If you’ve browsed any news outlets lately or sifted through any new social media trends, you’ve likely seen the letters N, F, and T embedded within headlines and captions. What do these letters mean? Why are they growing in popularity? How do they work, and why are they important? How has this new fad already reached $22 billion in market value? If you’ve been asking yourself these questions, scroll down for your long-waited answers.
NFTs are non-fungible tokens. Fungible means interchangeable; there’s nothing unique about it. NFTs are, by definition, unique and individual. They cannot be replicated or replaced. Bitcoin is fungible as it is traded like money because we can create more of both of those entities. Though NFTs also operate on the same blockchain network, they do not work like Bitcoin. NFTs are a digital slice of time and space; they can be anything from art to music to video game items. They can be trading card collectibles or big sports moments, memes, domain names, virtual fashion, or even digital real estate.
Real-world items can also become NFTs. For example, if you digitize the deed to your car, it can be sold or traded to another owner. This is as sure and legal as any other way to sell a vehicle.
If it’s on the internet in its own unique, nonreplicable space, it can become an NFT. People could sell their Facebook statuses or Snapchat stories if they wanted to. Perhaps the most famous NFT is Twitter CEO Jack Dorsey’s first tweet. He brilliantly sold the digitally autographed imprint of his first tweet ever for a whopping $2.9 million, which he promptly donated to Give Directly’s Africa Response fund for COVID-19.
How do NFTs work?
At its most basic, NFTs offer the ability to claim or assign ownership of a unique piece of digital data. Most NFTs are part of the Ethereum blockchain, which also supports cryptocurrencies such as Bitcoin and Dogecoin. Other blockchains like Solana and Polkadot have also implemented their own versions of NFTs, but Ethereum has remained at the top of the pyramid.
Built on the Solana chain, The Solciety launched an anime-style NFT Project where your NFT (Solmate) has a unique personality (Myers-Briggs Type Indicator) and a spirit animal attached to it. The project focuses on a repopulation mission where your Solmates can interact with each other to see if they're compatible.
Example: An ESTP (Extroverted, Sensing, Thinking, Perceiving) type, aka the Entrepreneur, will be super compatible with both ESTJ (Extroverted, Sensing, Thinking, Judging) and ESFP (Extroverted, Sensing, Feeling, Perceiving), which makes sense due to having so many similarities.
What are the top NFT Marketplaces?
These are the biggest NFT marketplaces:
- Looksrare made $4.72B in sales with 15k buyers *new marketplace*
- OpenSea made $3.74B in sales with 473k buyers, almost a 57% increase in sales volume last month.
- Magic Eden made $370.09M in sales with 209k buyers, almost a 41% increase in sales volume last month.
- Solanart made $36.5M in sales with 38k buyers, almost a 59% decrease in sales volume last month.
- Rarible made $14.92M in sales with 7,500 buyers, a 24% decrease in sales volume last month.
How are NFTs traded?
Each NFT can only have one owner at a time, verifiable via public record. With access to a revolutionized global marketplace, owners can sell their work while retaining ownership rights and resale royalties.
Owners can sell their NFT for money or barter it for anything built atop the Ethereum network. You could trade an NFT for another NFT. However, they do not act as tokens do. They are not interchangeable at a 1:1 ratio; some NFTs are worth more than others. These trades are all trackable by Ethereum’s position as a digital, public ledger.
How to invest in NFTs?
You'll need a crypto wallet on an NFT marketplace to bid on digital assets. Obviously, your wallet must have enough of the right funds to purchase the NFT at hand. For example, an NFT sold on the Ethereum network may demand its purchase specifically in Ether tokens.
The next step is the same step investment bankers have been practicing for decades: choosing wisely. If you're purchasing an NFT as an investment instead of personal expenditure, you'll want to buy something that has lasting value. Like a fine wine or collectible, something that appreciates as time passes, leading to a healthy return on investment.
How to sell NFTs
Once an NFT is purchased, it is yours to do with what you wish. Some display it for others to drool over; some keep it as a collectible; some sell it. To sell an NFT, it's uploaded to an NFT-backed marketplace. You can either list it for sale at a set price or opt for an auction-style sale where the NFT goes to the highest bidder.
Marketplaces charge fees for NFT sales, but these fees fluctuate based on how much energy computing the NFT takes, also known as a gas fee. Once the NFT is sold, the marketplace will transfer data points and currencies to each respective wallet.
What kind of NFTs should I buy?
The good thing about NFTs is they span over many genres of entertainment. Meaning you can invest in your own interests. Passionate about basketball? Buy an NBA Top Shot NFT of Stephen Curry making the game-winning shot. Obsessed with memes? Buy a gif of Nyan Cat. Then sell it when you lose interest or think you’ll get an impressive ROI. The revolutionary aspect of NFTs is that it personalizes investing.
Coinful Capital’s top NFT selections are in the highest traded collectible space:
- Bored Ape Yacht Club
- Mutant Ape Yacht Club
What role could NFTs play in your portfolio?
Like any other investment, NFTs can act as a solid portfolio diversifier.
Holding an NFT grants traders exposure to the chain itself as well as the chance of capital appreciation. If you choose wisely, NFTs can collect jaw-dropping rewards.
What are the risks?
As with all investments, there is the risk of losing capital.
If you choose unwisely, NFTs offer an equal chance of capital depreciation. Like all investments, traders must be confident in the success of their purchases.
While NFT’s reach is impressive, it leaves room for scammers. Anyone on the internet can create an NFT out of, well, anything. There are many useless NFTs out there; investors must take great pains to decide what is worth their money.
Some common tricks played by NFT scammers are easy for experts to see but not as noticeable to the untrained eye. Wash trading, the practice of pumping up the sale price by opening up multiple accounts and bidding on your own NFT, is common on the newest digital marketplaces. To succeed in this new NFT world, you need thick skin, an observant eye and a quick mind.
The Bottom Line
NFTs are the freshest wave in digital finance. Consuming nearly every genre, it is unlikely the hype of NFTs will die down anytime soon. Coinful Capital’s humble advice is not to ignore this fad. Research, read the risks and rewards of each possible investment. Think of your portfolio as a whole, not just the sum of its components. Think long-term. It’s still too early to tell, but this may not be a fad after all. This might just be the new normal.
Contact Coinful Capital for more specific information on how to weave NFTs into your personal portfolio.