This is what investors need to know about non-fungible tokens in 2022

NFTs – What is cryptic new territory to most, others have used as an investment for years. Prominent names are also following the trend. Last year, for example, it became known that Deutsche Börse and Commerzbank invested a double-digit million amount in Fintech 360X to enter the virtual art and real estate business.

But in recent months, prices on the NFT market have plummeted. An unregulated market partially susceptible to fraud is emerging more and more clearly. But what are NFTs? And how can prospects buy NFTs? An overview.

What is an NFT?

NFTs are non-fungible tokens. Translated, it means: non-fungible or fungible tokens. The owner of an NFT is certified via a so-called smart contract. The latter, like cryptocurrencies, is based on a blockchain, i.e. a digital data protocol. This makes it transparent to see who currently owns 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 field of application. All kinds of valuables are now traded on the blockchain. For example, non-fungible tokens can be proofs of authenticity for:

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  • Pictures
  • memes
  • videos
  • Gadgets in games or in digital worlds, for example Metaverse
  • exchange cards
  • Testimony
  • certificates
  • music

At the end of last year, for example, the lyrics to the song “King of Rap” by the musician Kool Savas were auctioned off as an NFT. Purchase price: 30,000 euros.

Unlike cryptocurrencies such as bitcoin or ether, which act as means of payment with an identical equivalent value, NFTs cannot simply be exchanged with each other. Their price depends on 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 forgeries 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.

Additionally, 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, brought in a whopping $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 dollars. According to the market research website, in 2020 it was still around $340 million.

According to forecasts, NFTs should finally reach the mainstream in 2022. But recently the market faltered. Security concerns, strong price fluctuations and the drastic decline in cryptocurrencies dampened the NFT hype. So buyers should always consider the purchase risk. If the demand and hype for an object decreases, the 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 about 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.

Not surprisingly, there are also security holes. For example, hackers in China managed to distribute copies (tokens) of stolen art.

Read about this: NFT – Declining interest in the money machine

Where can I buy NFTs?

If you want to invest in non-fungible tokens, you must have access to an appropriate platform. Venues where you can buy NFTs include:

Read about this: Gamestop plans its own NFT platform and cooperation 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 expanding. US crypto exchange Kraken is currently developing an NFT marketplace where tokens can be used as collateral for loans. Kraken founder Jesse Powell announced this to the Bloomberg news agency at the end of 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 corresponding online broker or crypto platform, such as Coinbase.

Example: How buying NFTs via Coinbase Wallet works

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 hold cryptocurrencies.

Once linked, navigate to the wallet app tab “Act”to exchange ETH for any NFT compatible with the Ethereum standard “ERC-20 token”. Push “choose coins”, select NFT and a relevant trading venue, for example Opensea. Enter the amount of ETH you want to invest in NFT. You should take transaction fees into account.

More: Non-Fungible Token: A new asset class is about to make a breakthrough in 2022

First publication: 21 January 2022 at 10.19.

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