NFTs Explained: What Exactly Are Non-Fungible Tokens?
May 31, 2021Table of Contents Contents
just setting up my twttr
— jack (@jack) March 21, 2006
Twitter founder Jack Dorsey's first tweet sold for $2.9 million as an NFT.
NFTs have been making headlines recently and attracting a lot of attention (and investment), as well as a lot of questions. Well-known and unknown artists alike have been making millions off digital images sold as NFTs, and the founder of Twitter recently sold his first-ever tweet as an NFT for $2.9 million.
If your first reaction when seeing news like this is total confusion, you’re far from alone. The good news is NFTs are simpler than you think and even a fun investment opportunity for many.
Keep reading for a high-level primer on everything you need to know about NFTs.
What is a Non-Fungible Token?
NFT stands for non-fungible token. The name takes some getting used to and is likely why so many people furrow their brow when NFTs are mentioned. At its most basic level, a non-fungible token is a form of cryptocurrency. It’s something that certifies a digital asset is unique and one of a kind.
Every NFT is stored in blockchain, just like Bitcoin. But unlike Bitcoins, NFTs are not interchangeable. “Non-fungible” really just means that each token is 100% unique and can’t be replaced or replicated by any other NFT. While Bitcoins can be traded one-for-one and each party will have the same thing after the trade—a Bitcoin—NFTs don’t work the same way. Every single NFT is entirely one-of-a-kind.
Think of it this way: There may be millions of copies and photos of the Mona Lisa in the world but there’s only one original, and the original is the one with the highest value. An NFT simply certifies that a specific digital asset is unique.
Why have NFTs become so popular recently?
One of the reasons NFTs are suddenly so popular is they have the potential to solve one of the inherent problems of creating art in a digital world: How do you recoup value when anything digital can be easily and perfectly copied and dispersed for free?
NFTs give artists the opportunity to profit off original versions of their digital work. Likewise, they give collectors a new opportunity to invest in an emerging space that many feel is the future of fine art collecting.
Just opened up the flood gates to the future of meme economy in the Crypto universe, no big deal~
— ☆Chris☆ (@PRguitarman) February 19, 2021
But seriously, thanks for believing in Nyan Cat all these years. I hope this inspires future artists to get into #NFT universe so they can get proper recognition for their work! pic.twitter.com/JX7UU9VSPb
Nyan Cat, an internet meme turned NFT, sold for over US$550,000 in 2021.
What are the best NFTs to own?
While anything digital can be an NFT, most of the buzz and excitement has focused on digital art—from images to videos to music.
If you’re interested in owning some NFTs, you’ll first want to ask yourself what your goal is. If you’re looking to make money by investing in NFTs that you expect to appreciate in value, you need to understand they’re highly speculative and therefore a high-risk bet. NFTs from established or well-known artists are most likely to retain and increase in value, but this is still very speculative.
If your goal isn’t to make money but instead support artists you like, NFTs are a fun way to do that while picking up a one-of-a-kind collectible. One potential bonus from owning an NFT is that you then also own the rights to display that digital asset as you see fit.
How can Canadians invest in NFTs?
NFTs are issued on blockchain, so if you don’t already own and exchange cryptocurrency you’ll need to set up a few things before you can begin investing.
The first thing to do would be to explore the different marketplaces available to buy NFTs from. Popular exchanges include OpenSea, Rarible, SuperRare, Nifty Gateway, and Foundation.
Next, you’ll need to open a cryptocurrency wallet that’s compatible with the marketplace you think you want to purchase NFTs on. Not all marketplaces are compatible with all wallets, so you’ll ideally want to line up your preferred marketplace first. Some popular wallets include Coinbase, Coinomi, Armory, and Trust Wallet.
Finally, you’ll need to fund your wallet with the cryptocurrency that the specific NFTs you’re interested in are issued on. For example, Ethereum is the most common blockchain for NFTs, but NFTs are also issued on other cryptocurrencies as well.
Should I invest in NFTs?
Since NFTs are (at their most basic level) digital collectibles, buying them is highly speculative. So be cautious and set expectations for yourself before you begin. Align these expectations with your investment goals.
If you’re dead-set on purchasing NFTs, think about setting a spending cap for yourself, ensuring you only buy what you’re prepared to lose.
You should also ask yourself why you want to buy NFTs. If it’s to make money, you might be better off learning about the basics of investing in the stock market, or by investing in ETFs, mutual funds, and index funds.
Can I create my own NFT?
Anyone can create their own NFTs and doing so is relatively easy. This is one of the factors that has made NFTs so popular recently. If you’re an artist, you no longer need connections with a well-known art gallery or auction house to list and sell your artwork to a large audience. Instead, you can just create an NFT and put it up for sale on a wide variety of the NFT marketplaces available online.
Once you have your piece of digital art or the digital file you want to create an NFT for, all you have to do is register with your desired marketplace and publish it through their platform. Each marketplace will have a slightly different publishing procedure and some may charge a fee. Completing this step means you’ve created an NFT and it’s now in your collection—you own it.
Once you’ve created your NFT, you’ll have the option to sell it through the same marketplace. Again, some may charge listing or selling fees, so read the Ts and Cs carefully.
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