The blockchain has created another interesting, potentially useful, and potentially profitable thing. It is the non-fungible token or NFT. Anything digital can be stored on a blockchain and is unique and potentially valuable. Images, video clips, William Shatner’s dental x-rays, anything can be an NFT. Some of these are selling for thousands, tens of thousands, or hundreds of thousands of dollars. Is an NFT a good investment like an original Picasso or like the pet rock craze of years ago?
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What Is an NFT?
If it is digital and unique it is a non-fungible token. Non-fungible basically means that it cannot be replaced. It is one of a kind like that Picasso painting your great great aunt purchased on a trip to France before World War I it is non-fungible. Most NFTs are in the Ethereum blockchain along with the cryptocurrency. Unlike the cryptocurrency NFTs are not interchangeable. But, you can sell them and make money doing that. NFTs can be music, art, writing, and anything else that can be digitized. What you get when you buy an NFT is ownership. Anyone who gets access to the code supporting the NFT will have a copy. The question for someone interested in investing in NFTs is which NFT is the Picasso and which is graffiti that will be scrubbed off the wall and forgotten?
Will Your NFT Hold or Increase in Value?
While NFTs may be new to the world, investing in collectibles has been around for a long, long time. Fine art is collectible as are rare coins, rare stamps, antique toy trucks and dolls, and clothes worn by famous people. If you wonder if an NFT is a good investment, consider using the same criteria that art investors use to purchase investments. Successful art investors spot young artists whose work looks promising. If they have a unique style that will inspire others to follow their example like the Impressionists or Pablo Picasso the artist may become famous and a $100 painting or sculpture may turn into a million dollar asset after twenty, thirty, or more years.
Buying and Selling NFTs
You could buy an NFT like one of William Shatner’s dental x-rays and wait a decade or two to see if it has increased in value or you could view many of the available NFTs as part of the newest pet rock craze. Think of this like long term investing based on intrinsic value assessment versus penny stock trading to cash in on a pump and dump scheme. The art world has gotten into the world of NFT and established artists have seen their works sell for millions of dollars. Interestingly, what people are willing to pay for NFT works of art is highly correlated with whether or not they see the work of art as attractive (which is largely the same for old oil paintings by the masters). People who succeed at buying and selling collectibles tend to limit themselves to just one category like fine art, rare books, etc. This is likely the best course to take in buying and selling NFTs in that you will have the best idea of what the market will bear or, for that matter, how long there will be a market for something like William Shatner’s dental x-rays.
Is an NFT a Good Investment? – Slideshare Version