When it comes to NFTs, follow your passions, not the market

NFTs are having a huge cultural moment right now.  In March 2021, digital artist Beeple sold one of his NFTs for $69 million.  Zoë Roth, who became internet famous in the widely shared “Disaster Girl” meme, sold an NFT of the original photo for almost $500,000.  And New York Times columnist Kevin Roose sold an NFT, of his article about NFTs, for $560,000.  In short, NFTs are leading to big paydays, and a lot of people are cashing in.  But what exactly are they?

Understanding NFTs

NFT is an acronym, short for non-fungible token.  Before we dissect what non-fungible tokens are, it’s important to understand the concept of fungibility.

Fungibility means that an asset can be traded or interchanged with other assets of the same type.  For example, a one-dollar bill is fungible.  Let’s say Person 1 loans Person 2 one dollar, and Person 2 pays back Person 1 using a different one-dollar bill.  It doesn’t matter that Person 2 paid his debt using a different dollar bill – a dollar is a dollar as long as it’s the same currency.  Regardless of what dollar bill you have, you still have one dollar.

Non-fungible assets are the exact opposite.  If Person 2 takes Person 1’s yorkie for a walk and brings back a different yorkie, there’s a problem.  Yes, Person 2 has brought back the same dog breed, but they haven’t returned Person 1’s specific dog.  Thus, non-fungible assets are unique, and their value lies in the fact that they can’t be interchanged for other items.

This brings us to NFTs.  NFTs are essentially proof of ownership and authenticityof digital goods.  They can be sold for money, like rare artifacts or pieces of art, but not traded like cash or stocks.  Most NFTs are logged on the Ethereum blockchain, which serves as a decentralized and trustworthy record of who owns each NFT.

As an example, the person who bought Beeple’s $69 million NFT is the only person who holds that NFT and that transaction is logged on the blockchain.  The owner can’t simply trade the Beeple NFT for another NFT; they’d lose money and receive something far less valuable in its place.  Instead, the owner can hold onto the Beeple NFT, wait for the price to increase, and then sell it to the highest bidder.  Essentially, NFTs are investments, with each one serving as a unique piece of digital property.

The Best Approach to NFTs

Now that you know what NFTs are, this begs the question – what are the best NFTs to buy?  Unlike the stock market or the art market, NFTs are relatively new.  The industry hasn’t been around long enough to produce trends or enough data for analysts to identify NFTs with the most long-term growth potential.  That being said, it’s best to follow your gut and purchase tokens that align with your interests.  Below, you’ll find three popular categories that have something for everyone:

• Artwork: If Beeple’s big sale has you hunting for the next digital art phenomenon, try LiveInPeace. “Rare Rose”, one of her NFT offerings, has a gothic feel and shows several men attempting to climb a summit in pursuit of an illuminated rose.  The skeletons lying on the mountainside suggest it’s a perilous journey, one of life or death.  There’s also “Gust of Flowers”, an animated tornado of bright flowers, punctuated with playful colors and eye-popping graphics.  Get in now – both NFTs’ values are sure to skyrocket.
• Sports: For avid sports fans, NFTs have become digital trading cards. But instead of highlighting a player’s stats, they commemorate specific moments.  NBA Top Shot features a full-fledged marketplace full of digital collectibles that are released in periodic drops called packs.
• Pop Culture: In early March, Twitter co-founder Jack Dorsey sold an NFT of his first tweet through a platform called Valuables, for nearly $3 million. For people who can’t get enough of their favorite pop culture moments, NFTs are a way to lay claim to social media posts, YouTube clips, songs, and more.

Like cryptocurrency, NFTs have created a new way to build wealth, and we’re just learning about the market’s potential.  If you’re hunting for a novel way to invest, NFTs just might be for you.