NFTs, or Non-Fungible-Tokens, entered the public consciousness in what - with hindsight - seem to have been the golden months of 2021.
The very high price paid for Beeple’s digital artwork, a series of NFTs auctioned for $69 million at Christie’s in March 2021, introduced the then lockdown world to the possibilities of creating, owning and trading digital assets as well as to the concept of the metaverse.
What are NFTs again? NFTs are the ownership rights to digital assets. Digital assets can range from artworks, fashion items, virtual land , video games and even high value collectibles such as watches. Sotheby’s, for example, is adding a few, highly curated NFTs to its spring 2022 auction of collector’s watches and Gucci cleverly uses one-off NFTs of its iconic handbags, which in the past year have sold for higher prices than a physical Gucci bag. This phenomenon of owning a real, physical, item and an NFT linked to it is called a ‘phygital’.
NFTs exist because of crypto-currencies and blockchain. The first ever digital assets , of course, were the crypto-currencies, and because also virtual money needs a ‘bank’, blockchain technology was developed alongside crypto currencies to facilitate authentication of transactions, registration of ownership and safe storage of assets. Blockchain technology then enabled the official recording of any digital asset, giving rise to a blossoming NFT industry.
NFTs have become big business in a relatively short time span. In 2020 the value of the NFT market was $82 million in total and in 2021 it ballooned to $17.6 billon, according to L’Atelier/BNP Paribas. The numbers of NFT buyers increased to 2.3 million globally in 2021 and profits from NFTs were $5.4 billion (!) that same year. Fashion and auction houses are at the forefront of the unique, luxury, creator NFT market, whist platforms like Nonfungible.com, Opensea and Rarible.com offer a much wider range of assets in a variety of prices, making NFTs also accessible to smaller investors.
But how to buy an NFT, even a tiny, low priced NFT, like any odd artwork of cats (very popular) or random doodles? It is surprisingly easy. You first need to exchange some real money for crypto and store them in your crypto wallet. You can buy crypto on crypto exchanges, like for example Coinbase and Binance, two widely used and trustworthy exchanges. Let’s assume you want to buy an ‘artwork’ for the Ethereum (ether) equivalent of $15; you then first buy the required amount of ether (beware the fixed fees of about $5 per transaction) and deposit it in a wallet, like Metamask for example. Metamask is an Ethereum wallet that you can use to purchase or sell NFTs on the Ethereum blockchain. Your digital wallets are sacred; once they are operational and protected by a password, you are given a secret sentence. This is super important – don’t lose it - as it is your back-up access to your account and everything in it.
With your crypto and NFT wallets in place, you can browse the Opensea, Binance or Rarible platforms for NFTs. You click the NFT you like (and can afford) and your wallet then wires the required crypto amount to complete the purchase. The Ethereum network, aka blockchain, then charges a transaction fee, called ‘gas’ which is quite high and might be around $20-$25 per transaction. The ‘gas’ is to authenticate the transaction and make the NFT really yours. The $15 digital cat picture NFT you just bought now actually did cost you $40 including fees ($15+$5+$20).
So, unless you really believe your cat picture will be worth gazillions in the future (you HODL it) or that somebody else will buy it from you for double what you paid soon, buying these low priced and low (artistic) quality NFTs seems not be worth it. It may be better to stick to buying digital assets like in-game sneakers or baseball caps. At least your avatar will have something to wear.
Suggested links:
https://atelier.net/news/crypto-art-is-worth-billions-for-now
https://www.economist.com/the-economist-explains/2021/10/12/what-is-an-nft
https://www.talksforteens.com/finance/nfts-omg-out-of-nowhere-into-everywhere
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