NFTs or non-fungible tokens are on the rise and some celebrities do not hesitate to invest colossal sums to acquire rare coins . What are NFTs really and why should we be interested in them? This guide gives you all the information you need to know about NFTs, how to buy them and above all what profitability can be obtained with this kind of investment.
What does NFT mean? Definition of NFT
NFT is short for Non Fongible Token, which means non-fungible token in French. More concretely, it is a token that cannot be replaced by another, hence the expression “non-fungible”.
NFTs are virtual and cryptographic objects that end up on the blockchain with unique identifying addresses. These virtual objects stand out through the metadata they contain. This can be a signature, author’s name, product type, creation date, etc.
In summary, a crypto NFT is a digital object (image, video, or audio file) with a unique, non-reproducible identification code.
Here’s everything you need to know about NFTs:
- Each NFT is unique, unlike cryptocurrencies such as Bitcoin for example.
- Counterfeits do not exist in the NFT sector since each digital work has an electronic certificate.
- NFTs allow artists to diversify their audience and thus find new investors.
- The Ethereum blockchain hosts the majority of NFTs. The Cardano blockchain is starting to store more and more projects.
- Since last year, the art market has tended to become digital. NFTs have increased by more than 20,000%! So now is the perfect time to invest in an NFT.
What is an NFT? NFTs explained
NFTs are somewhat reminiscent of the concept of cryptocurrencies such as Bitcoin or Ethereum. They are indeed represented in the form of digital assets and work just like these on a blockchain network.
It is thus possible to transfer NFTs from one wallet to another as with crypto-assets. The transaction obviously remains fast, inexpensive and completely secure. As they are stored on a blockchain network, this indeed ensures complete transparency.
However, the similarities with cryptocurrencies end there. Indeed, cryptos can be replaced or exchanged at equivalence. On the contrary, NFTs cannot be since they are unique. Each NFT can be identified with a certificate of authenticity containing information about the NFT work and a right of ownership. In other words, no two NFTs are the same.
Better understand the specificities of NFTs in 5 key points:
- Uniqueness : an NFT is unique and a tamper-proof certificate generally authenticates this uniqueness.
- Transparency : all platform users can see and track transactions on the blockchain.
- Immutability : a created NFT cannot be copied or tampered with.
- Security : tokens are stored on secure networks.
- Decentralization : transactions are controlled by advanced algorithms.
How do NFTs work?
Now that you know what an NFT is and what makes it unique, it’s time to analyze how it works. If you’re planning on buying NFTs, then here’s everything you need to know before you get started.
Fungible vs Non-Fungible
We saw above what differentiates fungible tokens from non-fungible tokens. More concretely, a crypto-currency is a fungible asset just like a note or silver coins that you use every day for your purchases. They can be exchanged or replaced, but keep the same value.
This is also the case for most consumer products, such as a car that can be replaced, for example. There are however some exceptions such as wine which is a fungible good, but which can become non-fungible if it is unique or rare.
NFTs are to be classified in the category of non-fungible assets . This means that it is not possible to exchange them for another while hoping to keep the same value. Indeed, each NFT has its own value. It can be reproduced ad infinitum, but the title deed remains unique.
For example :
Take for example the case of an artist who has just created a new physical painting canvas. He will then create an NFT, which will somehow represent the value of his painting.
In this specific case, the NFT acts as a certificate of authenticity. The artist thus retains the copyright of his work and ensures that his painting cannot be copied or imitated.
To verify the authenticity of this NFT, the buyer can thus refer to the unique transaction identifier, also called “ hash ” which is associated with each NFT.
It should be noted that NFTs can represent any object, be it works of art such as paintings, collectibles, real estate or even a moment of virtual sport. With this concept, it has become easy to store property digitally .
Most NFTs are hosted on a blockchain network, especially on Ethereum . This is because the ERC (Ethereum Request for Comment) blockchain supports ERC-721 tokens .
There are of course other blockchains supporting NFTs such as Binance’s Smart Chain for example. The latter is also very popular for the sale and purchase of NFT, thanks to its relatively lower costs, compared to the Ethereum blockchain.
The blockchain thus issues non-fungible digital assets, with unique characteristics. A unique encryption takes place and with the metadata already included, the token can thus serve as an identification certificate for any type of digital object such as music, a GIF, a tweet, etc.
