Non-fungible tokens, or NFTs, are set to become some of the most profitable blockchain-based experiments in history. In short, these tokens are unique, and not able to be produced in large amounts.
As an asset class, NFTs are beginning to find their way into the hands of many collectors, but the value that backs many NFTs is still evolving. As a new way to own a creative asset, some caution in the sector is warranted.
High-profile influencers, such as Twitter CEO Jack Dorsey, have recently made the news auctioning NFTs. Although the cryptology behind NFTs is quite tricky, it’s not hard to understand what they are and how some are making a quick buck with them!
To be sure, NFTs aren’t the same thing as a normal cryptocurrency. While they use the same blockchain, they are always created with another token protocol, like ERC-721 on the Ethereum blockchain.
This means that you will need to have ETH to buy NFTs, and also spend tokens on gas fees whenever you want to create, or transfer an NFT.
Let’s take a look at what makes an NFT valuable, NFT ideas, how you can sell NFTs and make money from them. Let’s dive right into it.
What gives value to an NFT?
Just like the pieces in our hypothetical art collection, consumer interest determines the value of an NFT. They have no intrinsic value, much like art. In the same way, NFTs can gain in value quickly, as many art pieces do.
Similar to trading cards, rarity and the number of interested customers influence their value. Said differently, an NFT has value as a collectible, not a currency.
Even if an image can be converted into an NFT, this does not prevent the image from being shared freely. However, it definitely shows who owns the asset through the blockchain.
Some of the most prominent modern artists, including Banksy, have opted to enter the NFT space. In some cases, there is a physical object that is created alongside of the fully digital NFT, and in others, the art is fully digital.
It is very easy to make an NFT, so the chances of making a lot of money by creating your own NFTs are low – assuming you don’t already have some sort of fanbase.
Many people have entered the space, and this is creating a huge amount of supply.
For a celebrity, the situation is different. NFTs can be sold as a collectible to fans, or in very limited amounts as a kind of limited edition artwork.
Ideas for NFTs
NFTs don’t have to be art. It may as well have a utility of its own. In fact, NFTs can act as tickets to access content, or events in the online space, or real world.
Take a look at some of the ideas for creating NFTs:
- event tickets
- support tokens for influencers
- discount coupons for stores
- 2D images: static or animated
- 3D images
- video game items
- real estate ownership document
- blog articles
How can I buy an NFT?
The vast majority of websites where you can buy and sell NFTs require you to use cryptocurrency. You will need to set up a wallet like MetaMask for Ethereum currency and interaction with Web 3.0 websites.
The next step is to go on an NFT marketplace like Rarible, OpenSea or Hoard Marketplace – two popular trading sites for NFTs of all kinds. It is similar to sites that sell collectibles like eBay. You can find digital art that you can make unique, or use your NFT’s in other ways.
Once you find an NFT that you want to buy, the platform you are using will guide you through the process. It is very easy to buy and sell NFTs, and you will be able to store your new digital asset in a standard wallet in most cases.
Keep in mind that many NFTs offer a Royalty option to their creator, so you may not be able to recoup the entire purchase price when you go to sell it – especially if the market hasn’t moved in your favor.
Unlike regular crypto tokens, NFTs don’t have massive liquidity and can be very thinly traded. In simple terms, this makes many NFTs an illiquid asset, which isn’t great if you need to sell it in a hurry.
For collectors, this should come as no surprise, as most collectibles work along similar lines, and should never be thought of in the same way that cash is – even though they use blockchain technology.
What is the easiest way to profit from NFTs?
You can also profit from NFTs without ever touching one! Some users treat them like stocks or real estate. Unlike stocks or real estate, NFTs have little use in the real world and don’t necessarily represent the ownership of a physical asset (but some do).
By buying an NFT of something potentially profitable early, you may be able to make a decent profit later. However, keep in mind that the opposite can, unfortunately, happen with your investment.
One safe and innovative option is to engage in NFT Lending on the Hoard Marketplace. Hoard’s solution provides lenders and borrowers with a platform to obtain loans through using NFTs as collateral.
The lender is safe due to the NFT liquidation (in case of foreclosure), and the borrower can leverage his NFT to make high profits via financial leveraging.
In addition, a lender can earn extra money by renting the NFT to third parties or collecting the profit that the NFT generates (e.g., rent if it represents ownership of a virtual weapon).
Much like real estate, your NFT can do the work for you. This only will work with a NFT that is desirable, so it is very important to understand the marketplace before you buy in, and hope to create returns.
What is the future of NFTs?
As with most blockchain experiments, the future is relatively unknown.
However, we think that NFTs will not disappear in the foreseeable future. Now that wealthy investors are putting money into them, it is likely that they will become more mainstream.
With the ability to sell the right to use assets without giving up ownership, this could even become the new way to sell music to consumers. There are many ways that NFTs can grow into a new asset class, and the market is just getting started.
One major benefit that NFTs have over other forms of media is that once they have been created, it is difficult to alter their contents. In a world where censorship is becoming more prevalent, this is a major asset to anyone who needs to get information out there and doesn’t want it to be altered once published.
To enter this market with the least risk, anything creative you own is potentially valuable. Game sprites, music you’ve recorded, pictures you’ve taken, prominent accounts on various websites and forums, and pretty much anything else you can think of could be an NFT.
Be sure you understand the NFTs that you plan to buy, and understand that you may lose money when buying them. Any collectible carries risk, and in such a new market, buying NFTs could be dangerous from a financial perspective if market sentiment changes quickly.