What are the opportunities and risks? – SWR power

Many people are hoping for wealth through NFT, some have even become millionaires with it. NFT are digital certificates that indicate that a particular file, often a digital image, is genuine. NFTs are only released once each, so collectors buy them over the internet. Saidi Sulilatu, Youtuber at Geldratgeber Finanztip, explains whether it can be a good investment in an interview with SWR-Aktuell moderator Jonathan Hadem.

SWR: What exactly is NFT?

Saidi Sulilatu: NFT means “Non-Fungible Token” and you can imagine it as a digital certificate of authenticity: As a certificate written on a blockchain, ie. in a distributed computer network, a distributed stored book, a database, just that it stands for a particular work of art. You can imagine it like this: If I am now an artist but do not paint my pictures on a canvas but just draw on the computer screen, then I have the problem that anyone can instantly copy it with a right click. And then I can get generated such an NFT. This proves that THIS particular file is the original. Now it is fair to say that I can still copy that file by right-clicking. But it’s “Mona Lisa” like in real life. Of course, there are also millions of copies of. But of course there is only one original hanging in the Louvre.

How easy is it to set up an NFT?

It’s not that hard anymore. There are various platforms, one of the largest and most well known is OpenSea. I need to create an account there. It costs something, and there I can get such an NFT made for all objects, such as all files above all, ie works of art. And above all, and that’s the crucial thing, then I can just sell it – for example, at an auction. That’s what’s interesting for artists or musicians. Music is now also sold at NFT. The fact that such digital works of art can be made marketable is an important source of income for many artists, especially in the Corona era.

There are always people who suddenly become millionaires because they have sold a few NFTs. How exactly does it work? Is it just about such auctions?

There are NFT, or small collections, that are relatively familiar – for example, “CryptoPunks” or “Bored Ape”. So there are similar images that have appeared in different variations and then they experience a proper hype. And suddenly, many rich people are obviously willing to pay a lot of money for it. And it has developed into a certain boom that you also saw, it must be said clearly, can boast of such a thing. That means you can use it as a profile picture on social media for example and say “Hey look, I bought this expensive NFT” – for a few hundred thousand dollars if you want. It’s a bit like wearing a Rolex or buying an expensive sports car, except it’s all digital. But clearly: This affects only a relatively small part of the NFT. Of course, it’s not like a picture is going to sell for hundreds of thousands of dollars right now.

If I actually want to buy an NFT, how do I pay for it?

NFT is written in blockchains, very similar to cryptocurrencies, and they are also paid in cryptocurrencies. As a rule, they are written on the so-called “Ethereum” blockchain, and therefore I pay in the currency that promotes this blockchain, namely “Ether”. This means that I need a wallet, ie a digital wallet, where I can buy the cryptocurrency “Ether”. And then I can buy such an NFT. It should be noted that this is unfortunately practically never free. Because just for trading, to write this NFT, is also to generate, I have to pay, if nothing else because Ethereum, which is very similar to Bitcoins, uses a lot of energy. This means that I have to pay the electricity costs myself. And it is also a criticism of NFT that a lot of energy is being used there again.

Then we come to the real question: is it financially interesting? Is it worth it to invest a few hours and money and read up on it so you can get involved?

In general, I would say no. For it is actually like this: If I invest there, if I buy an NFT, I will usually do it in the hope that it will increase in value. And I can not trust that at all. One has to imagine that a huge market naturally developed immediately. And it does not say at all that I can later sell the work of art I buy, with great profit. At worst, I might have bought an NFT, maybe for a few hundred euros or something that no one wants after that. Because it is not a liquid market, it is not certain that the file I have there, the image, will be really well received. And therefore it is a very risky investment. If you have a lot of money left over, you may be able to start there with little money – above all if you also want to be an art sponsor. But as a serious investment, as a serious investment, it is very dangerous.

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