What are NFTs?
NFTs refer to non-fungible tokens. In the digital asset and cryptocurrency world, they are the latest craze. The term “fungibility” simply refers to the items that one uses daily. Examples of such items can be bitcoin or physical money. In perspective, bitcoin can be traded for yet another bitcoin since it is fungible. In the end, you would have the same thing as you had traded.
Non-fungibility would therefore refer to items that are one of a kind and can not be replaced with yet anything similar. For example, the famous Mona Lisa painting. There is only one legitimate painting out there done by Leonardo da Vinci. In other words, NFTs are unique assets found in the digital world and although they can be bought and sold, they lack tangibility such as tweets, digital art, GIFs as well as anything you can find on the internet.
Investing in NFTs
NFTs can not be bought and sold as simply as publicly-traded liquid tokens; this is their main problem. They are not only thinly traded and extremely diverse but also have a wide range of value drivers that are different. This means that one would not be able to just get into the market then start purchasing things. The CEO of Revix (crypto platform) pointed out that investing in NFTs can be compared to playing the lottery or investing in a small business in that there are low chances of success but if at all you get lucky, the payout is insanely high.
For this reason, using a goldrush approach is wiser and more sensible. This refers to one investing in the blockchain infrastructure that is responsible for supporting the NFT industry. An easy way for one to gain exposure to the blockchain technology that is decentralized and underlying would be to invest in the Smart Contract or Ethereum.
Ethereum
The creation and records of most NFTs are done on a blockchain called Ethereum. The records kept showing the ownership chain as well as the custody. Blockchains such as Ethereum are made up of spread
The smart contract cryptocurrencies are set out to be able to enable developers to not only use NFTs but also build applications. This can be compared to how it is that the Ios and Android operating systems work together with the different applications found in a phone. The applications enable users to lend, trade cryptos, borrow as well as performing numerous transactions (financial). All the transactions take place without a third party such as banks or even stock exchange markets.
Steps to invest in NFTs
- Open a marketplace account for NFTs
One can browse a marketplace online without having to subscribe and sign up for their services. You will need to have a digital wallet that is strictly funded by cryptocurrency. Your account will be opened when you add your digital wallet to the online marketplace. Immediately you have that done and it is running, you are at liberty to participate in the marketplace as well as invest.
- To buy NFTs, create a digital wallet
A digital wallet is just like a physical one in the sense that it holds your money, except in the case of a digital wallet, what is held in it is cryptocurrency. If choosing a digital wallet, it is advised that you pick a cold wallet. This refers to a digital wallet that holds your cryptocurrency using physical media or a thumb drive. They are advised as they do not sit on the web actively and therefore are at less risk of getting compromised.
It is also important to note that you get a digital wallet that is compatible with whichever cryptocurrency you intend to buy and sell on the marketplace. For example, Open Sea is compatible with Ethereum.
- Funding your account
For you to take part in the NFT marketplace, you have to buy cryptocurrency such as Ether. This has been made easier as you can do it quickly through investment brokers who accommodate the trading of cryptocurrency. Examples of such brokers are Sofi Active Invest and Webull. The brokers not only provide individual stock trading that is commission-free as well as the exchange of funds and options trading but also allow you to purchase the cryptocurrencies that are popular such as Bitcoin and Ether.
If you are on the lookout for a cryptocurrency platform that is dedicated, you should look into Gemini. It is a crypto-specific site that allows you to store, buy and sell your cryptos. In addition to that, it also offers the users many tools as well as research information that they can use to better their understanding of the crypto market.
After purchasing your desired cryptocurrency, store it in your digital wallet for use in an NFT marketplace.
- Buying your NFT
Once your digital wallet is loaded, you are ready to start making purchases. You must be completely familiar with the NFT marketplace auction formats. You have to submit a bid for whatever token you may be interested in. The sale only goes through if you are either the only bidder or the highest one.
If you are debating as to whether NFTs are the right investment for you or not, and you decide to give it a try, be sure to know;
- How old the company is that you are investing in and their rate of annual growth in regards to investments.
- How the company plans to earn profits.
- Whether or not the company has a competitive advantage.
- How the company’s stock price has been in the past; their volatility.
Remember to put in only as much as you are okay losing as the market is very unpredictable.
