What are NFTs?
NFT stands for non-fungible tokens, an electronic token representing something unique, say a digital piece of artwork or a website domain name.
These tokens, in turn, use cryptocurrencies like Ethereum or Cardano to run and validate.
Keep in mind: the NFT isn’t the item itself. Just like a house deed or car title, the NFT represents ownership in the thing. It tells everyone else in the world that you own something, and no one else can lay claim to it. Internet domain names, for example, can get backed by NFTs.
Are NFTs Good Investments?
We’re admittedly a strange species. Over centuries, we’ve made multiple billion-dollar industries around collectibles and artwork. Not only are millions of people employed in creating these items. Today, mega-cap companies from high-end auction houses Sotheby’s and Christie’s to online firms like eBay and Etsy help us transact and earn a living from our collections. People spend small fortunes on insurance against fraud and damage. And people in the know can get quite wealthy.
NFTs are an extension of the same principle. Though digital artwork is faster to copy and distribute, many people still have a fundamental desire to own the original piece. A combination of love and pride drives many.
But others want to reward the original artist for creating something they enjoy. You’ll find thousands of small digital artists selling works for less than $100. And if you like a particular artist, I’d strongly recommend you buy an affordable piece or two, even if to give the creators some financial support to keep doing their work.
What’s Next for NFTs?
Today, hundreds of sites claim to produce certificates of authenticity for everything from paintings to autographs. Securing all that on a single blockchain could make authenticating and trading these collectibles easier than ever before.
So, what does that mean for regular investors? Firstly, investors should expect prices of digital art masterpieces to rise. NFTs help collectors validate ownership, which lowers the risk of fraud and piracy. Secondly, don’t be surprised if the price of real-world collectibles also rise.
Trading cards have seen their values skyrocket from renewed interest in trading, and NFTs can make transactions easier to handle. Finally, beware of unexpected risks. Jack Dorsey’s iconic original tweet might go up in value, but many NFTs will also fizzle out before people understand what things are worth.