Heard of NFTs? Here’s what it’s all about!

A Non-Fungible Token or NFT is a digital asset that represents real-world objects like art, music, in-game items, and videos. They are generally bought and sold online, normally with cryptocurrency. Although they have been around since 2014, NFTs have just recently become a popular way to buy and trade artwork.

NFTs are generally one of a kind, or part of a limited run, hence their value. In a world where digital creations are in almost constant supply, limiting the supply will increase the value, ceteris paribus.

However, many NFTs have digital forms that exist in other places on the internet. For example, a collection of 10000 NFTs, called the Bored Ape Yacht Club, depicts an ape with its own facial expression, outfit, and color scheme. Currently, the cheapest Bored Ape is going for 92 Ethereum or 251,857.36 USD as of January 27th (Bored Apes Price – What is the Cheapest Bored Ape? – Crypto Academy).

These images can be viewed online for free. So why are people willing to pay hundreds of thousands to millions of dollars for something they could easily screenshot or download?

It’s because buying an NFT allows the buyer to purchase the original item. That is, the collectors value the bragging rights more so than the actual item, similar to that of a collector’s item. To that end, NFTs also contain built-in authentication, which provides proof of ownership.

NFTs exist on a blockchain, a system of recording transactions in a way that makes it almost impossible to hack or cheat the system. Blockchains like these are why most cryptocurrencies like bitcoin can function. Typically, NFTs are held on the Ethereum blockchain.

However, just because you can buy NFTs, you have to consider that NFTs are still very recent. Consequently, there isn’t a lot of history to judge their performance. Furthermore, NFTs’ value, essentially, is how much others are willing to pay for it. Demand decides the value rather than other economic indicators which generally determine the trend in stocks.

This means that although you may resell the NFT for a large profit, it is also possible that you may end up with an image that people are unwilling to buy from you.

In the end, it is up to you to decide if they want to invest in NFTs. If you have money to spare, it may be an option worth considering.