Etymologically speaking, “ mint ” means “to strike” in French. In the NFT industry, this refers to the process of creating an NFT on the blockchain network. As soon as an NFT is minted, it will be automatically stored on the blockchain, registered on an unalterable register. Once minted, the NFT can be sold or bought on the markets. And of course, the transaction will be digitally tracked.
Interestingly, there are two kinds of NFT mints:
- Through a smart contract or intelligent contract :
During resale, the user will connect his wallet to a site such as MetaMask on the Ethereum blockchain. He will then only have to click on “Mint” and start creating his NFT with an algorithm that will randomly generate the background, lines, etc.
Once created, the NFT will be sent to the smart contract with its properties. The latter will then take care of integrating it into the blockchain.
- Through the Marketplace:
It is also possible to mint by choosing to use platforms such as Opensea . Just go to the platform, click on the NFT/Create part and then start creating your non-fungible token.
For exemple :
For example, you have carried out a revolutionary study and you want to protect the results you have obtained? This is possible through NFT minting on a blockchain network such as Ethereum or Binance’s Smart Chain. At the end of the process, you will be the sole holder of said study, you can then sell it on marketplaces.
NFT splitting allows splitting a property. In other words, each co-owner receives income and profits equally. The process is quite easy and many platforms currently offer this kind of services.
- In most cases, it is up to the original owner who locked the assets to share equally.
- The other option would be to create a synthetic version of the NFT and then split it so it can be shared.
For example :
You are the proud owner of a million dollar property represented by an NFT. You are thus the sole owner of the property as well as the corresponding NFT token.
If you plan to release part of the value of the property then you can split the NFT into 10. In this specific case, you keep 60%, or 6 NFT. You can then sell the 40%, or the remaining 4, on marketplaces.
The buyers of each NFT will thus hold a percentage of the property, but for this to be effective, contracts must be signed.
The different types of NFTs
Now let’s move on to the different types of non-fungible digital assets that exist. However, this is a non-exhaustive list since new genres of NFT appear regularly on the market. At least you’ll have an idea of what your next investment might be.
- Avatar and blockchain game assets
- physical real estate
- Virtual real estate in the Metaverse
- CryptoPunks and other digital collectibles/avatars
- Sports moments
- NFT Games
Blockchain game avatars and assets
Another category of NFT brings together avatars and assets (skins, weapons, equipment, etc.) of blockchain games. Unlike traditional video games, blockchain games often incorporate a secondary market for players to trade their virtual creatures and in-game assets.
But well before the release of their game, the developers are also selling ultra-rare avatars: the idea is that those who support the game even before its release, join the project community and talk about the game around them … be able to acquire the most wanted avatars. Logic.
For exemple :
One thinks in particular of the collection of the first 100 Tamadoge , currently on sale on the official website at a floor price ranging from 0.010 ETH to 5 ETH. Of course, the most sought after (soberly called “Ultra rare Tamadoge”) is the one with the highest price, namely 5 ETH.
In the process, the developers plan a collection of 1,000 “ scrappy pups ” (puppies), followed by a collection of 20,000 “ mongrel Doge ” .
physical real estate
Among the most profitable types of NFTs at the moment is real estate which involves both physical and virtual goods. We know that it is quite possible to create an NFT corresponding to real estate, because we can consider them as non-fungible goods. Indeed, each apartment and house differ from each other with unique designs and features.
NFT is also increasingly used in condominiums and the concept of NFT splitting is also very popular there. The idea is to split the property so that the co-owners can have an equal share.
For example :
Recently a house was sold together with an NFT in Florida. Featuring 4 bedrooms and traditional styling, the home sold for $653,000 and was paid for with Ethereum tokens.
Since then, the house has been represented by an NFT token stored on the Ethereum blockchain. If the new holder wishes to sell all or part of his property then he will only have to do so via a portfolio-to-portfolio transaction.
Virtual real estate in the Metaverse
NFT is also very present in the Metaverse , especially in the field of virtual real estate. As a reminder, the Metaverse is a virtual representation of the real world and investor interest in this space has been unparalleled in recent years. Moreover, everything suggests that the Metaverse should grow exponentially in the coming years.
Indeed, the projects are multiplying and among them, we will mention Décentraland . This 3D game world allows players to acquire plots of land and build houses on them. Note that each plot of land will then be represented by a unique NFT, which can then be sold on a market.
For example :
In November 2021, a plot on the Metaverse game Axie Infinity sold for a whopping $2.3 million. A month later, a plot of land with a hundred virtual islands sold for more than $4.3 million on the Sandbox platform.
