What Are NFTs And How Do They Work? Should I Be Investing In NFTs?

What’s an NFT? It’s a Non-Fungible Token, dir-head. I know, that doesn’t make it any better, right? Keep reading on, and we’ll break it down for you.

OpenSea, Binance NFT, and other marketplaces are raking in millions of dollars because of NFTs. We’ve also seen insane sales that made NFT creators loads of cash for instance, this record-breaking sale by Mike Winkelmann, also known as BEEPLE.

Granted, NFTs are bringing in a lot of cash for the creators, but honestly, what are NFTs and how do they work? I know you see the numbers. But, how do these creators get the money, and what are these tokens all about? Luckily you’ve come to the right place.

NFTs have been sold for astronomical amounts of cash, and now major companies are joining in this craze as the industry finds its way into the gaming world. That said, it’s a perfect time to reap high profits from this industry. So, here, we’ll take you through the basics while keeping it as simple as possible. This article is aimed at complete beginners and anyone who’d like to widen their knowledge on NFTs. Without further ado, let’s get started, shall we?

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What Are NFTs And How Do They Work? NFT Artwork is breaking financial barriers that it took generations of art investors to achieve with traditional tangible artwork.
What Are NFTs And How Do They Work?

NFT Guide 2022: What Is An NFT?

The term NFT stands for Non-Fungible Token. I know, that doesn’t make it any better, right? Keep reading on, and I’ll break it down for you. In simple terms, an NFT is a unique token encrypted to the artist’s signature. That helps validate the purchase, authenticity, and ownership of the piece. It’s like a ‘digital tag,’ if you will.

NFTs typically transform digital artwork into a one-of-a-kind collectible that can be traded on the blockchain network. Essentially, these items curb fraudulent activities.

Where Do NFTs Come From?

NFTs are unlike your regular tokens such as BTC, ETH, and other cryptos, hence the term non-fungible. While all BTCs are equal, each NFT has a different underlying asset, making them have different values. Technically speaking, NFTs are created whenever blockchain has a string of records and a set of identification data. The creator harnesses the power of blockchain to mint an NFT and sell it in an NFT marketplace.

The result is an underlying record creating a chain of identification data blocks. Therefore, aside from the creative art, there’s always a ‘tag’ of some sort to accompany the NFT. The cryptographic transaction process helps to ensure the authenticity of each NFT by providing a digital signature that tracks the NFT ownership. Pretty cool, right?

What Do NFTs Do?

If you’ve ever owned a Pokémon card, you’ll agree that collectibles can quickly be quite addictive. Most of these collectibles are part of the Ethereum blockchain. And over time, these unique collectibles gain prices and can go for an even higher value as they continue being passed down in the blockchain network.

Buyers might not get the chance to hang these collectibles on their wall, but at least they get the bragging rights of purchasing them. In simple terms, these tokens are valuable because of their authenticity and uniqueness. More importantly, the fact that NFTs continue to increase in value over time is a significant plus.

What Are NFTs? They are anything! That's the point!
Do you want to buy this post as an NFT? Yeah, I wouldn’t either.

Why Are They In Such Demand? What Makes Them ‘Cool’?

How much do you think you’d pay just to own the very first tweet? Do you think it’s worth $2.9 million? Well, that’s the exact price that Jack Dorsey, the CEO of Twitter, sold his tweet for.

Most NFT enthusiasts, including the buyer, suggest that Jack’s tweet, ‘just setting up my twttr‘ will likely cost millions, just like the Mona Lisa painting. And thus the current high price. The Tweet was sold as an NFT, and Jack sent the money raised from its sale to charity.

NFTs are the ‘new age’ artwork. Simply put, people love collectibles, and NFTs are at the top of that list. Thanks to the ever-growing marketplaces, you can get access to some of the precious NFTs in the world with a bit of cash.

NFT Guide 2022: What Is The Price History of NFTs?

As you search for ‘what are NFTs,’ you’re likely to pump into the term historical price. The historical price is the price of the NFT over time as it moved from one buyer to the next. In most cases, this price goes up by the day, but it’s not steady.

What Are NFTs and are they really Art?

Here’s a price history retrieved from nonfungible.com. This historical price information brings value to the NFT, plus the fact that you can verify its movement. Say bye-bye to the sale of fake artwork in the art world, all thanks to NFTs.

What Is The Future Price Prediction of NFTs?

The future price prediction is technically the price speculation of the value of the NFT over time. When buying an art piece, it’s always a speculative investment. Essentially this means that over time, you’d expect the value of the art piece to up, but it not a sure thing like something boring such as a bond or real-estate.

And through that, investors can quickly spot an investment opportunity from the art gallery. The same case applies to NFTs. In the real-world, this price is usually tentative, and there’s no way to know the precise value of an art piece once it’s purchased. The same goes for NFTs. It’s practically impossible to predict the future price of certain NFTs, but these are rare items. As the old adage goes, “the price is what someone is willing to pay“.

Luckily, we all love rare collectibles. Over time, NFTs will increase in value, but unfortunately, not all NFTs will have the same fate. Therefore, before purchasing any of these collectibles for investment, you should take your time to research them.

Is NFT Mania Reminiscent of the Tulip Mania Economic Boom and Bust?

Yes, that sounds about right. For those who don’t know what the tulip craze was keep reading.

The tulip craze in 17th-century Holland is widely known as the very first economic bubble. The price of tulips escalated so much that people sold their valuables to buy tulips, and [you] could buy assets like houses with them.

“A Random Walk Down Wall Street” by Burton G. Malkiel

How could flowers become so valuable in such a short space of time? Its due to the castle-in-the-air theory. This theory of asset valuation asserts that an asset is only worth what someone else will pay for it. In other words, no asset has an intrinsic value that can be determined analytically or mathematically; rather, the value of an asset is purely psychological—it’s worth whatever the majority of investors think it’s worth.

Sound familiar? Gee I hope so. So not for the million dollar question…

Is It Worth Investing In NFTs?

Well, as much as it hurts to say. Yes. Right now it is anyway.

A quick scroll through any social media feed with #NFT or #NFTs, you’ll instantly spot thousands of companies, artists, and enthusiasts chatting about the next drop. As we speak, NFT marketplaces are million-dollar businesses operating right under our noses. And several artists made millions, if not billions, from the sale and purchase of these tokens.

So, to answer your question, yes, it’s a worthy investment choice. However, this statement in light of the above example regarding Tulip Maia must be taken with a grain of salt. Is there intrinsic value in the majority of NFT art? Not really. Does this mean that digi-Picasso isn’t out there somewhere right now tweaking copies of a sad unicorn or a fat giraffe wearing sunglasses… of course not.

Like any other market, NFTs require deep research and analysis of what you are about to purchase. There are several ways you can earn from the NFT’ gold rush.’ You can either choose to become an investor who buys the NFTs at a low price with the prospects of selling them at a higher value later on. Or, if you’ve got the skills, you can also create NFTs. The only limitation here is your imagination and the timing of the wave that you are riding. Just remember to get off before it crashes!

Read more Defensive Treading the Cryptocurrency Market here.

As always, if you have any questions, we would love to hear from you in the comments box below. Happy trading!

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  1. […] spending more time in virtual worlds for work and leisure. Anyone who has been following the explosion of the NFT world lately will definitely agree that this belongs on the list of the Best Defi Cryptos To Invest […]

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