NFTs are a trending investment option that offers unique value, diversification, and participation in the growing digital asset market. However, they are a high-risk investment. Most investors build their portfolios around low- and medium-risk investments and add NFTs only after thorough research and building a diversified portfolio.
This guide will help you choose the best types of NFTs and understand the fundamentals of NFTs, including their inner workings and history. You’ll also learn about popular NFT marketplaces and how to value blue-chip collections based on popularity and demand.
Collectibles
NFT collectibles are digital representations of Internet-based goods like art, music, video games, and avatars. They can be traded and sold on platforms like CryptoKitties and are encoded with the same blockchain technology that underpins cryptocurrencies. But unlike cryptocurrency, which is divisible, NFTs are not interchangeable. This makes them unique and gives them value.
For example, a digital artist could create a collection of his artwork as NFTs and sell them to his fan base. This could be a powerful way to boost sales and promote new work. It could also be used to protect artistic works from illegal reproduction.
But while NFT collectibles are booming, they’re not necessarily for everyone. Some experts believe they’re a bubble set to pop, much like the dot-com craze or Beanie Babies. Others argue that NFTs are here to stay and will change investing forever. Whatever the case, it’s essential to understand the risks before deciding whether NFTs are right for you. Remember that the adage “caveat emptor” (let the buyer beware) still applies. NFTs are not regulated, and buyers may face scams or be denied ownership rights because of the lack of seller verification processes.
Utility
NFTs are a trendy investment that has sprung up in 2021. However, they may not be lucrative if you want to make money. NFTs don’t provide dividends or pay interest but can increase in value if demand is high enough. For example, NFTs created for games can be used to unlock in-game items or gain access to exclusive events. They also work as proof of ownership for real-world objects. For instance, you can use an NFT to purchase a ticket for a live event to access the venue.
Utility NFTs are a new and exciting way to reward fans, providing them with a passive income stream while allowing them to enjoy the unique experience of owning a digital version of a physical item. Examples of NFTs that have proven to be a great utility source include the gaming-focused token ENJ, which has seen significant price appreciation as major game companies adopt its blockchain technology. Then there are the NFTs created for entertainment purposes, like CryptoKitties, where you can buy, collect, and breed virtual cats.
Investment
As a form of investment, NFTs are relatively new and volatile. They don’t generate any income, and their value can fluctuate based on buyer demand. For example, a Nyan Cat GIF can have enormous value right now, but who knows what it will be worth in 20 or 30 years? In addition, NFTs use a lot of energy to create and verify transactions, so they’re not an excellent choice for environmentally conscious investors.
On the other hand, NFTs can attract capital appreciation if they gain popularity and become more desirable. This makes them a good option for investors who want to diversify their portfolios. In addition, NFTs can provide a new way for artists and creators to connect with their audience. This has already been proven with the success of CryptoKitties, which have sold for staggering amounts. However, as with any investment, NFTs should be approached with caution and a healthy dose of skepticism. For more information about NFTs and the best ways to invest in them, check out our NFT investing guide for beginners.
Entertainment
Non-fungible tokens also transform how art and music are created, sold, and bought. This is because NFTs allow artists to sell directly to their audience without needing intermediaries such as agents or physical galleries.
Digital art is one of the most popular NFTs, with people paying millions to own unique versions of their favorite pieces. Other NFTs commemorate iconic sports, such as a hole-in-one or a grand slam. Others are memes, which can be worth a lot of money if they have a particular cultural significance or appeal.
Investing in NFTs is possible through blockchain marketplaces, though you will need the correct cryptocurrency to buy these items. Once purchased, they live in your wallet and can be traded or used in the appropriate game or platform. This makes them less susceptible to platform risk and provides greater liquidity than traditional digital goods. That said, the value of NFTs can fluctuate based on the platform or game they are associated with and if the cultural or aesthetic relevance decreases.
Social media
Non-fungible tokens are taking the digital world by storm and look to be here to stay. They’ve opened up a whole new world for creators, and while the space can seem overwhelming for newcomers, it doesn’t have to be.
NFTs provide a unique way to replicate the properties of physical items, such as scarcity and proof of ownership. This means music mp3s aren’t tied to one music app, social media handles can be sold or swapped, and a meme won’t be arbitrarily taken away by its platform.
NFTs are popping up everywhere, from video games to fashion to art. It’s no wonder many internet users outside the crypto space think of them as digital Beanie Babies, with the most valuable NFTs selling for millions. Like any investment, however, NFTs should be approached with a healthy dose of skepticism. And with NFTs being backed by blockchain technology, it’s essential to understand how they’re created and stored. Fortunately, the McKinsey Global Institute has a great primer on this topic.
