NFTs, or Non Fungible Tokens in English, are a new type of crypto asset that enjoyed considerable success in 2021. According to CoinMarketCap, the NFT market would represent the equivalent of over $ 12 billion in mid-2022 and just over $ 2 billion. millions of NFTs are believed to have been sold at the time of writing. The Crypto NFT market, which accounts for less than 1% of the entire cryptocurrency market, remains a volatile market with significant gain or loss opportunities.
Although NFTs are primarily focused on the art market, their application goes far beyond the artistic realm. Now, more and more institutions, individuals and companies are using NFTs as part of their business.
Decryption on how NFT Crypto works and the best techniques for investing in cryptocurrency.
NFT Crypto: How Does It Work?
An NFT can be considered a single cryptocurrency that cannot be split, unlike classic cryptocurrencies such as Bitcoin, Ethereum, etc. In this way, NFTs are irreplaceable, as they are not interchangeable.
NFTs are often associated with a song, a video, a work of art or even books… We can therefore describe an NFT as a digital file associated with a document of authenticity guaranteed by the Blockchain. An NFT can therefore be viewed as a digital ownership contract.
Technically, the first registered NFT was created … in 2014! Although the term NFT was not used at the time, the technology was exploited by artist Kevin McCoy in collaboration with entrepreneur Anil Dash in his work “Quantum” which represents an animated colored octagon. The NFT was sold in 2021 for nearly $ 1.5 million at Sotheby’s.
An NFT is created through “minting”. It is said to be coined in French. Minting allows you to create a cryptographic token that is associated with the connection of a digital file on the Blockchain. The cryptographic token can contain various information related to the author of the NFT, etc.
Crypto NFTs are then created from existing Blockchains. The most popular is the Ethereum Blockchain, but others can also be used, such as Solana or Binance. Once the NFT has been created or minted, it can be bought or sold on the stock exchange.
Where to buy NFT Crypto?
The most popular markets for purchasing NFTs are OpenSea, Rarible, SuperRare, Nifty Gateway, and Binance NFT.
While some specialize in certain types of Crypto NFT like SuperRare in the digital art market, others are more general like OpenSea and Rarible.
It is therefore possible to obtain NFTs on these trading platforms via their applications or their websites. To do this, you must first link your crypto wallet (held with financial intermediaries like Coinhouse) to the platform, so that you can then cash out or settle your NFT Crypto transactions.
However, there are transaction fees that vary depending on the Blockchain the NFT is created on, the cryptocurrency you pay your NFT Crypto with, or the exchange platform you use. In some cases, the creator of a Crypto NFT may also decide to apply commissions to each resale which will be shared between the creator and the platform.
It is also possible to create your own NFTs directly on some popular Crypto NFT markets.
Buy Crypto NFT: With Which Cryptocurrency?
To date, the most popular Blockchain for creating and trading NFTs remains the Ethereum Blockchain. Most NFT Crypto payments are made in Ethereum (ETH).
However, transactions can also be made in Binance USD (Binance stablecoin), in BNB (Binance Coin, Binance’s cryptocurrency) or in SOL (Solana) for example.
Therefore, buying an NFT on an exchange platform very often requires holding these cryptocurrencies on its digital wallet.
Furthermore, the fact that most NFT Crypto purchases are made in cryptocurrencies such as Ethereum increases the price volatility of this market.
Ethereum, which in December 2021 was worth just over 4,000 euros, at the time of writing this article (June 2022) is worth 1,700 euros: a loss of 60% in 6 months!
It is therefore imperative for the NFT enthusiast to consider the change in the price of the cryptocurrencies in which the Crypto NFTs are traded.
For example, the purchase of an NFT in December 2021 worth 0.5 ETH (approximately € 2,000), and whose value would have doubled to 1 ETH in June 2022 (€ 1,700), would have even seen its investment expressed in euro melt by 15% (- € 300) despite the rise in the price of the NFT.
This exchange rate phenomenon is therefore important to take into consideration when buying NFT Crypto. Indeed, an upward or downward movement in the cryptocurrency used to purchase NFTs can greatly amplify losses or gains expressed in fiat currency.
To significantly limit the currency risk, you can use stablecoins in your NFT Crypto purchases. With the Binance NFT platform, for example, you can buy NFTs with stablecoins in USD.
What are the differences between NFT and cryptocurrencies?
As we have explained, NFTs can be considered special tokens. In a simplified way, we can consider that each NFT is a unique, non-fungible token that guarantees the authenticity and moral integrity of the work to which it is linked. Conversely, cryptocurrencies, such as Ethereum or Bitcoin, are divisible into an infinite number of decimals.
In other words, traditional cryptocurrencies are fungible (divisible), while an NFT is not.
The divisible nature of traditional cryptocurrencies theoretically allows an infinite number of users to hold these cryptocurrencies. In the case of NFTs, uniqueness does not allow large numbers of people to own the same token, which explains the fundamental property of NFTs: “scarcity”.
Finally, NFTs and cryptocurrencies differ in their use.
NFTs are a means of guaranteeing the authenticity of a document, photo, work, etc. Therefore, NFTs are associated with a more or less concrete work or object and have a visual and unique identity in many fields (artistic, literary or even sometimes scientific with NFT of images taken from microscopes, etc.).
Finally, the two categories differ in their democratization. NFTs represent only 1% of the overall cryptocurrency market and require the preventive use of cryptocurrencies to be created and traded.
Why invest in Crypto NFT?
Clearly, one of the main motivations for NFT Crypto investors remains the promise of potentially large gains through speculation.
However, the first major market correction in 2022 appears to allow for market restructuring and, to some extent, 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 featuring monkeys. The historical average value of a Bored Ape NFT is estimated at 22.5 ETH for an estimated capitalization of over $ 900 million. On the other hand, the CryptoPunks collection, which is made up of 10,000 units representing character profiles, had an average price of 45 ETH in mid-2022.
Despite this significant speculation, many investors may be interested in NFTs for purely artistic reasons by acting as collectors.
Additionally, some rare projects aimed at linking NFTs and works of art through a museum have recently been developed. This is the case of the Private Museum project which proposes an offer of works of art by various artists in the form of NFT and accessible in the Metaverse. NFTs may also have a more selfless dimension and purpose close to the traditional art market.
Investing in Crypto NFT is not safe
However, NFTs are not without risk!
The main risk is that of partial or total loss of your investments. Indeed, the NFT market is a very volatile market with risks of large sudden changes in the price of NFTs and the price of the cryptocurrencies used to trade them. Furthermore, the NFT market has been experiencing a significant slowdown since the beginning of 2022.
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 works, there may be a decorrelation between the price of the real work and that of the NFT that represents it.
Finally, Crypto NFTs can be linked to scams and price manipulation. In fact, some cases of “wash trading” on NFT Crypto have been identified. In this situation, the creator of the NFT artificially inflates the price of the NFT by subsequently reselling its NFT between his own accounts, which causes other agents to purchase the NFT at a price which is not its market price.
Image source: Freepik
All of our information is, by nature, generic. They do not take into account your personal situation and do not in any way constitute personalized advice for the purpose of carrying out transactions and are not assimilated to a financial consultancy service on investment matters, nor to any incentive to buy or sell financial instruments. The reader is solely responsible for the use of the information provided, without the possibility of an appeal against the publishing house of Cafedelabourse.com. The responsibility of the publisher of Cafedelabourse.com cannot in any way be held liable in the event of an error, omission or inappropriate investment.