All this tends to demonstrate that real estate NFTs generate good returns, just like the Metaverse which is a concept to follow, because it is intimately correlated to NFTs.
CryptoPunks and other digital collectibles/avatars
Some of the current top selling NFT collections include the avatars from the CryptoPunks collection . Created in 2007, it includes 10,000 virtual characters displaying traits that have been randomly generated. Note that each cryptopunk is unique and is assigned an NFT token.
In terms of design, Cryptopunks seem to be straight out of the 70s. Shaggy manes, metallic accessories and punk attitude, they have it all. By the way, CryptoPunks are among the most sought after NFTs on the market.
Last February, a CryptoPunk NFT sold for 8,000 ETH . This corresponded at the time to the cryptocurrency equivalent of more than 23 million dollars and made it one of the most expensive NFTs on the market. According to tech company Larva Labs, the founder of the CryptoPunk series, this particular NFT was sold by its original holder in 2017 for a whopping $1,646.
That being said, CryptoPunks helped launch NFT collections and since then the market has had hundreds if not thousands of collections that are as atypical as they are awesome. Here is our top 5 of the most popular NFT collections of the moment:
|Best NFT collections of the moment||Collection NFTs|
|Yubo NFT||10,000 Unique Hikes|
|Bored Ape Yacht Club (BAYC)||10,000 Bored Ape NFT|
|Cryptopunks||10,000 punk NFTs|
|X-clone||20,000 3D avatars|
|Meebits||20,000 3D characters|
If there is a concept that has found its followers so quickly in the world of NFT, it is definitely the world of sport. A little like the old collectible sports cards from Panini, these pieces return to the highlights of matches .
Major leagues like the NBA and ATP have collaborated with Dapper Labs to create short animation sequences of key game events through the NBA Top Shot collection. Note that the NBA certifies each NFT offered at a price ranging from $9 to $230 per unit.
NBA Top Shot quickly became a big hit. It currently has over 419,583 registrants and has a trading volume of 938,251,588 USD.
As with most NFTs, every highlight is unique and every virtual card holder can boast gold in their hands. Indeed, it is certain that over time, the cards will gain in value.
For example :
A virtual NFT card featuring a highlight of NBA star Zion Williamson blocking a shot has sold for over $100,000.
During the last Australian Open, certain elements such as the central court or the referee’s chair were sold in the form of NFT.
The other concept that is currently creating a craze is NFT games . Called Play To Earn (P2E), they allow players to evolve in a virtual universe based on a specific theme and where players earn crypto-currencies and NFTs simply by playing.
Players receive assets and as they progress through the game, the value of their asset increases. They can of course use NFTs to buy items that allow them to progress more quickly in the game, for example.
By participating in the game economy in this way, players create value for the game. They are then rewarded for their effort and contribution with crypto assets or rare NFTs.
Axie Infinity was among the first games to start the trend. Based on the “play-to-earn” game model, it invites players to evolve in the metaverse.
For example :
The Calvaria: Duels of Eternity play-to-earn game is one of those famous collectible card games or trading card games . Very popular, they are played with a deck of cards: you have to throw them, alone or in combination, to create spells, protect your hero and exhaust your opponent. Games such as Hearthstone (from the American publisher Blizzard) and Yu Gi Oh! are the best known.
Dan Nissanoff and Troy Levy have therefore not invented anything. But they wanted to create a different universe, inspired by Toltec and Aztec myths. They also offered different mechanics for their cards. And above all, they wanted to add a play-to-earn mode , so that good players are rewarded with eRIA tokens, and have a say in governance with their RIA tokens.
Calvaria’s collection of NFT cards will be issued on the Polygon network . The first will be sold in the 1st quarter of 2023 on KuCoin and other platforms. Shortly after, the game will be available in beta version for the public. Note that the cards will be purchased with RIA tokens.
It is therefore advisable to buy it. Fortunately, the RIA pre-sale is underway on calvaria.io . To find out more, you can also consult our guide to buying the RIA token .
The Silks play-to-earn game is quite unique, as it “imports” racetracks and horse farms into its metaverse. The horses are transposed from real-world foals: real data on course, health, earnings, etc. are transposed in real time.
