NFTs seem to be cryptocurrency’s new buzzword. Unless you’re living under a rock (and even then), you’ve probably already heard of new self-made millionaires springing up due to NFTs. But what exactly are they? And is it too late to jump on the bandwagon and make money from them?
What are NFTs?
NFT stands for non-fungible token.
When we say that something is fungible, we mean that it is an economic good or asset that we can exchange for something of equal value. The money you hold, for example, is fungible because you can easily exchange it for another bill of equal value. Inversely, something is non-fungible when they are a unique, one-of-a-kind asset. This means that they cannot be swapped for equal value since no other asset holds that exact value. Land and art for example, fall under this category because every plot of land or work of art is intrinsically unique.
But what does this have to do with NFTs?
NFT’s are unique digital assets in the blockchain that boast sole ownership of that particular asset. Unlike fungible tokens such as Bitcoin, Ethereum, and BNB, which are coins in the blockchain ecosystem, they don’t have a set price which makes their value fluctuate. Holders of NFTs who look to profit basically bank on the value of the assets they own to appreciate and selling them at a higher cost. Ok great, but what are they? Well, that’s the thing. They could literally be any digital asset. They can be an image, a gif, a song, a text file, a tweet, anything that you can digitize and turn into data can pretty much become an NFT. Honestly, the space is still relatively new and we’ve probably yet to fully see its full extent.
So Why Would I Want to Own NFTs?
If everything still feels confusing to you, don’t worry. It is. But here are some reasons why your friend from college is burning so much money on those NFTs.
1. Limited Supply
The less there is of something, the more valuable it becomes. Or, at least that’s the principle that drives the prices of some NFTs upwards. Since there is only one owner at any given time, it creates scarcity that both buyers and sellers play around. Even if it doesn’t make complete financial sense, the psychology of scarcity plays an important part in the NFT market.
Like sports trading cards, comic books, and other memorabilia, NFTs are also another avenue for collectors to expand their, well, collections. While NFTs themselves have no actual value, collectors can fixate on rarity and other factors to determine a certain NFTs price in the market.
Some NFTs and their creators boast financial incentives to those who choose to buy their NFTs. This drives the prices higher as buyers can see it as investments that can generate them passive income or higher value in the future.
Is it Worth it to Invest in NFTs?
While it is difficult to give financial advice, it can’t be denied that there is some money to be made in NFTs. However, for as much money to be made, there is also as much (sometimes more) money to be lost. Cryptocurrency, in any form, is currently an incredibly volatile market that is full of risk. Not every NFT will go up ten times in value. In fact, very few will. Unless you know what you’re doing, investing in NFTs may be similar to gambling your money away in a casino.
With that in mind, if you’re aware of all the issues, you’ve done your research, and it matches your appetite for risk, then you can maybe consider dabbling into NFTs.