What Are Non-Fungible Tokens (NFTs)? Is It Worth Investing In NFTs?

March 24, 2021
Reading Time: 10 min
What Are Non-Fungible Tokens (NFTs)? Is It Worth Investing In NFTs? - Blog Primexbt 23 03 NFTs

Crypto markets are rapidly evolving, which new buzz words and trends popping up seemingly every passing day.

The current new trend across all crypto news outlets, mainstream media, and more are NFTs. But what exactly are they?

 Introduction To The Hottest New Trend In Crypto Markets: NFTs

Some call it a bubble, while some claim it’s nothing more than a glorified version of Crypto Kitties. The truth is, NFTs tend to be somewhere in the middle, with tons of real value being generated and the technology itself lending well to the future of digital goods.

Amidst all kinds of blockchain art, paintings, collectibles, and other rare digital assets, there is a fair share of junk out there still fetching a fortune. The following in-depth guide will introduce you to NFTs, explain the meaning behind the unstoppable new crypto trend, talk about the underlying assets attached to each digital masterpiece, and much more.

What Is An NFT? What Does NFT Stand For?

NFT stands for non-fungible tokens. Fungibility refers to “the property of a good or a commodity whose individual units are essentially interchangeable, and each of its parts is indistinguishable from another part,” according to Wikipedia.

In the simplest of terms, an NFT is a token created, usually on the Ethereum network, that no other token in existence is exactly alike, and is can be used to commodify digital goods.

Specific non-fungible tokens might be released from the same artist, with a similar design, or as part of a limited edition set, however, when it comes to NFTs, they are entirely unique digital tokens. These digital files are typically attached to artwork, or some other type of collectible, acting as a digital certificate of ownership.

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How Do NFTs Work? And Why Do NFTs Matter?

These certificates of ownership can be transferred, sold, or stored via the Ethereum network or whichever layer one blockchain technologies they’re built on and cannot be duplicated.

This is all possible due to the underlying token tied to each digital file. All data pertaining to ownership of the token, including past transactions, the current address held, and more, are stored within the blockchain’s distributed ledger technology.

NFTs: Why Do They Have Value? Is It Just A Bubble?

Non-fungible tokens have appeared so quickly, and because you now can’t go anywhere without NFT news on TV, on the web, on social media, and more, it sure feels like a bubble.

And because outsiders genuinely don’t understand the value, these non-fungible tokens offer the prices that these rare items are going for, further make a case for bubble-like behavior.

But sometimes, innovation combined with scarcity leads to high valuations. Take simple website domain names, for example. Once upon a time, three, and four-letter dot com domains were in abundance because there wasn’t much demand for websites at first. Fast forward to now, and the right three- or four-letter dot com domain could fetch six figures quickly.

Digital ownership over NFTs is similar, as these users essentially are the first to own the piece of digital property. And while the utility of a domain and a valuable NFT artwork or painting is arguably different, traditional forms of such art have sold for millions in the past. Then why is it so hard to imagine a world where digital goods are selling for that much as well?

Part of the reason people are skeptical is that it is new, still very early, and yes, unfortunately, there are some instances of bubble-like behavior that is likely to lead to some unexpected market volatility in these assets, much like Bitcoin and other crypto assets eventually experience with enough time.

For now, these digital goods are the hottest thing going, so the bubble could continue to inflate. And much like the earlier dot com examples, just because the bubble pops doesn’t mean there isn’t tons of real value waiting to grow from here on out, even if there are some downsides in the near to mid-term future.

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Examples Of Non-Fungible Tokens: Various NFT Types

NFTs can exist across just about any category you can think of, and the use cases for this new type of digital certificate of ownership are growing by the day. Here are some of the most common examples of how non-fungible tokens are used today.

  • Artwork
  • Video game items
  • Collectibles
  • Music
  • Exclusive fan content
  • Digital merch
  • Sports gear

The variety has attracted celebrity names ranging from EDM artists Steve Aoki and 3LAU to Grimes, Twitter CEO Jack Dorsey, Dallas Mavericks owner, and investor Mark Cuban, and so many more.

