NFT, or Non Fungible Tokens in English, is a new type of cryptocurrency that has achieved significant success in 2021. According to CoinMarketCap, the NFT market will be equivalent to more than $ 12 billion by mid-2022 and just over $ 2 million. It is believed that they were sold at the time of writing. The Crypto NFT market, which accounts for less than 1% of the total cryptocurrency market, remains a volatile market with significant potential for gain or loss.
Although NFTs are mainly focused on the art market, their application goes far beyond the arts. Today, more and more institutions, individuals and companies are using NFT as part of their business.
An explanation of how NFT Crypto works and the best methods of investing in cryptocurrency.
NFT Crypto: how does it work?
NFT can be considered a separate cryptocurrency that cannot be separated, unlike traditional cryptocurrencies such as Bitcoin, Ethereum, etc. Thus, NFTs are indispensable because they are not interchangeable.
NFT is often associated with a song, video, work of art or even a book… Therefore, we can describe NFT as a digital file associated with a document whose authenticity is guaranteed by Blockchain. Thus, NFT can be considered as a digital property contract.
Technically, the first NFT record was created 2014 in 2014! Although the term NFT was not used at the time, this technology was used by artist Kevin McCoy in collaboration with entrepreneur Anil Dash in his work Quantum, which is an animated color octagon. NFT was sold in 2021 for almost $ 1.5 million at Sotheby’s.
NFT is created by “minting”. It is said that it is minted in French. Coinage allows you to create a cryptographic token that is associated with a link to a digital file on Blockchain. The cryptographic token may contain some information related to the author of the NFT, and so on.
Thus, Crypto NFT is created from existing blockchains. The most popular is the Ethereum blockchain, but you can use others, such as Solana or Binance. After creating or minting NFT, it can be bought or sold on exchanges.
Where to buy NFT Crypto?
The most popular marketplaces for buying NFT are OpenSea, Rarible, SuperRare, Nifty Gateway and Binance NFT.
While some specialize in certain types of Crypto NFT, such as SuperRare in the digital art market, others are more common, like OpenSea and Rarible.
This way, you can get NFT on these trading platforms through their apps or their websites. To do this, you first need to connect your cryptocurrency wallet, which is stored with financial intermediaries such as Coinhouse, to the platform, to then be able to receive cash or settle your NFT Crypto transactions.
However, there are transaction fees that vary depending on the blockchain on which the NFT is created, the cryptocurrency you use to pay for your NFT Crypto, or the exchange platform you use. In some cases, the developer of Crypto NFT may also decide to apply a commission for each resale, which will be distributed between the creator and the platform.
You can also create your own NFT directly on some popular NFT Crypto platforms.
Buy Crypto NFT: with which cryptocurrency?
To date, the most popular blockchain for creating and exchanging NFT is the Ethereum blockchain. Most NFT Crypto payments are made in Ethereum (ETH).
However, transactions can also be made in Binance USD (Binance Stablecoin), BNB (Binance Coin, Binance Cryptocurrency) or SOL (Solana).
Thus, buying NFT on an exchange platform often requires keeping these cryptocurrencies in your digital wallet.
In addition, the fact that most NFT Crypto purchases are made in cryptocurrencies such as Ethereum increases price volatility in this market.
Ethereum, which cost a little over 4,000 euros in December 2021, was worth 1,700 euros at the time of writing (June 2022): a 60% loss in 6 months!
Therefore, it is important for NFT enthusiasts to take into account the difference in the price of cryptocurrencies in which NFT cryptocurrencies are traded.
For example, the purchase of NFT in December 2021 at a cost of 0.5 ETH (approximately 2,000 euros) and which would double to 1 ETH in June 2022 (1,700 euros), even led to investments in euros dwindling. 15% (-300 euros), despite rising NFT prices.
Therefore, it is important to consider this exchange rate phenomenon when buying NFT Crypto. Indeed, moving up or down the cryptocurrency used to buy NFT can significantly increase losses or gains expressed in fiat currency.
To significantly reduce the risk of exchange, you can use stablecoins in your NFT Crypto purchases. With the Binance NFT platform, for example, you can buy NFT for stablecoins in US dollars.
What are the differences between NFT and cryptocurrencies?
As we explained, NFT can be considered as special tokens. Simply put, we can assume that each NFT is a unique token that is not interchangeable and that guarantees the authenticity and moral integrity of the work to which it is associated. Conversely, cryptocurrencies such as Ethereum or Bitcoin are divided into an infinite number of decimal places.
In other words, traditional cryptocurrencies are interchangeable (divisible), while NFT is not.
The divisible nature of traditional cryptocurrencies theoretically allows an infinite number of users to keep these cryptocurrencies. In the case of NFTs, uniqueness does not allow a large number of people to own the same token, which explains the fundamental property of NFT: “scarcity”.
Finally, NFT and cryptocurrencies differ in their use.
NFT is a means of guaranteeing the authenticity of a document, photograph, work, etc. Therefore, NFTs are associated with a more or less specific work or object and have a visual and unique identity in many areas (artistic, literary or even sometimes scientific with NFT images taken from microscopes, etc.).
Finally, these two categories differ in their democratization. NFTs make up only 1% of the total cryptocurrency market and require the prior use of cryptocurrencies to create and trade.
Why invest in Crypto NFT?
Obviously, one of the main motivations for NFT Crypto investors remains the promise of potentially large profits from speculation.
However, the first major market correction in 2022 seems to restructure the market and to some extent limit the often excessive speculation.
To date, the two most famous NFT collections are the CryptoPunks and Bored Ape Yacht Club collections.
The collection of the Bored Ape Yacht Club includes 10,000 NFT with the image of monkeys. The average historical value of Bored Ape NFT is estimated at 22.5 ETH with an estimated capitalization of over $ 900 million. On the other hand, the CryptoPunks collection, which consists of 10,000 units representing character profiles, had an average price of 45 ETH in mid-2022.
Despite these significant speculations, many investors may be interested in NFT for purely artistic reasons, acting as collectors.
In addition, for example, several rare projects have recently been developed to combine NFT and art through a museum. This is the case of the Private Museum project, which offers works of art by various artists in the form of NFT and available in the Metaworld. NFTs may also have a more selfless dimension and a goal close to the traditional art market.
Investing in cryptocurrency NFT is dangerous
However, NFT is not risk-free!
The main risk is the partial or complete loss of your investment. Indeed, the NFT market is a very volatile market with the risks of large sudden fluctuations in NFT prices and the prices of cryptocurrencies used to exchange them. In addition, from the beginning of 2022, the NFT market is experiencing a significant slowdown.
Another significant risk is the presence of fakes or imitations. The risk of copyright theft remains high with the creation of NFT, and many “creators” can pretend to be famous artists. For NFTs backed by real jobs, there may be a correlation between the price of real work and the price of NFT that represents it.
Finally, Crypto NFT may be associated with fraud and price manipulation. Some cases of “urgent trading” on NFT Crypto have indeed been identified. In this situation, the creator of NFT artificially inflates the price of NFT by consistently reselling his NFT between his own accounts, which encourages other agents to buy NFT at a price that is not his market price.
Image source: Freepik
All our information is general in nature. They do not take into account your personal situation and are in no way personalized recommendations for transactions and cannot be likened to financial investment advisory services or any incentive to buy or sell instruments. The reader is solely responsible for the use of the information provided without the possibility of contacting the publisher Cafedelabourse.com. The liability of the publisher Cafedelabourse.com can in no way be held liable in the event of error, omission or improper investment.