This game has 4 collections of NFTs: the Horses of course (“Yearlings”, one-year-old foals), the Avatars (“Silks”, the silks), the Grounds and finally the Stables . Ideally, therefore, it would be a case of spotting a promising real foal and then buying his NFT equivalent in Silks. But the creators wanted several ways to earn money in their game. For example, you can buy shares in a horse (this is called “syndication”), create a stable to house foals, or even be an auditor for the real data-virtual data part.
If you are interested, know that there are still a good number of Avatars and Horses available for presale on silks.io . Count between 0.25 and 1 ETH for an Avatar, and $750 for your first yearling. Don’t wait too long, as prices will gradually increase!
In our opinion, here are the top play-to-earn NFT spaces that deserve to be known and discovered:
|NFT space play to earn||Associated NFT tokens|
Why invest in NFTs?
With a high potential for growth and development, NFTs have everything to please traders. The tokenization of assets also provides good liquidity while the rise of marketplaces opens up new investment markets. If you are still hesitating to get started, here is something to help you change your mind.
NFTs as a store of value
The number one reason investors are increasingly interested in NFTs is because they potentially represent a store of value . If we know that it is now easy to mint an NFT so that it turns into an asset with value (real estate land, sporting moment, etc.), this means that the possibilities are limitless.
In any case, the minted or purchased NFT will always be worth more when resold . We saw it in the example above with the Cryptopunk avatar which sold for $23 million while its original owner had sold it for $1,646.
NFTs can thus be considered as stores of value that you can keep for a long time, at least until they become rarer and , as a result, more valuable.
Ideal for content creators
Content creators such as musicians, writers, cartoonists and artists in general usually use third parties to sell their products. And in return, they are remunerated as a percentage of the sales profits.
Artists using the YouTube platform to promote their art can, for example, receive good returns thanks to advertising revenue and the number of views on each animation.
For its part, YouTube will take a percentage of this profit and generally the share taken is much higher than what the Youtuber receives.
By choosing to invest in NFTs, content creators can directly sell their products without relying on third parties . These artists will indeed be able to retain ownership of their songs, drawings, paintings, music or videos by representing them with a unique NFT.
NFT as an investment
Buying NFTs as an investment product makes sense knowing that what you pay for it today will be far less than what it will be worth in the future.
The telling example remains the purchase of the hundred virtual islands in the metaverse of The Sandbox for 4.3 million dollars.
Even if the amount may seem prohibitive for some, the fact remains that the buyer has managed to make a capital gain on his investment in digital real estate.
He erected virtual villas on each island and 90% of them sold in one day at $15,000 each. Some villas have since been relisted for prices approaching $100,000.
This tends to demonstrate the fact that the real estate development industry has discovered a niche market for itself through the Metaverse . For a novice investor, it is thus possible to buy a virtual plot of land and then build real estate on it with the aim of making a profit.
Conventional restrictions have been removed
Established jurisdictional restrictions make it not always easy to invest in a real-world store of value. For example, it is quite difficult for buyers from certain regions of the world to buy real estate in the United States. And for those who succeed, there are still administrative formalities that can last for months.
Added to this are high notary fees and verification processes that are just as long as land acquisition formalities. By choosing to invest in non-fungible digital assets, you will not face any type of restriction and can buy with ease.
The affordable price of NFTs
The other reason more and more traders are investing in NFTs is because you can start out on a budget . The acquisition of NFT tokens remains accessible to all. Moreover, it is quite possible to find a niche product on which you can invest and which can prove profitable in the future.
We will obviously avoid granting ourselves a plot of land on Decentraland, which costs around 2.4 million dollars. It is better to take it gradually and start with assets under $20 .
This joins the example of the Australian Open NFTs. Items related to matches during tournaments have been put on sale. Among the pieces that dated back to the 1970s, an umpire’s chair originally sold for around $19. Years later, the same chairs have sold for thousands of dollars.
The growing NFT market
NFT is the technology of the future . The fact that it is used in real life in many areas, particularly in the fight against counterfeiting, and that it is not just an investment vehicle in a passing fashion phenomenon, reassures investors.
For this reason, the euphoria around NFTs should not die down. Also, when looking through recent crypto news , one sees sales records being set for the most exotic NFT works. This represents a good opportunity for an investor who wishes to reap a capital gain on his investments.
We can notably mention Lucky Block NFT , a brand new project which is very promising for 2022. It is no surprise that Lucky Block has also entered the ranking of the best NFT projects for this year!
