NFTs: What They Are, How They Work, And How to Invest

By James Robert- May 31, 2022 138

You must have heard NFT more than once lately. We are not surprised. Such investments, at first glance, are becoming more and more complex. Even some of the world's largest companies (such as McDonald's, Coca-Cola, even FC Barcelona, ​​among many others) are betting on it. 

Currently, 14% of online art platforms are already offering NFT, and 38% plan to do so soon, according to the Online Art Trade Report 2021 published by Hiscox. To date, the artwork has sold a total of 3,025 million euros on the NFT. 

But what is an NFT? How do they work? Are you thinking of investing in NFT? Let's see what they consist of.

 

What are NFTs?

NFTs, or non-fungible 'tokens', are certified digital assets using blockchain technology. The cryptography of these tokens makes these resources unique: no two are identical and cannot be exchanged for each other. This will allow you to prove that the person who bought it is the sole owner 

NFT can be anything that can be practically digitized: from artwork to memes, tweets, photographs ... The universe is huge.

 

But… What are non-expendable assets?

In our Civil Code, especially in Book II (on assets, property, and its modifications), Book I, article 337, we can find expendable and non-expendable assets. 

The main difference between disposable and non-disposable property is that disposable property can be exchanged and its value is determined by its properties. On the other hand, non-consumable products are not replaceable or "usable" and are not consumed. Let's see, a good example of a fungus is money: you can change it, you can spend it, it will not lose its value in exchange ... Does the same thing happen to works of art like painting? Of course not. No work is comparable to another, so it cannot be replaced, compared, or "used". 

So, any NFT is a 'non-fungible token' or a 'non-fungible token'.

 

How do NFTs work?

The operation of NFTs is easier than it may seem. Follow an example of a work of art: If you want to create an NFT of a drawing, for example, you tokenize it through NFT and sell that token online. That way, you manage to separate the work and register it in a way that makes it unique. 

Then, what is called ‘smart contract’ or intelligent contract is programmed? In this agreement, you will get all the information about the part you bought, as well as what you need to know about the various transactions that you can make with your purchase. 

As we saw in the beginning, NFTs are certified using blockchain technology, much like cryptocurrency. One of the differences between NFT and cryptocurrency is that the former is controlled by the price of the asset (although they can also be bid on), while the latter is controlled by supply and demand (depending on market volatility). And that is, although NFTs are technically related to cryptocurrencies, cryptocurrencies are not fungal products and NFTs.

 

Characteristics of NFTs

 

They are unique

An NFT is unique: as we mentioned earlier, thanks to its metadata (which you can find in its smart deal). You will see its authenticity and uniqueness, which sets it apart and sets it apart from others. A good example is a unique land that you can buy in the Descentraland game.

 

They are indivisible

NFT cannot be split. This sets them apart from crypto: when we don't have enough money to buy the whole bitcoin (which is normal), we know we can buy a part of it in proportion to the change. If a cryptocurrency was like an NFT, you could only buy it in whole units.

 

They are rare and 'exclusive'

They are unique, they are rare, they are rare. Why? This is because each resource in a blockchain network can only be defined once, making it impossible for an individual to register a second time.

 

And what is an NFT for?

As already mentioned, blockchain technology makes it possible to track and verify whether a digital work is real. But, in addition to this, some companies are offering other uses of NFT. 

For example, in video games. If you play a video game, be it paid or free, some include micropayments to buy things like suits, weapons, or vehicles. But when you buy a suit, it's not really about that person. Many more people buy it and have the same. Instead, when using NFT, when you buy an item, it is only from that person. If the buyer does not like it or just wants to get rid of it, they can sell it, even at a higher price. 

Also in digital art, tweets, or video games, NFTs are being applied to other sectors and industries such as collections, music, movies, sports, or fashion. 

In addition, it has been shown that NFTs come to the Internet with the help of personal property. As a result, you may have more assets, more assets, and therefore more resources.

 

Disadvantages

For some, the future of NFT collections, but others see them as a fad. A fashion that is concentrated in the hands of a few people. For Chainanalysis, 9% of NFT owners hold 80% of the market value. Don't forget, there is no return on investment at the moment and there are many cases of fraud and scams. Finally, there are doubts about its control, very little progress, taxation, and the high energy costs required to transact through cryptocurrency.

 

How to invest in NFTs

There is currently no regulated market for investing in NFT. In fact, it is natural that for many investors paying thousands of euros for a digital photo may sound crazy. But the truth is that a lot of people are betting on NFT. 

The most difficult thing is to determine the growth rate or probability of NFT or NFT collection, as in the case of cryptocurrencies, for example. 

On the one hand, we have this kind of investment in mind related to blockchain and we can think of trading (a very short-term investment). But, on the other side of the scale, when we talk about industry NFT, we think that they appreciate value over time (or so it stays with the 'normal' industry).

 

Thus, it is important to consider the following before you start investing in NFTs: 

      Read, research, and understand this market before you jump into investing. 

      Choose a platform to buy NFT: Opensea, Raible, Sorare, Montana. 

      Analyze in detail what you want to invest in and immerse yourself in the project: Try to build the interest of the person or persons behind the project, the developer, the community.

      Part of the strategy of these crypto resources is to re-evaluate over time so that the time you are going to keep NFT should also be taken into consideration. It is necessary to know how much you are ready to pay.

 

Once you're clear about all of this, log in to one of the existing NFT platforms and invest in the outline steps. Attaching your wallet is essential for being able to proceed with payments and even auctions. 

Take a look at its price history (if any), current offers for the work, and review the information about the creator. Normally (as in the case of Open sea, the most famous NFT trading platform), you can: 

1.     Make a bid to enter the auction. If accepted, it will be loaded into your wallet.

2.     Buy the work directly for the price that you will see reflected. 

Of course, there are other ways to make money through NFT through different business models: being an artist and uploading your work or as a project developer.

 

NFT Examples 

The first tweet in history 

"Just setting up my Twitter." This was the first tweet posted on March 21, 2006. Jack Dorsey, one of the founders of Twitter, sold it for 2.9 million.

 

Kings of Leon and their NFT album 

The rock group Kings of Leon sold their album via NFT this year, becoming the first music band to do so.

 

The most significant moment of FC Barcelona

Allied with the Ownix ​​platform, Barাa has sold exclusive content to its fans since its 122-year history. To do this, some significant moments in its history were taken and turned into a digital asset for collection in NFT format.

 

Hollywood's NFTs 

The film industry has jumped on NFT's bandwagon. An exclusive rendering offer of the car from the movie Back to the Future, produced by Universal Studios, includes some top-rated files; A Ghostbusters logo from Columbia Pictures, and another image of Star Trek Starship from CBS Studios. The latest major release from the James Bond franchise was a memorable series coinciding with the release of the movie No Time to Die.