The beauty of investing is that there is always a new prospect on the horizon. This can also be a struggle for investors, who must constantly stay on top of potential investment options like non-fungible tokens. If you’ve been hearing talk about these digital investments growing in popularity, you may be asking “What are NFT tokens?”
You’re not alone. As interest in NFTs grows, many investors are looking into whether or not they are a good fit for their investment strategy. If you enjoy investing in real-world art and collectibles, non-fungible tokens may be exactly the thing you need to upgrade your portfolio and claim ownership of unique digital items.
What Are NFT Tokens?
Non-fungible tokens are digital items that cannot be easily traded for something of equal value due to the unique nature of their constitution. They are not like fungible currencies, wherein one Bitcoin equals a set amount of U.S. dollars for which it could be easily traded. Instead, they are closer to original works of art or first-run manuscripts—assigned an arbitrary but inherent value based on what collectors are willing to spend.
In digital format, NFTs are often things like original files of some types of work. While there may be copies of the files in existence elsewhere, the NFT is purchased with an assurance of originality and authenticity.
Many NFTs are items uniquely associated with digital culture. Some are original memes, GIFs (graphics interchange format files), or even commodified social media posts. As the virtual world continues to become ever more real, its artifacts gain in social and financial value.
Blockchain: The Backbone of Crypto
How can the value of a strictly digital item be quantified? If you’ve been tentatively wading into the cryptocurrency pool for a while now, you’re likely familiar with how blockchain works. It is a method of digital record-keeping wherein each “block” added to the “chain” has a distinctive tag linking it to the preceding block.
This chain of information makes blockchain record-keeping very difficult to hack. As the chain is stored collectively across a vast, decentralized network of private computers, more than half of these machines would have to be hacked in order to alter the chain. This makes blockchain an extremely secure method of recording digital transactions.
Into the Ethereum
Ethereum is a cryptocurrency similar to Bitcoin but typically used for NFTs given the ability to add additional information regarding the authenticity and ownership of the NFT.
In the case of cryptocurrency, digital trades, purchases, and accounting are easily stored in blockchain records. NFTs specifically are based on a blockchain on Ethereum. Each change in the record of an NFT must be verified by Ethereum.
Buyers and sellers of NFTs will need a digital wallet that can enact Ethereum transactions.
What are NFT Tokens and Why Invest in Them?
If you’ve got a library full of first editions or a glass case of Major League flyballs, you likely already understand the nature of the hand-that-touched-the-hand value in collectible investments. NFTs add one more facet of value to collectible investing, however: security.
Due to their records storage in the Ethereum blockchain, these digital items are extremely safe as your ownership remains easily verifiable until you choose to sell. There is no risk of physical damage to a digital item, such as losing artwork in a fire, thus adding another layer of security to your investment.
Selling collectibles in the right market can make for a profitable investment strategy. Even if you are not personally interested in digital artifacts, buying and selling the right items at the right time can be as profitable as trading artwork you’re not a huge fan of.
However, it’s important to recognize the lack of truly measurable value in collectible items, especially digital ones. Prices are dependent on the human element, meaning fluctuation in value can be unpredictable and vast.
Create NFTs for Passive Income
An even better strategy than buying collectible NFTs is selling your own. Creators also gain royalties each time their NFTs are resold, making it a long-standing passive income prospect.
How do you create an NFT? Anyone who has a desirable digital item can create an NFT and sell it via Ethereum. If you have access or ownership to original files, look for a digital NFT marketplace to offer your item.
Adding NFTs to Your Portfolio
Now that you’ve had non-fungible tokens explained, are you interested? Want to add something new and different to your investment portfolio? Diversify into non-fungible tokens. Buying and selling NFTs as an investment vehicle often starts as a passion project, but can lead to financial success when done strategically.
Speak to an investment professional at Stableford Capital about the pros and cons of investing in NFTs. Cryptocurrency and digital investments are still a new frontier; they may offer many unique and attractive profit opportunities, but they must be approached with a solid strategy. Schedule a complimentary 15-minute consultation to further discuss what NFT tokens are when you call 480.493.2300 or contact us online.