NFTs, or Non Fungible Tokens in English, are a new type of crypto assets that will experience significant success in 2021. According to CoinMarketCap, the NFT market will represent the equivalent of more than 12 billion mid- half 2022 dollars and more than 2 million NFTs are believed to have been sold at the time of writing. The Crypto NFT market, which represents less than 1% of the entire cryptocurrency market, remains a volatile market with many opportunities for profit or loss.
Although NFTs are primarily centered around the art market, their application extends beyond the artistic realm. Today, more and more institutions, individuals and companies are using NFTs as part of their business.
Decryption of how NFT Crypto works and the best way to invest in crypto currency.
NFT Crypto: how does it work?
An NFT can be considered a cryptocurrency that is not divisible, unlike classic cryptocurrencies such as Bitcoin, Ethereum, etc. In this way, NFTs are irreplaceable, because they cannot be exchanged.
NFTs are often associated with a song, a video, works of art or even books… So we can describe an NFT as a digital file related to a document of authenticity guaranteed by the Blockchain . So an NFT can be seen as a digital property contract.
Technically, the first recorded NFT was created… in 2014! Although the term NFT was not used at the time, the technology was exploited by the artist Kevin McCoy in collaboration with the businessman Anil Dash in his work “Quantum” which represents an animated colored octagon. The NFT sold in 2021 for nearly $1.5 million at Sotheby’s.
An NFT is created by “minting”. It is said to have been made by the French. Mining makes it possible to create a crypto-graphic token associated with a link to a digital file on the Blockchain. A crypto-graphic token can contain a lot of information related to the author of the NFT, etc.
Crypto NFTs are thus created from existing Blockchains. The most popular is the Ethereum Blockchain, but others can also be used, such as Solana or Binance for example. Once the NFT is created or generated, it can be bought or sold on exchanges.
Where to buy NFT Crypto?
The most popular markets for buying NFTs are OpenSea, Rarible, SuperRare, Nifty Gateway and Binance NFT.
While some specialize in certain types of Crypto NFTs like SuperRare in the digital art market, others are more general like OpenSea and Rarible.
Thus it is possible to acquire NFTs on these trading platforms through their applications or their websites. To do this, you must first connect your crypto wallet (held by financial intermediaries such as Coinhouse) to the platform, so that you can cash out or settle your NFT Crypto transactions.
However, there are transaction fees that vary depending on the Blockchain in which the NFT is made, the crypto currency you pay for your NFT Crypto or the exchange platform you use. In some cases, the creator of a Crypto NFT may also decide to apply a fee for each resale to be shared between the creator and the platform.
It is also possible to create your own NFTs directly on some popular NFT Crypto markets.
Buy Crypto NFTs: which cryptocurrency?
To date, the most popular Blockchain for creating and exchanging NFTs remains the Ethereum Blockchain. Most NFT Crypto payments are made in Ethereum (ETH).
However, transactions can also be made in Binance USD (Binance’s stablecoin), in BNB (Binance Coin, Binance’s crypto-currency) or in SOL (Solana) for example.
Therefore, buying an NFT on an exchange platform usually requires holding these crypto currencies in his digital wallet.
Also, the fact that most NFT Crypto purchases are made in cryptocurrencies like Ethereum increases the price volatility of this market.
Ethereum, which was worth just over €4,000 in December 2021, is worth €1,700 at the time of writing this article (June 2022): a loss of 60% in 6 months!
Therefore it is necessary for the NFT enthusiast to consider the change in the price of cryptocurrencies where Crypto NFTs are sold.
For example, buying an NFT in December 2021 worth 0.5 ETH (approximately €2,000), and whose value may double to 1 ETH in June 2022 (€1,700), may still see an investment of stated in the euro diluted by 15% (-€300) despite the increase in the price of NFT.
This exchange rate phenomenon is therefore important to consider when buying NFT Crypto. In fact, an upward or downward movement of the cryptocurrency used for the purchase of NFTs can magnify losses or gains expressed in fiat currency.
To significantly limit exchange risk, you can use stablecoins in your NFT Crypto purchases. On the Binance NFT platform, for example, you can buy NFTs with USD stablecoins.
What are the differences between NFT and crypto currencies?
As we explained, NFTs can be considered special tokens. In a simplified way, we can consider that each NFT is a unique token that cannot be used and that guarantees the authenticity and moral integrity of the work in which it is linked. In contrast, cryptocurrencies, such as Ethereum or Bitcoin, are divisible by an infinite number of decimals.
In other words, traditional cryptocurrencies are fungible (divisible), while NFTs are not.
The indivisible nature of traditional crypto currencies theoretically allows an unlimited number of users to hold these cryptos. In the case of NFTs, uniqueness does not allow many people to own the same token, which explains the fundamental property of NFTs: “scarcity”.
Finally, NFTs and cryptocurrencies differ in their uses.
NFTs are a way to guarantee the authenticity of a document, photo, work, etc. Therefore, NFTs are associated with a work or a more or less concrete object and have a visual and unique identity in many fields (artistic, literary or even sometimes scientific with NFTs in images that taken from microscopes, etc.).
Finally, the two categories are distinguished by their democratization. NFTs represent only 1% of the total cryptocurrency market and require prior use of cryptocurrencies to be created and traded.
Why Invest in Crypto NFTs?
Clearly, one of the main motivations for NFT Crypto investors remains the promise of potentially large profits through speculation.
However, the first major correction of the market in 2022 seems to allow a change in the market and to some extent to limit the often excessive speculation.
To date, the two most popular NFT collections are the CryptoPunks and Bored Ape Yacht Club collections.
The Bored Ape Yacht Club collection includes 10,000 NFTs depicting monkeys. The average historical value of a Bored Ape NFT is estimated at 22.5 ETH for an estimated capitalization of more than $900 million. On the other hand, the CryptoPunks collection, consisting of 10,000 units representing character profiles, will have an average price of 45 ETH in mid-2022.
Despite this important assumption, many investors may be interested in NFTs for purely artistic reasons by acting as collectors.
In addition, some unique projects that aim to link NFTs and works of art through a museum, for example, have recently been developed. This is the case of the Private Museum project that offers an offer of works of art from various artists in the form of NFT and accessible on Metaverse. NFTs can also have a more disinterested dimension and a purpose closer to the traditional art market.
Investing in Crypto NFT is Not Safe
However, NFTs are not without risk!
The main risk is the partial or total loss of your investments. In fact, the NFT market is a very volatile market with risks of many sudden changes in the price of NFTs and the price of cryptocurrencies used to exchange them. Additionally, the NFT market has experienced a significant slowdown since the start of 2022.
Another significant risk is the presence of fakes or imitations. The risk of copyright theft remains high in the creation of NFTs and many “creators” become famous artists. For NFTs backed by real works, there may be a decorative relationship between the price of the real work and the NFT that represents it.
Finally, Crypto NFTs can be linked to scams and price manipulation. Some cases of “wash trading” in NFT Crypto are well known. In this situation, the NFT creator artificially inflates the price of the NFT by successively selling his NFT between his own accounts, prompting other agents to buy the NFT at a price other than his price. market.
Image source: Freepik
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