Non-Fungible Tokens: Why They’re Important And The Next Big Thing In Digital Goods

NFTs represent a growing shift in digital rights and ownership over digital goods. Digital services are rapidly expanding, and there are centralized marketplaces all over the world.

Currently, video games represent one of the best natural areas to show how NFTs are critically important for digital rights ownership.

For example, most downloadable content, even the video games purchased on platforms like PlayStation Network or Xbox Live, aren’t actually the property of the person who is buying the digital, in-game item.

Instead, these users purchase a license to use that item within that game on that particular platform or ecosystem. And because of this system, if a user logs on and, for some reason, the centralized servers are down, the in-game item cannot be verified, so it cannot even be used.

That doesn’t sound like the same type of ownership as physical, tangible items. Thus far, things haven’t translated well into the digital world, but NFTs allow for any type of digital good to be tokenized so that ownership rights are part of the transaction from the very beginning.

With an NFT video game good, that in-game item could be resold as a profit if the value increases due to demand or if, for some reason, it becomes rarer. The blockchain technologies powering NFTs allow for all of this to become a reality and create secondary markets for digital goods that simply did not exist before.

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What Are The Most Expensive NFTs?

NFTs are some of the most expensive crypto tokens today, with many priced well beyond the price of each Bitcoin. Expensive tokens range from collectibles representing NBA teams and players such as the Dallas Mavericks, which were offered by entrepreneur Mark Cuban, to animated GIF NFT art of flying rainbow pop-tart cats called NyanCat.

Here are some of the most expensive non-fungible tokens to ever have been created, sold, or traded on the free market. Behind the scenes, there’s no telling what these assets sell for in terms of resale value.

Everydays: the First 5000 Days by Beeple

This was the first piece of purely NFT artwork to be offered by Christie’s auction house.

CryptoPunk (Various)

A variety of these CryptoPunk NFTs are fetching millions apiece currently, first launched on March 11.

CROSSROAD by Beeple

Yet another creation by the NFT market’s most prolific creator sold for $6.6 million.

Jack Dorsey’s first tweet on Twitter

The Twitter CEO tokenized his first-ever tweet and sold it for $2.9 million.

Not Forgotten, But Gone by WhIsBe, on Nifty Gateway – $1 million

This is literally a 16-second clip of a spinning gold skeleton gummy bear that sold for $1 million.

Are NFTs Good Investments? Is NFT Investing Worth It?

At the moment, it is complicated to say if non-fungible tokens are an excellent long-term investment or just a fad. They certainly offer tons of promise and have taken off so sharply, but how they develop over the next several years and the support they garner will ultimately shape the future of the digital asset type.

And because the universe of assets out there is so vast and diverse, it is challenging to blanket all NFTs together in one category. For example, a sports collectible might not be as good of an investment as an ultra rare digital painting from a famous artist or creator.

Celebrity-related tokens will likely do better long-term than tokens related to nobodies, but what happens if that celebrity goes through a scandal?

That makes these investments an extraordinary and unpredictable vehicle for growth currently. But it doesn’t necessarily make them bad investments either. Still, there’s significant risk involved, and as one of the most prolific NFT creators claims, NFTs could “absolutely go to zero” despite selling many of his creations for millions of dollars.

Reasons Why You Should Invest In Non-Fungible Tokens

  • It is the early days of NFT technology, and getting in now ensures most upside
  • NFT news is everywhere these days and spreading rapidly
  • There are some ultra rare gems that will have incredible resale value
  • Significant possible return on investment

Reasons Why You Should NOT Invest In Non-Fungible Tokens

  • It is the early days of NFT technology, and getting in has the most risk
  • NFT news is driving the current FOMO, which can be dangerous when it turns negative
  • There are some big scams that will have very little resale value
  • Possible to lose all capital associated with NFT transactions

The Differences Between Investments In NFTs Versus Other Cryptocurrencies Like Bitcoin

The main difference between non-fungible tokens and other cryptocurrencies like Bitcoin, which are considered fungible, is that each Bitcoin is precisely the same as all other BTC. At the same time, each NFT is a unique digital asset and token.

Additional data, including images and digital files, can be attached to Bitcoin transactions as well. However, NFTs are built on smart contracts using platforms such as Ethereum. But even Ethereum is a fungible token, in which all other Ethereum are created equal. Meanwhile, no NFTs made on Ethereum are exactly alike.

