How to invest in NFTs? NFTs, or non-fungible tokens, have proven to be an interesting and promising addition to the world of cryptocurrencies. They allow simple tokenization of physical and digital assets which offers the possibility of creating a whole new dynamic digital ecosystem where players can exchange different objects via the Blockchain.
How do NFTs work exactly? How to invest in NFTs? Where to buy NFTs? What are the risks associated with investing in NFTs? We tell you everything in this article!
What is an NFT?
What-is-an-NFT-Non-Fungible-Token?
A Non-Fungible Token, non-fungible token or NFT, is a unique 100% virtual token (or a digital version of something that exists in the real world) issued on the Blockchain, mainly that of Ethereum, and directly transferable between two people.
An NFT is different from a classic cryptocurrency like Bitcoin or Ether. Cryptocurrencies are indeed fungible, that is to say interchangeable. 1 Bitcoin is worth 1 other Bitcoin, while an NFT is not fungible.
It is therefore a unique asset that cannot be replaced by something else: 1 NFT is not worth 1 other NFT. A non-fungible token indeed has unique properties and shows certain proofs of authenticity and signatures such as a unique identifier, a unique creator, or even unique content.
In which areas are NFTs found?
NFT Art
The world of art and digital collectibles seem to be one of the most popular uses for NFTs such as with NBA Top Shot NFT Trading Cards or selling artwork like Beeple or Art Blocks Curated at Christie's.
NFT Gaming
Another sector at the heart of the recent NFT revolution, gaming brings together many ways to profit from these non-fungible tokens. You can buy items in games or manage real estate NFTs in-game metaverses for example. Decentraland, The Sandbox, and Enjin are the most popular Blockchain games. AxieInfinity is also one of the best-known NFT video games.
NFT Sport
With NFT collections in the world of sports and some NFT games like Sorare, the sports world is increasingly integrating NFTs which are used to create new products/services and offer unique experiences to fans.
Other areas where NFTs are found
Since NFTs can represent the proof of properties of many underlying, and they have many uses, they can also be found in logistics, avatars, music, domain names, ticketing, real estate, or luxury brands among other sectors.
The different types of NFTs
As we have seen, there are many areas that NFTs can focus on. Finally, almost any digital object or good could be associated with a non-fungible digital token.
However, we can try to group certain domains into several use cases that would form different types of NFTs such as the following:
NFT Art: These NFTs then represent various collectibles, works of art, music tracks, videos, GIFs, memes, etc.
Game NFTs: These NFTs represent all the items that can be purchased in games, as well as those available in the metaverse.
NFT certificate: These NFTs represent title deeds, property rights, patents, certificates of origin, domain names, etc.
Reward NFTs: These NFTs represent bonuses, promotions, loyalty programs, special private sales, unique events, etc.
What is the profile of NFT investors?
Since NFTs are recent crypto assets that are unregulated, it is difficult to determine what actually moves their prices, especially when talking about NFT art, and investors have no real protection when they invest in this asset class.
This is why the profile of investors in NFTs is generally that of an investor with a high tolerance for risk in search of significant returns and who particularly likes to speculate on the markets.
Buyers of cryptocurrencies and NFTs are generally young people, aged under 35, and mostly men, according to studies by the audit firm KPMG.
For some, investors in NFTs could also be enthusiasts, collectors looking to find the rare pearl in all these digital works, who simply want to create a collection of crypto art, or who want to support digital creation by investing in works of certain artists or by creating museums or virtual exhibitions in the metaverse.
Why invest in NFTs?
A way to have a unique relationship with creators
NFTs are seen by some as a way to take advantage of the Blockchain to support a creator and have a privileged relationship with him.
A solution to support artistic creation
Others believe that NFTs are the future of how culture is going to be stored, making them an attractive investment option for those who want to capitalize on this cultural aspect and support creation.
A tool of speculation
For some people, NFTs are a relevant speculative and investment tool to take advantage of large price movements both at the level of the NFT and at the level of the cryptocurrency used to buy/sell the NFT in question.
A way to take advantage of an asset with significant upside potential
Since NFTs are unique, the associated sense of scarcity can increase interest in certain NFTs, thereby driving up their price. It is indeed possible to make significant profits if you invest in the right NFT.
Use cases for NFTs are also on the rise, making this market increasingly popular, and paving the way for significant growth and development potential.
A new way to collect art
NFTs can also be used by those who want to enjoy the art of collecting. Crypto art is about many digital works, or the digital version of physical work, and can be approached in two main ways.
You can either approach it in the same way as a stock market portfolio, that is to say by considering a return/risk ratio, or by proceeding by favorites, affinities, or themes.
To maximize your investment in NFTs, it is advisable to focus on what you know how to do. So use your area of expertise to choose the best NFTs based on your goals, but especially your knowledge.
What are the risks of investing in NFTs?
A volatile market value not based on anything concrete
For those interested in NFTs, especially when they relate to art or collectibles, be aware that their value can quickly rise or fall. It is based on scarcity, but above all on the market sentiment and reputation of an NFT at a given time.
These assets are therefore highly volatile. So you can easily and quickly lose your investment.
