In 2020-2021, interest in cryptocurrencies is back on track after three years of decline. This affected not only bitcoin, which has already become a classic, but also very new assets based on blockchain. One of them is NFT tokens. What they are and what prospects are associated with them, we will discuss in today’s breakdown.
The term NFT (Non Fungible Token) refers to a token that has no fungibility properties. This means that it has individual characteristics that are not inherent to any other NFT token. Thus, it is radically different not only from fiat currencies, but also from all other crypto-assets. One NFT cannot be replaced with another like we would do with a regular bill or bitcoin.
The concept of an NFT token first appeared in 2017 in the game Crypto Kitties. In it, one NFT was entitled to one virtual cat. All of them differed in characteristics – color, shape of ears, eyes, etc. Depending on how much the players liked this or that pet, its price changed. The NFT trade did not get any serious turnover until 2021. The record volume is $200 million for March 2021.
Today, NFT tokens are used to fix property rights:
- For works of art (paintings, photographs);
- video and audio recordings;
- gaming items;
- domain names;
- real estate, etc.
Records of these, like ordinary crypto-assets, are stored on a blockchain network. They are believed to be impossible to erase or change. NFT tokens can be used to confirm copyright, ownership at any time. In addition, their code allows setting conditions for further resale. For example, the creator has the right to prescribe that a royalty is due from each transaction.
This analogue of a digital certificate is allowed to sell, exchange, or give as a gift. The demand for the tool is largely due to the sense of uniqueness it provides. When you purchase a token, you get ownership directly from the content creator. It was possible to buy any digital artifact even before the advent of NFT, but previously it was nowhere recorded who owned it. Now it’s easy to establish that in a few minutes.
NFT is traded exclusively for cryptocurrency. Therefore, first of all, you will have to have a wallet that is capable of working with etherium. Transactions with non-mutually exchangeable tokens are conducted on such platforms:
- Nifty Gateway;
- NBA TopShot;
- Sorare, etc.
Some of these platforms operate in an auction format, where contemporary art is traded. Others offer to buy various “collectible” items – footage from game recordings, videos with athletes and other celebrities.
Is it possible to make money on NFT
The income of the NFT owner can be made up of different components. First of all, it is the difference between the purchase and sale price of the token (minus the transaction fee). It will be determined both by the interest in the technology as a whole and by the value, rarity, demand for the object the rights to which the token fixes.
In addition, some tokens give their owner an extremely peculiar “dividend”. For example, the purchase of an NFT that “carries” a section of the track in F1 Delta Time allows you to receive cryptocurrency into your account every time that track is used in the game. The amount differs for each token, depending on the rarity of the track, the number of its “co-owners”. It is an extremely interesting alternative to stocks, but if the game stops being popular, this source of income will dry up.
The main risk of investing in NFT is not the fall of interest in cryptocurrency in general, as in the case of bitcoin, for example. The important thing here is to predict how the demand for the object, the rights to which the token gives, will change. It is essentially like collecting contemporary art and other rare objects. A unique or rare object is more likely to increase in value, but will initially be worth more than content released in many copies or with no value in terms of collectors, art connoisseurs, etc.
But many experts believe that the rise in value of individual NFTs by more than 2000% over 2020 is primarily due to the hype and the return of interest in bitcoin. As the hype subsides, even the most expensive “exhibits” will fall in price. But in the spring of 2021, the demand for the asset (judging by the frequency of relevant queries on Google) is at a historically maximum level.
Equally risky is liquidity. The transaction itself takes a few minutes. But it can take months to find someone willing to buy a virtual painting or other content, especially if the owner puts a high price.
Further prospects for the mass development of NFT are associated primarily with areas such as music and online games. This is where the issue of fixing the right of ownership is most acute. But a digital object can also “deteriorate” just like a real one. For example, there is a risk of format obsolescence, change of trend, etc.
NFT tokens are a new and therefore quite risky way to invest. Calling them an “investment” in the full sense of the word is impossible. There are no fundamental factors, the technical analysis is inapplicable to them. In many ways, their purchase is similar to the purchase of collectibles or investment in art. To make money on such an asset, one needs not so much skills in trading on the exchange, as a flair for trends and expert knowledge of the subject. Only this will help choose tokens tied to truly unique content.
Tell us in the comments whether you are willing to pay for the ownership of a virtual object.