The trade-off, in this sense, is that when you are buying Bitcoin or Ethereum, you know what you are getting and that it is a strong investment. When you purchase an NFT, you don’t have anything else to compare it to to value it based on, nor do you know for sure if it will have long-term value or staying power. At the same time, you might end up with something far more rare and valuable than 21 million BTC. But that’s the risk associated with non-fungible tokens.

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NFT FAQ: Frequently Asked Questions About Non-Fungible Tokens

Non-fungible tokens are an entirely new way to manage digital goods and digital right ownership, built on cryptocurrency and blockchain technologies. However, because of the association with these new technologies, there are many questions left unanswered for many.

Here are some of the most commonly asked questions regarding NFTs.

What Does NFT Mean?

NFT means non-fungible tokens and is a token that is currently shaking up the cryptocurrency market and making news headlines all across mainstream media for its bubble-like behavior in the market.

What Is A Non-Fungible Token?

A non-fungible token is a type of token – often tied to some kind of artwork or digital good or collectible – that can be bought, stored, resold, and no other tokens will exist that are exactly the same.

What Is The Non-Fungible Token Standard For Ethereum?

Non-fungible tokens rely on the ERC-721 rather than the ERC-20 token standard that most DeFi tokens are built using. This token standard follows specific developer guidelines so that there is uniformity in experiences constructed on Ethereum.

Are Bitcoins Fungible?

Bitcoin’s fungibility has been heavily debated. In a sense, it is not fungible due to the long tail or blockchain transactions tied to coins; however, it is fungible in the idea that each Bitcoin is a Bitcoin and offers the same attributes and functions.

What Is NFT Art?

NFT art is a painting, GIF, or some other digital file holding an art piece and a digital token built on the Ethereum blockchain.

Are NFTs A Good Investment?

Many NFTs can be an excellent investment; however, others can be extremely risky. Investing in non-fungible tokens is done at your own risk, and you should never invest more than you can comfortable afford to lose. The benefit though here is that at least the NFT can be resold to recoup at least some value if the investment goes bad and doesn’t perform to expectations.

Conclusion: Invest In NFTs, Or Bitcoin, Ethereum, And Other Cryptocurrencies?

There’s no denying that non-fungible tokens are an interesting new trend in cryptocurrencies, in which investors are going to pay attention to one way or another. Many NFTs will be a life-changing investment, but even the most successful NFT creator today, Beeple, claims many NFTs will go to “zero” because there’s a bubble going on despite tons of real-world value being created at the same time.

NFTs, while interesting, need some time to develop and the market is likely to show extreme volatility, cooling off the exuberance and allowing more valuable and useful NFTs to flourish.

In the meantime until this market matures, focusing on investing in Bitcoin or even the platform in which NFTs are built on, Ethereum, are better investments.

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Risk Disclaimer:

Investing in or trading non-fungible tokens, also called NFTs, can be risky and lead to a complete loss of capital. This guide should not be considered investment advice, and investing any non-fungible tokens or cryptocurrencies is done at your own risk.

The information provided does not constitute, in any way, a solicitation or inducement to buy or sell cryptocurrencies, derivatives, foreign exchange products, CFDs, securities, and similar products. Comments and analysis reflect the views of different external and internal analysts at any given time and are subject to change at any time. Moreover, they can not constitute a commitment or guarantee on the part of PrimeXBT. The recipient acknowledges and agrees that by their very nature any investment in a financial instrument is of a random nature and therefore any such investment constitutes a risky investment for which the recipient is solely responsible. It is specified that the past performance of a financial product does not prejudge in any way their future performance. The foreign exchange market and derivatives such as CFDs (Contracts for Difference), Non-Deliverable Bitcoin Settled Products and Short-Term Bitcoin Settled Contracts involve a high degree of risk. They require a good level of financial knowledge and experience. PrimeXBT recommends the consultation of a financial professional who would have a perfect knowledge of the financial and patrimonial situation of the recipient of this message and would be able to verify that the financial products mentioned are adapted to the said situation and the financial objectives pursued.

 

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