownership rights are part of the transaction from the very beginning.

With an NFT video game good, that in-game item could be resold as a profit if the value increases due to demand or if, for some reason, it becomes rarer. The blockchain technologies powering NFTs allow for all of this to become a reality and create secondary markets for digital goods that simply did not exist before.

What Are The Most Expensive NFTs?

NFTs are some of the most expensive crypto tokens today, with many priced well beyond the price of each Bitcoin. Expensive tokens range from collectibles representing NBA teams and players such as the Dallas Mavericks, which were offered by entrepreneur Mark Cuban, to animated GIF NFT art of flying rainbow pop-tart cats called NyanCat.

Here are some of the most expensive non-fungible tokens to ever have been created, sold, or traded on the free market. Behind the scenes, there’s no telling what these assets sell for in terms of resale value.

Everydays: the First 5000 Days by Beeple

This was the first piece of purely NFT artwork to be offered by Christie’s auction house.

CryptoPunk (Various)

A variety of these CryptoPunk NFTs are fetching millions apiece currently, first launched on March 11.

CROSSROAD by Beeple

Yet another creation by the NFT market’s most prolific creator sold for $6.6 million.

Jack Dorsey’s first tweet on Twitter

The Twitter CEO tokenized his first-ever tweet and sold it for $2.9 million.

Not Forgotten, But Gone by WhIsBe, on Nifty Gateway – $1 million

This is literally a 16-second clip of a spinning gold skeleton gummy bear that sold for $1 million.

Are NFTs Good Investments? Is NFT Investing Worth It?

At the moment, it is complicated to say if non-fungible tokens are an excellent long-term investment or just a fad. They certainly offer tons of promise and have taken off so sharply, but how they develop over the next several years and the support they garner will ultimately shape the future of the digital asset type.

And because the universe of assets out there is so vast and diverse, it is challenging to blanket all NFTs together in one category. For example, a sports collectible might not be as good of an investment as an ultra rare digital painting from a famous artist or creator.

Celebrity-related tokens will likely do better long-term than tokens related to nobodies, but what happens if that celebrity goes through a scandal?

That makes these investments an extraordinary and unpredictable vehicle for growth currently. But it doesn’t necessarily make them bad investments either. Still, there’s significant risk involved, and as one of the most prolific NFT creators claims, NFTs could “absolutely go to zero” despite selling many of his creations for millions of dollars.

Reasons Why You Should Invest In Non-Fungible Tokens

• It is the early days of NFT technology, and getting in now ensures most upside
• NFT news is everywhere these days and spreading rapidly
• There are some ultra rare gems that will have incredible resale value
• Significant possible return on investment

Reasons Why You Should NOT Invest In Non-Fungible Tokens

• It is the early days of NFT technology, and getting in has the most risk
• NFT news is driving the current FOMO, which can be dangerous when it turns negative
• There are some big scams that will have very little resale value
• Possible to lose all capital associated with NFT transactions

The Differences Between Investments In NFTs Versus Other Cryptocurrencies Like Bitcoin

The main difference between non-fungible tokens and other cryptocurrencies like Bitcoin, which are considered fungible, is that each Bitcoin is precisely the same as all other BTC. At the same time, each NFT is a unique digital asset and token.

Additional data, including images and digital files, can be attached to Bitcoin transactions as well. However, NFTs are built on smart contracts using platforms such as Ethereum. But even Ethereum is a fungible token, in which all other Ethereum are created equal. Meanwhile, no NFTs made on Ethereum are exactly alike.

The trade-off, in this sense, is that when you are buying Bitcoin or Ethereum, you know what you are getting and that it is a strong investment. When you purchase an NFT, you don’t have anything else to compare it to to value it based on, nor do you know for sure if it will have long-term value or staying power. At the same time, you might end up with something far more rare and valuable than 21 million BTC. But that’s the risk associated with non-fungible tokens.

Conclusion: Invest In NFTs, Or Bitcoin, Ethereum, And Other Cryptocurrencies?

There’s no denying that non-fungible tokens are an interesting new trend in cryptocurrencies, in which investors are going to pay attention to one way or another. Many NFTs will be a life-changing investment, but even the most successful NFT creator today, Beeple, claims many NFTs will go to “zero” because there’s a bubble going on despite tons of real-world value being created at the same time.

NFTs, while interesting, need some time to develop and the market is likely to show extreme volatility, cooling off the exuberance and allowing more valuable and useful NFTs to flourish.

In the meantime until this market matures, focusing on investing in Bitcoin or even the platform in which NFTs are built on, Ethereum, are better investments.

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