NFT stands for Non-Fungible Token - a type of cryptocurrency however unlike crypto coins which are identical and worth the same, NFTs are unique. Although they have been around since 2014, NFTs are gaining a lot of popularity these days.
What are NFTs ?
NFTs are digital tokens that can be used to represent ownership of unique items like art, music, videos and game items and other collectibles. They are bought and sold online, frequently with cryptocurrency but they are not interchangeable for other items as they have unique properties. No two NFTs are the same, each has a unique identifying code – they are generally one of a kind or one of a very limited edition.
How does an NFT work ?
An NFT is created or minted from digital objects that represent both tangible and intangible items. Traditional works of art such as paintings are valuable because they are one of a kind. But digital files can be easily and endlessly duplicated. With NFTs, artwork can be "tokenized" to create a digital certificate of ownership that can be bought and sold. NFTs exist on a block-chain, which is a distributed on public ledger that records transactions.
The records cannot be forged because the ledger is maintained by thousands of computers around the world. NFTs can also contain smart contracts that may give the artist, for example, a cut of any future sale of the token.
How to buy NFTs ?
If you
want to start your own NFT collection, firstly you will need to get a digital
wallet that allows you to store NFTs and other crypto currencies. You’ll
likely need to purchase some cryptocurrency, like Ether, depending on what
currencies your NFT provider accepts. You can buy crypto using a credit card on
platforms like Coinbase, Kraken, eToro and even PayPal and Robinhood now.
You’ll then be able to move it from the exchange to your wallet of choice.
Should you buy NFTs ?
NFTs are risky as it does not provide a certain future and there is not a lot of data to judge their performance. Hence, investing in NFTs is largely a very personal decision. If you have money to spare, it may be worth considering, especially if a piece holds meaning for you. But it is important to keep in mind that an NFT’s value is based entirely on what someone else is willing to pay for it. Therefore, demand will drive the price rather than fundamental, technical or economic indicators, which typically influence stock prices and at least generally form the basis for investor demand.
All this means that an NFT may resale for less than you paid for it. Or you may not be able to resell it at all if no one wants it.
It is advisable to do a thorough research before investing, understand the market and the risks.
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