- Another day, another cryptocurrency.
NFTs are the latest cryptocurrency rage,
with bands like Kings of Leon releasing their next album
as limited edition "golden tickets,"
and NBA digital collectibles being sold
for millions of dollars.
But what are they, really?
Here's what you need to know about NFTs,
their value and how they work.
An NFT is a non-fungible token,
a unique unit of cryptocurrency
created on a smart contract platform like Ethereum.
Unlike fungible cryptocurrencies,
where all units of the currency are the same and equal,
with a non-fungible token, every cryptocurrency unit,
or token, is unique and cannot be replicated.
So, NFTs are unique digital certificates
for intellectual property that might just be fun to own
or potentially even profitable to trade.
And while you're probably just hearing about them right now,
they've actually been around for years.
The first major use of NFTs was in 2017
with the game CryptoKitties,
where people buy and sell digital cats with Ethereum.
The current NFT craze
is mainly fueled by digital art and collectibles,
like Grimes selling her artwork for nearly $6 million.
People figured out that a unique digital object
can be cool to own and might carry a big monetary value.
It really depends on the platform.
But given the vast majority of NFTs
are created and traded on Ethereum, we'll focus on that.
NFTs are created on Ethereum's blockchain,
which is immutable, meaning it cannot be altered.
No one can undo your ownership of an NFT
or recreate that exact same one.
They're also "permissionless" so anyone can create,
buy, or sell an NFT without asking for permission.
The value of NFTs doesn't just come
from a game of digital hot potato
in which you purchase something
hoping you'll sell it for more later,
and on and on until the whole thing crashes.
Ideally, the NFT should be valuable to you
because you actually like it.
If you're an NBA fan, you might want to have an official NFT
representing your favorite player.
Or, perhaps there's some digital art
that you really want to buy.
Sure, many NFTs are just a digital image
that you can easily right-click and save to your computer.
But because NFTs also live on the blockchain,
it makes it extremely hard to truly copy them
in their entirety.
There's an argument that NFTs are good for digital artists
since they can actually get paid for their work.
But it's important to note that as of now,
there's nothing stopping people
from simply tokenizing other people's work,
claiming it, and profiting off it.
NFTs are a developing space and there's a lot of hysteria
and scamming going on.
You might see a certain NFT sold for millions
and think you'll also be able to buy something
for a few dollars and become rich,
selling it to someone later on.
It can happen, but it's rare.
And that value can be manipulated.
Someone who owns a lot of crypto can buy lots of NFTs
and then sell them to their other cryptocurrency address
for millions, artificially inflating the price.
In short, be careful.
Just because some NFT was traded for a lot of money,
don't think it automatically means
all other similar NFTs are valuable too.
And an NFT's value isn't the only thing to worry about.
Like many other forms of cryptocurrency,
NFTs carry a super significant environmental impact.
For example, one artist estimated generating six NFT pieces
took more electricity
than his whole studio would have used in two years.
Sure, Ethereum, the platform where most NFTs reside,
is planning to switch its model
in a way that would make it more environmentally friendly,
but it's going to take a long time
and the actual switch might not happen for years.
Buying an NFT because you like it or maybe even to earn,
or lose, a few quick bucks is one thing,
but investing in NFTs is different.
Given the digital nature of NFTs,
it's hard to compare them to artwork
like statues or paintings.
On the other hand, we live in a world where one Bitcoin
is worth more than $50,000.
So things from the digital realm
can certainly be very valuable
and even sustain that value over longer periods of time.
In any case, if you plan to invest in NFTs
you'll need to dive deep into this complex world
because each NFT market is slightly different.
It's also pricey.
Trading on Ethereum can be quite costly
as the network's recent congestion is causing fees to rise.
Finally, you'll need to think strategically
and follow the often rapidly changing cryptocurrency trends.
In short, it's possible to earn money by investing in NFTs
but you'll have to do your homework.