NFTs are becoming extremely popular with everyone from real estate investors to celebrities jumping at the chance to invest in for profit. Before diving into NFT investing, let’s first take a look at what these tokens are and how they work.
NFTs present a new form of investing that first emerged in May 2014 and is causing considerable noise in the investment sector. What is an NFT? An NFT is a non-fungible token that’s a type of cryptocurrency asset. This asset is digital and recorded on a blockchain with a set of unique metadata and identification codes.
Basically, this means each NFT is entirely unique like a prized piece of art, and can’t be replicated. (Fungible tokens are things like cryptocurrencies that are identical, one to the next, just like one US dollar bill is essentially the same as another and can be used for commercial transactions).
An NFT can be a type of image that exists in the digital realm, only. However, NFTs can also represent real-world items such as a Van Gogh painting, your socks, real estate, an individual’s property rights, sports cards, and more.
Unlike stocks and bonds, NFTs don’t have an intrinsic investment value. Their market value is driven by whatever the crypto community around them is willing to pay for each token.
How to Buy NFTs
NFTs are often purchased using Ether. This cryptocurrency can be stored in a digital wallet. So, when investing in NFTs, purchasing some of this currency is the first step. Next, you can look at purchasing an NFT in an online marketplace such as Rarible, SuperRare, or OpenSea, among others.
Important Things to Look Out For
One of the most important things to be aware of when buying NFTs is that there’s currently a lot of hype around some of them. Don’t buy into it without doing your research, even if it seems quite enticing to do so. You want to ensure what you are investing in has long term potential.
Remember: if the platform hosting your NFT goes out of business and disappears, so does the money you invested. In this way, investing in NFTs can present a substantial amount of risk. Some experts say it’s important to recognize investing in NFTs as pure speculation and something that could go down to zero. Just be forewarned.
3 Popular NFT Investing Strategies for Beginners
Of course, there’s no right or wrong way to invest in NFTs. There are a few strategies, however, that you may want to consider as a beginner (or even as a seasoned investor). It can be useful to get to know the community around an NFT first and to consider how that NFT can integrate into infrastructure that already exists before deploying your capital.
What do we mean by all of this? Here’s a deeper look.
Make friends in online spaces
Sure, you can invest in an NFT purely for speculation. It can be a good idea to get to know the digital community online around an NFT before committing any money to investing in one, however. Why? Because scams do occur. A prime example is the alleged Bored Bunny rug pull that took place in January this year. Its creators hyped up the voting around this NFT and supposedly drew in the attention of celebrities. In the end, however, the creators disappeared and made off with tens of millions of dollars while silencing their social media accounts in just a few hours.
So, make friends online (or in-person) with other NFT investors and collectors before investing your money in a project. You can do this by joining free Discord communities, and Twitter Spaces. This can allow you to learn about the industry news around this NFT, and any added benefits offered to buyers.
Generally speaking, if the community around an NFT is strong, the project has a greater chance of succeeding. Best practice in investing in NFTs is to invest in the community because you like it, not simply to make money.
Consider how an NFT can integrate into existing infrastructure
With growing frequency, NFTs are being linked to other opportunities both online and in the real world. For example, some NFTs may be linked to a popular club venue. A system can be set up whereby you gain NFTs each time you visit the club. The more you go, and order alcohol and food, the more NFTs you collect. And if you attend several times monthly, perhaps the rarity of these NFTs somehow increases. The more rare your NFT, the more perks you receive.
Consider how investing in a certain NFT can gain you access to VIP memberships, sales, and tickets. This could be something you want beyond just owning a unique nonfungible token to generate income.
DYOR – “do your own research” and keep your tokens safe
Finally, as with all investments, it’s important to do your own research around any NFT and to keep your assets safe. Don’t get too swept up in a craze.
You can manage your NFTs like you do cryptocurrency through a web-based application or on a mobile app located on your smartphone. This can leave your tokens open to being hacked, however. You need to hold your NFTs in a digital wallet with a unique link that displays the contents and allows you to transact with it. Some examples of digital wallets include:
- Coinbase Wallet
Each of these wallets is protected with a seed phrase or a long password and is a private key. In addition to this, password management is of top importance to ensure you aren’t susceptible to hackers or scams online.
NFts were once something that sat outside the mainstream as a unique way to express yourself and potentially gain enough attention to make money. The Bored Ape Yacht Club is an example of a series of digital artwork tokens generated on a whim by four creative souls working regular day jobs that has now skyrocketed in value.
Bigger brands are now cashing in on the idea with Nike, Mercedes-Benz, and even Walmart said to be creating their own NFT collections. This adds new opportunities and presents additional avenues that are sure to change the NFT landscape as we explore a brave new future.
Investing in NFTs can be exciting and open new worlds of possibility both online and in–person. As with any investment, however, you need to be prudent and do your homework in order to help ensure where you are putting your money is a positive venture. Because of the unique nature of NFTs, investors need to protect their confidential online information and be aware of the potential for hacking and scams. Get to know the online space, consider if the NFT integrates into other systems and infrastructure, and protect all digital information with solid wallet and password management. And have fun!