NFTs: What The Craze Is About And Should You Buy One?

Move over, GameStop. NFTs are the next hottest thing in the investing world. NFTs, or non-fungible tokens, have turned some people into millionaires overnight.

Case in point, the artist known as Beeple recently sold an NFT for $69 million. So, what exactly are NFTs?

NFTs, explained

To understand non-fungible tokens, let’s start with what fungible items are. Simply put, fungible items are assets that interchangeable; each one is exactly the same as any other. Think of dollars or coins – a $2 note has the same value as all other $2 notes.

Non-fungible assets, on the other hand, are unique. For example, collectibles like a one-of-a-kind race car or a piece of art.

When combined with blockchain, you can use non-fungible tokens, or NFTs, as digital certificates of authenticity. Blockchain is simply a digital ledger that is stored across the web, which in effect means it cannot be lost or changed.

NFTs record ownership details of a digital collectible – digital art, audio files, video clips, virtual land in a video game – on blockchain. So although a song or a video clip can be copied and shared with millions, an NFT confirms who really owns it.

How can NFTs be used?

Right now, NFTs are used in the collecting world. NFTs that have sold for millions include:

  • The first-ever published tweet, sold by Twitter CEO Jack Dorsey, for $2.9 million
  • A series of digital artwork by the singer Grimes (aka Elon Musk’s girlfriend), which brought in $5.8 million
  • A digital collage of 5,000 individual digital pictures stitched together by an artist named Beeple. Sold for $69.4 million, the piece puts Beeple among the top three most valuable living artists
A collage by Beeple for sale at Christie’s. Source: CHRISTIE’S IMAGES LTD. 2021

Clearly, NFTs are becoming an increasingly lucrative market and have contributed to the crypto-art market that’s valued at over $100 million. They’re also a reminder that it’s not so much the quality of the collectible that makes them valuable, but their uniqueness.

Where can you buy NFTs?

Of course, not all NFTs cost millions of dollars. There are more affordable collectibles, like Lindsay Lohan’s face, which sold for $59,000.

Want to get in on the hype? All you need is money and an internet connection. You can buy NFTs from marketplaces like Zora, Rarible, CryptoPunks, Opensea and Foundation.

This is actually much easier than buying a very expensive piece of art from an auction house like Sotheby’s.

What’s really so special about them?

NFTs could potentially change the way artists make a living. Traditionally, once an artist sells a painting or a sculpture, they don’t usually get paid again even if their work appreciates in value years later.

With NFTs, you can code it such that the original creator gets a cut of the sale price each time the NFT gets resold. In essence, it allows the creator to set up a recurring revenue stream.

For investors, they get to purchase a piece of art without worrying about the logistics of maintaining a physical artwork. It is possible that investors could own pieces of an NFT – say 10% of the next Mona Lisa.

Just as robo-advisors made investing more accessible for everyone, so too could NFTs open up the rarefied world of art to smaller investors.

Should you invest in NFTs?

If you’re buying an NFT to support your favorite artist, by all means go ahead. But if you’re buying one purely as an investment, then you have to know about the risks. The NFT market is very new, and for all the hype about some NFTs selling for millions, their real value has not been established yet.

Right now, The Frugal Fox thinks the NFT market is largely speculative. With such crazy prices, the bubble may pop sooner rather than later. As with Bitcoin and other cryptocurrencies, NFTs will probably experience wild price swings in the months or years to come.

And although Bitcoin’s overall trajectory is still upwards over the past few years, there’s no guarantee that NFTs will chart a similar course.

Our take? Exercise caution if you want to invest in NFTs right now.

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