Many experts predict their breakthrough in the mainstream this year: NFTs. What is cryptic new territory for most has been used by others as an investment for years. Prominent names also follow the trend. Last year, for example, it became known that Deutsche Börse and Commerzbank invested a double-digit million in Fintech 360X to enter virtual art and real estate. But what are NFTs? And how can leads buy NFTs? An overview.
What is an NFT?
NFTs are non-fungible tokens. Translated it means: non-exchangeable or interchangeable tokens. The owner of an NFT is certified via a so-called smart contract. The latter, like cryptocurrencies, are based on a blockchain, ie a digital data protocol. This makes it transparent to see who is currently owning the unique item and when it changed hands. NFTs therefore act as a kind of digital proof of ownership or authenticity.
In principle, NFTs are not limited to a specific scope. All kinds of valuables are now traded on the blockchain. For example, non-fungible tokens can be proof of authenticity for:
- Gadgets in games or in digital worlds, such as Metaverse
- change cards
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At the end of last year, for example, the lyrics to the song “King of Rap” by musician Kool Savas were auctioned off as an NFT. Purchase price: 30,000 euros.
Unlike cryptocurrencies such as bitcoin or ether, which act as a means of payment with an identical equivalent value, NFTs cannot simply be exchanged with each other. Their price depends on the demand. Trading cards, for example, increase in value the more limited and strange they are.
NFT Art: Why are NFTs so common in art?
The technology behind NFTs can solve a host of problems that the art market has struggled with for decades. For example, countless counterfeits of works of art continue to change hands. An NFT acts as a kind of guarantee of authenticity. The tokens can represent both digital and analogue works of art.
In addition, artists can program automatic sales shares into the smart contracts. If an NFT is resold, the artist receives a defined percentage of the resale price. The world’s most expensive NFT to date demonstrates the exorbitant amounts that sometimes flow into NFTs. A digital artwork by American artist Mike Winkelmann, Everydays: the First 5000 Days, grossed $ 69.3 million.
Buy NFT: How Safe and Sustainable are NFTs?
From an investor’s perspective, NFTs enable a whole new class of assets. The experts of the American bank Goldman Sachs estimated the market volume in October 2021 at $ 17 billion. According to market research site Nonfungible.com, by 2020 it was still around $ 340 million.
According to forecasts, NFTs should finally reach mainstream in 2022. Despite rosy future prospects, buyers should consider the buying risk. If the demand and hype for an object decreases, NFT can quickly lose value.
And: The fact that an NFT is available for purchase does not guarantee actual ownership of a valuable item. Since in principle anyone can create and sell NFTs, buyers should find out the property and its potential value in advance. Michael Geike, CEO of Advanced Blockchain AG, also explains in the Handelsblatt Today podcast that this is a completely unregulated market.
Fact is: If you want to sell an NFT again, you need to find a buyer. However, as market liquidity is still lacking at present, this can be difficult in case of doubt. The risk of an investment is correspondingly high.
Tracks to match on 22 February 2022, the Handelsblatt expert will talk about the topic: NFT as an investment?
Where can I buy NFTs?
To invest in non-fungible tokens, you need to have access to a suitable platform. Venues where you can buy NFTs include:
Read about this: Gamestop is planning its own NFT platform and collaboration with crypto projects
Opensea is currently the largest marketplace for digital art. In a new round of funding, the startup raised $ 300 million and is currently valued at $ 13.3 billion.
The business areas of NFT trading venues are already being expanded. The US cryptocurrency exchange Kraken is currently developing an NFT marketplace where tokens can be used as collateral for loans. Kraken founder Jesse Powell announced this to news agency Bloomberg in late December.
Guide: How to Buy an NFT in 2022?
Since the majority of NFTs are currently based on the Ethereum blockchain, on which the cryptocurrency Ether is also based, the latter is the preferred means of payment. Therefore, an Ethereum wallet is often the prerequisite for buying and trading NFTs.
In return, users must purchase the Ether cryptocurrency through a similar online broker or cryptocurrency platform, such as Coinbase.
Example: How it works to buy NFTs via Coinbase Wallet
At Coinbase, one of the largest crypto platforms in the world, the NFT purchase works via the internal wallet app. The latter is only available as a mobile app for Android and iOS devices. After installing the Coinbase wallet app, it must be linked to a Coinbase account that can contain cryptocurrencies.
Once linked, navigate to the tab in the wallet app “Act”to exchange ETH for any NFT that is compatible with the Ethereum standard “ERC-20 token”. Push “select coins”, select NFT and a relevant trading venue, for example Opensea. Enter the amount of ETH you want to invest in NFT. You should consider transaction fees.
More: Non-Fungible Token: A new asset class is about to make a breakthrough in 2022