NFTs, or non-fungible-tokens, are the latest investment vehicle to take the financial world by storm. Social media platforms, news outlets, and finance blogs have all been abuzz with talk of NFTs and their value for the past several years.
These tokens have evolved to serve a variety of purposes and are changing the face of many industries. Initially, however, NFTs began as representations of digital or crypto art and collectibles.
The NFT Hype
It all started in 2017 with the CryptoKitties project. This project was a collection of digital Kitten tokens that could be collected and held in an electronic wallet. These tokens gained their value from their scarcity and the quality of the artwork from creator Momo Wang.
The initial CryptoKitty drop sold out so fast that it crashed the Ethereum network. A surprise drop three years later, in 2020, did the same to Nifty – another notable crypto exchange backed by the Winklevoss twins of Social Network and Facebook fame. From there, other notable NFT drops like CryptoPunks and Bored Ape Yacht Club (BAYC) helped to trigger the explosive NFT movement we’ve seen over the past 12 to 18 months.
But Are They All They’re Cracked Up to Be?
You might be familiar with what NFTs are, but the big question on everyone’s mind is, “Are they worth the hype?” The short answer is: it depends.
NFTs are an investment asset. If you plan to buy them, you should be purchasing them responsibly through a reliable NFT marketplace such as FTX. You’ll also want to make sure that you fit your NFT purchases into your overall investment strategy. We’re not in a position to give any investment advice, but there are a few things you should consider before purchasing NFTs.
Consider A Project’s Utility
The natural evolution of NFTs has given rise to smart contracts. These agreements initially existed on the Ethereum blockchain but have since been implemented by other significant blockchains like Solana and Cardano.
Smart contracts allow creators to include legal data and exclusive features in their tokens. This phenomenon elevates NFTs to a place where they’re no longer just about art and collectibles.
Creators can include things like access to a VIP community, music rights, even tickets, and access to unique experiences as part of their NFTs. Purchasing certain music NFT projects can even give buyers passive income via royalties generated from the creator’s songs. This is the new trajectory of the NFT world.
Don’t get us wrong. The founding collectible projects like BAYC, CryptoKitties, and CryptoPunks still have their place and are still very valuable. There will most likely be new art/collectible projects that take off. But, with the introduction of smart contracts, buyers should look for tokens to provide some added benefit aside from owning the token itself.
According to investment experts, one of the major drawbacks of NFTs is their liquidity. NFTs aren’t like stocks or bonds that you can sell back to the open “market.” To realize your profits or “cash-out” of an NFT, you need to find a buyer who wants what you have.
This makes choosing the right project all the more important. If you buy a token without doing research, you may wind up unable to sell or, worse – take a loss when you finally do sell.
Are you Down with NFTs? Yeah, You Know Me!
Ultimately, purchasing NFTs will come down to your individual investment goals and risk tolerance. Like any other investment, if you do your research and buy responsibly, they can be a great addition to your portfolio.