A non-fungible token (NFT) is defined as a digital representation of a unique asset. This means it’s a one-of-a-kind asset in the digital world that can’t be replaced with anything else. NFTs can be bought and sold like property. However, they don’t have any tangible form of their own.
Many are calling NFTs the digital response to collectibles. This is often in the form of digital art, including drawings or music, but anything digital could be sold as an NFT. Artwork can be “tokenised” to create a digital ownership certificate that can then be bought and sold.
NFTs are providing a unique connection to creators of artwork. This form of investment has been around for years, but in 2021, it has ballooned into the spotlight as mainstream companies and investors have entered the market in droves. Some people have even paid millions for the NFT of a piece of art – or even a Tweet.
How does NFT art investment work?
There are several marketplaces that allow people to buy and sell NFTs. When investing, the goal is for the value to go up, so you can sell it for a profit later on. Before entering the market, it’s important for investors to research this kind of investment thoroughly and understand the different types of digital items that are being sold in this way.
While digital files can be duplicated easily, the buyer of an NFT owns a “token” which proves they own the “original” work. In many cases, the artist still retains the copyright ownership of the work, meaning they can still produce and sell copies. NFTs can be compared to purchasing an autographed print.
Additionally, NFTs use the same blockchain technology that cryptocurrencies like bitcoin use to keep up with ownership. The blockchain stores a record every time a transaction happens, making it more difficult for the tokens to be stolen.
Because of this technology, it uses a lot of energy, generating a significant amount of greenhouse gas emissions. This has made some people worried about NFTs impact on climate change and what the future of the sector will look like.
The risks involved with NFTs
Are NFTs the future of collecting or is this just a bubble? It’s impossible to know. Some people feel this is just a bubble that will burst, while others are treating NFTs as the future of art collecting.
Because of this, there is a lot of risk involved when investing in NFTs. You may purchase an NFT and then in a certain amount of time, it may be worth nothing. If no one wants to purchase it in the future, you’ll be stuck with it.
This means investors could potentially lose all of the money they paid to purchase the token. However, some investors are currently making large sums from this. When considering investing in NFTs, do your due diligence to see if this kind of investment is right for you and if you’re willing to take on the risks involved.
Seek out professional financial advice when considering any kind of investment to ensure you find the best investment option for you and your financial situation.