The lack of liquidity
The NFT market is not particularly liquid, which makes it more difficult to determine the value of an NFT, but also its resale value. This situation is problematic for those wishing to speculate in the NFT market.
Hacks
NFT platforms can be hacked. This is why it is not recommended to leave your tokens on the wallet of the platform you use and always transfer them to your private wallet.
Scams and copyright issues
Beware of scams, as some people may sell items as NFTs that do not belong to them or are linked to an NFT that is not at all what was originally described. We must also not forget that almost anyone can create an NFT and sell it. Not all NFTs are created equal.
The risks associated with the inaccessibility of the NFT
An NFT is essentially just a code or link to what the NFT stands for. Thus, this connection can be broken if there is a problem with the server or in the code leading to your NFT or if the company hosting it goes bankrupt. Although it may seem silly to some, it is also possible that you lose access to your NFT simply because you forgot your wallet password.
NFT scams to avoid
Wash trading
One of the first things to watch out for when you want to invest in NFTs is its price to see if it has been artificially inflated by what is known as wash trading or manipulation of trading volumes.
In this situation, an NFT holder will buy and sell their NFT using multiple wallets they hold, in order to attract the attention of potential buyers via some level of auction activity.
Copyright infringement
Some people may appropriate and sell NFTs that relate to objects or works that do not belong to them, thus violating the exclusive rights of the author. These NFTs can even be considered counterfeits that infringe intellectual property rights.
Data theft
Faced with the enthusiasm of investors for the NFT market, some hackers are implementing phishing or phishing strategies, posing as influencers or recognized entities in the sector, to steal personal information and access to crypto wallets from investors.
Malicious airdrops
Investors can sometimes take advantage of NFT airdrops tied to a contest or reward. However, sometimes there are malicious NFT airdrops or NFTs offered that you don't know where they come from. So be careful with this technique which often aims to steal your data.
How to invest in NFTs?
To invest in NFTs by purchasing them, you must first choose and configure a cryptocurrency wallet to which you will send your recently purchased NFTs.
You must then choose the platform you are going to use depending on the type of non-fungible tokens you want to acquire and the type of currency you want to use as a means of payment (fiat currencies vs cryptocurrencies).
If you want to acquire NFTs with digital currencies, you must first have them, the most common being Ether. To buy cryptocurrencies, you just need to go to an online exchange or broker.
In France, companies wishing to sell crypto assets legally must be registered with the Autorité des Marchés Financiers (AMF) and obtain a status of Service Providers in Digital Assets (PSAN).
If you want to be sure that you are using an entity authorized by the AMF, do not hesitate to consult the list of PSANs registered with the AMF.
If you want to be indirectly exposed to the NFT market, you can turn to listed companies or financial products related to these companies such as specialized ETFs for example.
While there are a few pure players, you can also choose to invest in a large company that has decided to support and participate in the NFT market.
Marketplaces NFT
There are several marketplaces with NFTs that you can buy or sell. Some platforms offer all types of NFT, while others are more focused on a particular NFT field such as the digital art market for example.
NFT marketplaces for investing in NFT can also be classified according to the Blockchain on which the NFTs are created such as Ethereum or Solana.
Among the most popular NFT marketplaces are the following platforms:
What regulation around NFTs?
As the popularity of non-fungible tokens (NFTs) skyrocketed in 2021, many regulators are looking to regulate this trendy new asset. Despite everything, there is no specific regulation to date.
However, politicians are taking a close interest in this new class of assets which they are trying to regulate in order to provide a legal and legal framework for investors, but also for creators and users of the NFT world.
The Economic Affairs Committee of the European Parliament adopted in mid-March 2022 a draft regulation of the European Parliament and of the Council on the crypto-asset markets (“Market in Crypto Assets” or MiCA) which should regulate the world of crypto assets in Europe by 2024.
Regulation could also make it possible to refine the taxation of NFTs, which is currently still unclear. MP Pierre Person tabled an amendment to the finance bill for 2022 with the aim of clarifying the taxation applied to NFTs.
Today, NFTs do not exist as such in French law. However, it is possible to associate NFTs with a defined asset to apply the same taxation and legislation to it.
In this case, the legal status of NFTs can be compared to that of a digital asset, a work of art, or tangible personal property. Different tax regimes then apply.
NFTs at the base of the Metaverse
Since the metaverse corresponds to a kind of network of online environments creating a virtual world in which it is possible to interact and enjoy many immersive virtual experiences via an avatar, non-fungible tokens are at the heart of this new ecosystem. A system that could become the Internet of tomorrow.
NFT (Certificate of Authenticity and Ownership) technology offers many opportunities and possibilities for development in the metaverse – clothes for your avatar, furniture for your virtual apartment, land or plot in a virtual world, etc.
Among the popular projects linking NFT, metaverse, and the video game world, we can find Decentraland, Roblox, and Axie Infinity for example.
Disclaimer:
All of our information is, by nature, generic. They do not take into account your personal situation and do not in any way constitute personalized recommendations with a view to carrying out transactions and cannot be assimilated to a financial investment advisory service, nor to any incentive to buy or sell instruments.
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This post contains affiliate links. I will make a commission if you click on these links and ultimately make a purchase.
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