How to Invest in NFT: What You Need to Know

A Close Look: What Are Non-Fungible Tokens (NFTs)?

NFTs are a unique type of digital asset with no exact market price, as they have no asset of equal value. This is because each NFT is one-of-a-kind, unlike common banknotes, which have a specific circulation, and one banknote can be easily replaced with another. Another feature of NFTs is their blockchain nature and representation in the form of various digital creations. These can include memes, videos, music files, in-game items, and other items that essentially make up a virtual collection. Typically, virtual objects can be copied countless times, but this contradicts the “non-fungibility” characteristic, so each NFT object is marked as an original. This creates scarcity, and thus, if you own, for example, a meme or in-game items, you become their owner. In terms of profit model and value formation, NFTs resemble cryptocurrencies, which is why these two concepts are often considered together. Most often, tokens are based on smart contracts created on the Ethereum blockchain, which also offers users the cryptocurrency of the same name.

How Does the Process of Buying a Token Work from a Technical Perspective?

When purchasing an NFT, the transaction is recorded in the blockchain ledger. Since tokens have unique digital signatures, this serves as a guarantee of the asset’s authenticity. However, tokens should not be confused with cryptocurrencies, which represent a slightly different technology. It is more of a conditional certificate for a particular contract. For example, you can use this method to buy tickets for concerts, exhibitions, or other events or to donate to your favorite artists and performers. In essence, the token may not have a monetary value. This is why it’s not always a profitable format for investment. The token’s value may not increase, and you should assess the risks or understand the reasons for such an investment before purchasing. If you simply want to obtain original rights to a specific digital artwork, it’s a great way. If you are investing and planning to profit from it, you must evaluate all the risks.

Value Formation of Tokens

As mentioned earlier, tokens do not have an actual intrinsic value and are considered non-fungible assets. However, that does not mean your tokens will never appreciate in value. The value of this asset is based on “viewer sympathy,” much like cryptocurrencies. In other words, a token is worth as much as people are willing to pay for it. Therefore, popularity and promotion on social media are crucial. For example, Dogecoin became valuable because it was popularized by Elon Musk, and even those who had never heard of tokens before started talking about its release.

Investment Rules

You can purchase tokens on specialized exchanges like Rarible, OpenSea, Nifty Gateway, and other similar platforms. To successfully carry out the operation, you must create a digital wallet or use an integrated one (this option is available on some exchanges, such as Coinbase). Find the token you intend to purchase and pay for it just as you would for any other online purchase. Done! Now, you own an NFT, which will be stored in your crypto wallet after the purchase. Later, you can sell it if its value increases. To sell, you will need to upload the token to the market, set a price, or sell it at an auction. Token resale is carried out using smart contract technology.

Remember the importance of diversifying your assets in case your tokens do not become more valuable, as this can help minimize your risks.