An artwork called "The Merge" by artist Pak sold last year for $91.8 million. To date, it is the most expensive work of art ever sold by a living artist, but "The Merge" is neither a painting nor a sculpture. It is a non-fungible token (NFT).

An NFT is a digital asset that can represent real-world objects, such as works of art or even real estate. These crypto assets are bought and sold online, often with cryptocurrencies, and ownership information is secured and stored on a blockchain, a type of distributed ledger.

With art and sports NFT values ​​running into the millions of dollars, many investors are wondering if NFTs are a good investment.
An NFT is something that cannot be duplicated, it is the opposite of fungible.

The first known NFT, "Quantum", was a video clip called a monetized graph. When it was created in May 2014, it eventually sold for $4. Since then, NFTs have grown to become a $1.8 billion market, according to data from CoinMarketCap.

But what exactly is an NFT? Perhaps the first thing to understand is how an NFT differs from a fungible token.

If you think of two separate dollar bills, they are the same. If I take your dollar bill and give you my dollar bill, we both have the same thing. This means that a dollar bill is a fungible asset.

On the other hand, if you have a portrait painted by Pablo Picasso, it is not the same to change the work of that artist for a drawing of a three-year-old child. That is the basic premise behind NFTs.

“The concept of fungible versus non-fungible has been in our lives for centuries,” says Merav Ozair, a blockchain expert and professor of financial technology at Rutgers Business School.

Ozair defines a fungible object as something interchangeable or indistinguishable from something else.

A bitcoin is a fungible token on a blockchain, and it doesn't matter which particular one you own.

An NFT, on the other hand, is a unique blockchain token that is not interchangeable with any other token found on that or any other blockchain.

Where to buy NFTs
The first purchase of an NFT is called minting.

Minting is not the creation of the NFT; and rather, the minting activates an already created smart contract and places the NFT in a specific place on the blockchain network.

In this way, an NFT is a kind of non-fungible cryptocurrency. NFTs have the same characteristics as other blockchain technologies. A given NFT is immutable on the blockchain and its transactions can be seen by everyone, says Ozair.

Although you could possibly build your own blockchain to create and mint NFTs, most users choose an NFT marketplace to mint their NFTs.

There are two types of markets for NFTs: centralized and decentralized.

Centralized NFT markets
The key distinction between a centralized and a decentralized marketplace is that a centralized one will place certain restrictions on what it can do.

When a marketplace is centralized, Anthony Georgiades, co-founder of the layer-one blockchain Pastel Network, says, "You're not necessarily obligated as a user to make sure you're not infringing copyright." Instead, the market will take care of that for you.

Decentralized NFT Markets
On the other hand, hypothetically anyone can list anything on a decentralized marketplace. This can lead to copyright infringement or even fraudulent NFTs. Any of these factors could harm your investment.

In addition to the proposed price of the NFT itself, when users first mint an NFT, they pay both the NFT and the gas fee.

A gas fee is an additional fee charged by a blockchain network for the use of its computational resources.

Ethereum (ETH) is currently the largest network for NFTs, but there are other networks such as Flow (FLOW), Cardano (ADA), and Solana (SOL), to name a few.

However, each blockchain that supports NFT projects has its unique advantages and disadvantages.

Some networks also charge a gas fee for minting an NFT. Among cryptocurrencies that support NFTs, Solana's gas fees are relatively low compared to most others.

When minting NFTs, users may also want to see gas rates for the network.

How to buy NFTs
Once an NFT is minted, the user typically has free rein. Users can list the NFT for sale on the marketplace of their choice, trade it with someone else, or give it away for free.

Some NFT marketplaces, such as Nifty Gateway and NBA Top Shot, accept credit cards for NFT payments. But many other NFT markets may require cryptocurrencies to make purchases.

However, on any platform, you will need a crypto wallet to start buying NFTs.

A crypto wallet is where the keys to your NFT will be stored once the NFT is purchased. These wallets can be stored online or offline. Offline storage is generally recommended as it is considered more secure.

Once the NFT is minted, purchased on the market, or transferred by the current owner of the NFT, it will appear in their wallet.

It's important to remember when you buy an NFT that "you're buying a token ID at the place where that token is actually stored," says Georgiades.

Of course, if your NFT is a piece of art, you can print physical copies or store the digital image, but the NFT you own is just the token ID. You do not own the rights to the image or the original image itself, unless such ownership rights are specified in your contract.

What is the value of an NFT?
Like many things in this world, the value of an NFT is in the eye of the beholder.

This does not mean that NFTs cannot fetch a high price. For example, in addition to "The Merge's" price of $91.8 million, Beeple's "Everydays: The First 5000 Days" sold at auction for $69.5 million.
the value extends from authentication and uniqueness,” says Ozair.

But not all NFTs come with a high price. Some are valued at less than a dollar. According to data from CryptoSlam, the average price among the $647 million in NFT sales in July 2022 was $115.15.

As with a painting, the market itself will decide the final value. Obviously, not all paintings sell for $1 million, but some people believe that some paintings can be worth that much. So, they are willing to pay that price.

Of course, NFTs don't have to be art. There are also sports NFTs, which include digital variations on trading cards and highlight reels. For example, a photo of LeBron James taken by Kimani Okearah sold for $21.6 million. The MLB Champions blockchain-based baseball game sold for $21.3 million, while a card signed by World Boxing Council (WBC) middleweight champion Jermall Charlo sold for $19.1 million. .

Virtual Earth, which is space in the metaverse, can also be sold as NFTs. But after many multi-million dollar purchases in 2021 and throughout 2022, the value of virtual land is reported to have dropped by more than 66%.

In the metaverse, however, NFTs can also include props for users' virtual avatars, such as pictures and clothing, says Jerry Eitel, partner emeritus and director of the metaverse at global accounting firm Prager Metis.

As the world becomes increasingly digitized, NFTs could even represent a physical property deed, a user's medical records, proof of ownership, or proof of attendance. These things may not transfer as easily from one owner to another, but each could occupy its own unique space on a blockchain.

Of course, buying an NFT is not like buying a stock or putting cash into an FDIC-protected account.

There is no guarantee that the price of an NFT will go up. That means investors need to take the time to understand what they are buying when they buy an NFT and consider what they think that NFT will be worth.

Source: Forbes