Many experts are predicting their breakthrough into the mainstream this year: NFTs. What is cryptic new territory for most those others have used as an investment for years? Prominent names are also following the trend. Last year, for example, it became known that Deutsche Börse and Commerzbank were investing a double-digit million amount in Fintech 360X to enter virtual art and real estate trading. If you want to start bitcoin trading then check more about bitcoin’s long-term investment.
What is an NFT?
NFTs are non-fungible tokens. Translated, this means non-exchangeable or replaceable tokens. Instead, the owner of an NFT is certified via a so-called smart contract. Like cryptocurrencies, the latter is based on a blockchain, i.e., a digital data protocol. This feature makes it transparent to see who owns the unique item and when it changed hands. NFTs, therefore, act as a kind of digital proof of ownership or authenticity.
In principle, NFTs are not limited to a specific area of application. All kinds of valuables are now traded on the blockchain. Non-fungible tokens can serve as proof of authenticity for:
- Gadgets in games or digital worlds, for example, metaverse
- Trading cards
For example, at the end of last year, the lyrics to the song “King of Rap” by musician Kool Savas were auctioned off as an NFT. Purchase price: 30,000 euros.
Unlike crypto coins such as bitcoin or ether, which act as a means of payment with an identical equivalent value, NFTs cannot simply be exchanged with one another. Instead, their price depends on the demand. Trading cards, for example, increase in value the more limited and weirder they are.
NFT Art: Why are NFTs so common in art?
The technology behind NFTs can solve many problems that the art market has struggled with for decades. For example, countless counterfeits of works of art continue to change hands. An NFT acts as a kind of guarantee of authenticity. In addition, the tokens can represent both digital and analog works of art.
In addition, artists can program automatic sales shares into smart contracts. The world’s most expensive NFT to date demonstrates the exorbitant sums that sometimes flow into NFTs. A digital artwork by US artist Mike Winkelmann, Everyday: the First 5000 Days, brought in a whopping $69.3 million.
Buy NFT: How safe and sustainable are NFTs?
From an investor’s perspective, NFTs enable a whole new class of assets. The US bank Goldman Sachs experts estimated the market volume in October 2021 at 17 billion dollars. However, according to the market research website Nonfungible.com, in 2020, it was still around $340 million.
According to forecasts, NFTs should finally reach the mainstream in 2022. NFTs are now a trending investment sector along with oil investment. However, buyers should consider the purchase risk despite rosy prospects for the future. If demand and hype for an object decrease, the NFT can lose value rapidly.
And: The fact that an NFT is available for purchase does not guarantee actual ownership of a valuable object. Since, in principle, anyone can create and sell NFTs, buyers should find out about the property and its potential value in advance. In the Handelsblatt Today podcast, Michael Geike, CEO of Advanced Blockchain AG, explains that this is an entirely unregulated market.
The fact is: If you like to trade an NFT again, you have to find a buyer. However, since there is currently still a lack of market liquidity, this can be difficult in case of doubt. Therefore, the risk of an investment is correspondingly high.
Where can I buy NFTs?
If you want to invest in NFTs, you need access to an appropriate platform. For example, venues, where you can buy NFTs, include:
- Coinbase Wallet
- Nifty Gateway
Opensea is currently the largest marketplace for digital art. The start-up raised $300 million in the new financing round and is currently valued at $13.3 billion.
The business areas of NFT trading places are already expanding. For example, the US crypto exchange Kraken is currently developing an NFT marketplace where the tokens can be used as collateral for loans. Kraken founder Jesse Powell announced this to the Bloomberg news agency at the end of December.
Guide: How to buy an NFT in 2022?
Since most NFTs are currently based on the Ethereum blockchain, on which the cryptocurrency Ether is also based, the latter is the preferred means of payment. Accordingly, an Ethereum wallet is often the prerequisite for buying and trading NFTs.
The cryptocurrency ether, in turn, must be purchased via a corresponding online broker or a crypto platform, for example, Coinbase.