What are non-fungible tokens and are they a good investment?
If you follow any sort of financial news or social media you’ve probably heard the term “NFT” buzzing about. Stories about artists like Beeple making millions of dollars in a matter of minutes by selling NFTs. And it’s not just a fringe group of crypto-fanatics, there’s even very brilliant and very rich minds like Elon Musk and Mark Cuban getting in on them…
So what are NFTs??
NFT stands for Non-Fungible Token 🥴
Let’s start with the easy word - Token. So it’s basically a form of cryptocurrency that operated on the blockchain like Bitcoin or Ethereum. Simple enough (if you understand how crypto works — I’m not gonna go into that right now if you don’t). Basically, crypto are “tokens” that you can send and receive digital that get verified by other users and don’t require a central channel to travel through. Bitcoin and Ethereum are like digital money, but there’s other kinds of tokens as well, which operate as digital contracts, which is what NFTs basically are.
Okay what about Non-Fungible?? Well, let’s see what fungible means first… Fungible basically means interchangeable. So if I borrow a dollar from you and pay you back later with a different dollar it’s all the same in the end. Therefore, Non-Fungible means it’s not interchangeable. So if I borrow you Action Comics #1 (1938) comic and bring back a copy of Superman #1 Millennium Edition (2000) you’re not gonna be too happy.
So basically a Non-Fungible Token (NFT) is something that is completely unique.
NFT Art, Trading Cards, and other Collectibles
Okay, so you might be asking, “What’s the big deal?”
Well NFTs are a way for people to invest in things like digital collectibles like art, trading cards, videos etc…
The problem with digital anything is its ability to be copied. If I paint you a picture well that’s the only one of its kind, even if I paint more than one they won’t be exactly the same. But with digital files, it’s just 1s and 0s and any copies are identical. NFTs solve the problem of authenticity and original copies.
An NFT acts as a sort of Certificate of Authenticity for a digital item. Sure someone might be able to download the same JPG file as you but you have digital “paperwork” that says you’re the owner.
Confused yet? Okay, analogy time!…
Let’s say I own Van Gogh’s original painting of “Starry Night” (above right) and you’ve got a sweet poster of “Starry Night” hanging in your dorm room. Sure we both have the same piece of artwork buuuuuut… one of us has something of value and the other has a pretty piece of paper.
Now, if Van Gogh were around today and made Starry Night 2 in Photoshop, the way for a digital art collector to buy his work would be through an NFT. It’s pretty much a Certificate of Authenticity or Ownership that says I paid for and am the current holder of this original piece of art. And just like a physical painting, as the artwork goes up in value, the owner of the NFT can resell it for more money! Thus making digital art investible.
What’s really unique to NFTs is that the creator can attach a royalty to the art piece, so if the buyer resells it, the artist gets a percent of the profits from aftermarket sales. Something that doesn’t happen in the physical art world. *NOTE: This tech still isn’t built into the NFT yet, so the royalty is tied to the marketplace on which it’s listed. If the buyer resells the art on a different marketplace the royalty might not transfer over.
If this sounds wonky still, think of it this way — When you buy a stock through your broker’s app or website you no longer get a stock certificate like you did back int he day but you still have the stock and can resell it for profit or loss, NFTs are kinda the same thing, but imagine if there were only 1 share of Apple going around.
Now, I’ll also point out that artists can “mint” more than one token for an art piece. Think of this as an artist who sells prints or buying a rare baseball card or comic book, there’s more than one copy but not many so it’s still worth a lot regardless.
Okay now before you rush out thinking you’re gonna be a bajillionaire once you get your hands on an NFT, just relax. It’s still a very new thing and people are just in a frenzy over it at the moment. But there is the potential for money to be made there. I mean, one guy made $89 selling his fart as an NFT!
There’s lots of market where you can buy NFTs, some of the more popular ones are:
- OpenSea — the biggest marketplace
- Nifty Gateway — the one the Winklevoss twins
- Rarible — another large marketplace
- Mintable — the one Mark Cuban has invested in
You’ll need also a crypto wallet to purchase and store your NFTs. Here are a couple options:
- Coinbase Wallet — Click here first to sign up and get $10 of free BTC
- MetaMask — a plugin for your browser
Just be aware that not every NFT is going to be worth something and in fact some have gone down in re-sale price since their initial sale. Just like stocks, you have to do your DD (due diligence) on the artist etc…
You can also track which NFT projects are launching when and where by visiting nftcalendar.io
Buy buying and reselling is just one way to make money off NFTS, there’s also money to be made creating and selling original NFTs…
Minting Your Own NFTs
You can also make your own NFTs, it’s surprising simple, but just be aware it can be costly. Minting an NFT incurs a “gas fee” this is essentially the cost of the computer processing power etc… to make and list your NFT. (Remember when eBay used to charge a fee to list an item?)
There’s a new option available called “gasless minting” or “lazy minting” where you can post info about your NFT and list it for sale but it’s not “minted” (meaning added to the blockchain) until someone purchases it.
*NOTE: I’m using OpenSea and to get started even with gasless minting you have to do one transaction to initialize your account (info below)…
…which as of this writing (3/21/21) is about 0.071157 ETH (or $126.97) but then I tried again to grab a screenshot for the article and the price was lower (below).
They say the price of gas varies based on the activity of the network, so this is good to know!
As I mentioned I’m dipping as toe into the NFT kiddie pool and I’m testing it out by minting some trading cards from a viral video my friend and I made. Maybe you’ve seen it before…
So I went through and took key still images from this video and designed a series of collectible, limited edition, digital “trading cards” as NFTs:
If it proves profitable, I’ll expand and add cards from other episodes as well as video clips and other NFTs.
There’s plenty of tutorials online on how to do this so I won’t get into it right now (perhaps in the future) but here’s a few key videos that helped me figure it all out (that and a lot of reading on Reddit)…
While this article barely scratched the surface of NFTs, hopefully it at least shed a little light on what they are and why they might be valuable. I highly recommend you do a deep dive and do some more research before you start buying someone’s farts online. To help get you started down that rabbit hole, I’ve included a few resources below but remember, Google is your friend!