Things You Should Know Before Investing in NFTs
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Non-fungible tokens (NFTs) have existed since 2014, but these digital assets have really become popular in the past few years with the creation of the metaverse and its social component, making people want to show up with unique items. If you don’t know, the metaverse is a virtual world where people can play, shop, and socialize.
Big brands, celebrities, and influencers quickly jumped the bandwagon, and even Time Magazine has NFTs now. However, before you rush to buy NFTs, there are a few things you should know because it’s not as simple as you may think, and it’s not like playing at Casumo online casino.
Understanding What an NFT Is
NFT stands for a non-fungible token; it’s a digital asset that you can buy using a cryptocurrency or, in some cases, fiat currency. It’s encrypted with the same technology and uses the blockchain network, meaning it benefits from all the security provided by leading networks such as Ethereum and Solana.
However, unlike cryptos like BTC or ETH, an NFT isn’t fungible, meaning another identical item can’t replace it. While 1 BTC is always going to have the same value as another BTC, each NFT is unique, and that’s why investors value them. It’s the reason most NFTs are art pieces or grant rights to specific physical assets.
Most NFTs Use the Ethereum Blockchain
The Ethereum blockchain is the most used to store and encrypt NFTs; other blockchains including Solana and Tezos support them. The blockchain is a public ledger recording every transaction. When you want to acquire an NFT, you need a digital wallet, and to buy some crypto, in most cases, you’ll need Ethereum because of the network’s dominance.
NFTs are traded on both decentralized and centralized exchanges like Binance. On decentralized trading platforms, like OpenSea, users often have to pay for the transaction fees of the network they’re using when buying and selling NFTs.
Proof of Authenticity
Proof of authenticity is the main concept to understand about NFTs. Each asset is unique and comes with a code to prove it’s the real deal. Why is it revolutionary? Before, when you wanted to buy art, you needed to find it at an art gallery and get a certificate of authenticity from an expert. However, this certificate can be lost, the art piece can be stolen or copied, and many other issues could arise, like poor conservation of the item or even its destruction.
Since NFTs are entirely digital, these aren’t issues anymore, and you get total ownership of the NFT until you decide to sell it. The blockchain being a public network, everyone knows who owns what, and it reduces the risk of fraudulent activities.
Are NFTs Worth Buying?
Since the concept of unique digital assets is particularly trendy, more and more NFTs appear on a daily basis. However, you shouldn’t buy an NFT just because you can. The future of NFTs is still uncertain, and not every investment will be worth it in the long run. The asset’s value solely depends on someone else’s willingness to buy it from you and is subject to capital gains taxes when you sell it.
The crypto used for the transaction will also evolve between when you acquire the item and when you decide to sell it. For all of these reasons, it’s essential to do some research on the NFT you’re looking to acquire to ensure it’s a good investment for you.
The Bubble Can Burst
Many people invest intensively in NFTs as they did with cryptocurrencies, which creates what financial experts call a bubble. Unfortunately, this pushes prices very high, extremely fast, and like any bubble, it’s destined to burst at some point. This makes long-term investments all the riskier and creates an unsustainable market.