A guarantee to borrow
More and more platforms are now offering access to funding against the pledging of NFT tokens . This is reminiscent of the operation of conventional loans where the borrower must pledge a certain sum or goods in order to validate the financing agreement.
However, in the case of a crypto loan, the borrower pledges an NFT token that has real value. This is a requirement for loan approval and once approved, the deal will be effective instantly, without prior verification.
In the event that the borrower does not ensure the repayment of the funds then the platform can proceed to the sale of its NFTs to compensate for the losses.
Once your money is invested, you run the risk of losing it.
NFT vs Cryptocurrency
NFTs and cryptocurrencies almost often go hand in hand and can be used interchangeably. This is quite understandable considering that both are digital assets hosted on the blockchain. However, the two have some differences.
You should know that cryptocurrencies are virtual currencies . In particular, they can be used as a medium of exchange for the purchase of goods and services, but also for the purchase and trading of NFTs.
In the event that you buy $100 worth of Bitcoin from two different platforms, there will be no difference between the tokens received. This means that individual BTC tokens will always have the same value, i.e. at the current market price .
NFTs, on the other hand, are intended for an entirely different use . An NFT makes it possible to guarantee the value of a digital good, to follow it and to guarantee its authenticity. In other words, each token is unique and includes in its metadata links pointing to a digital work of art (drawing, image, sound, video, painting, etc.).
To sum up, an NFT makes it possible to authenticate and monetize virtual works of art . If an NFT represents, say, a piece of land in Decentraland, there won’t be two like it. It will indeed be attached to the plot and thus guarantees its authenticity.
It should, however, be pointed out that both digital assets are highly volatile . A crypto-currency may for example show a rising price today, but nothing will guarantee that it will keep the same value a month from now. This is also the case with an NFT, some may gain in value in a few years while others will surely lose it. Also, it is necessary to rethink its investment before launching.
NFT marketplaces model their operating system on those of crypto-currency exchange platforms except for a few details. They connect sellers and buyers and provide the latter with a secure and fully transparent transaction.
As there are several on the market today, it is imperative to make the right choice. Here are the criteria to consider when making your choice.
You must first make sure that the marketplace you have chosen has a good reputation on the web. Try to inform yourself as well as possible about its activity:
- How long has the platform been in operation?
- How many users does it have?
- What transaction volumes does it generate on a daily basis?
If you can’t find concrete information or figures on the internet, whether on forums, social networks or sharing platforms, then it can be risky to get started. Indeed, you must make sure that the platform is reliable and that your funds will be safe there.
Also make sure that the NFT you want to buy is available on the marketplace. To do this, do not hesitate to rummage through its catalog beforehand.
Also remember to check if the platform offers an auction or a live purchase of your favorite token.
It should be noted that market place revenues come largely from transaction fees . Note that the fees generally apply to both buyers and sellers and moreover, it is also a criterion to take into account when choosing the market:
- Buyers normally pay a percentage of the total transaction amount.
- If the token you plan to buy costs, say, $1,000, the market will charge you a 2% fee.
- On your end, you will have to pay a transaction fee of $20.
Payments and wallets
Buying NFTs is usually done with cryptocurrency. For example, if you plan to buy an NFT hosted on the Ethereum blockchain, then you will have to pay for your NFT with ETH tokens.
- On most marketplaces, they directly take the full amount with fees included through a connection to the user’s wallet.
- Also, you will first need to connect your Trust Wallet or MetaMask wallet to the marketplace before you can make the purchase.
- Once you have authorized the transaction then the platform will automatically deduct the amount to be debited from your asset portfolio.
- The NFT will be automatically transferred to your wallet.
The pros and cons of NFTs
Before you start buying your first NFT, take the time to weigh the advantages of such an investment against its disadvantages:
- NFT Sales Surpassed $40 Billion in 2021
- There are NFT tokens suitable for all budgets
- NFTs support the art market
- Each NFT is unique
- The global NFT market has high liquidity
- NFTs are just as speculative as cryptocurrencies
- NFTs are volatile and can drop in value overnight
- It is not guaranteed that an NFT can be resold in the future
Non-fungible tokens have seen a meteoric rise over the past few months. As proof, several flourishing projects have emerged, attracting the attention of personalities and financial institutions. Investing in a stock is now outdated, the trend is towards NFTs .
Crypto NFTs are appreciated for the ability they give to acquire something authentic and original. Although we are still only at the beginning of the adventure, we can clearly think that the future of investment will be written with crypto NFTs.
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