As the craze of cryptocurrencies is gaining momentum across the globe, Non-fungible tokens (NFTs) are emerging as a new investment option. They are high in popularity among the millennials on the back of multi-million dollar sales.
Not only new-age investors, but many high net-worth individuals (HNIs) and Ultra HNIs are also fancying over the new segment of digital currencies, that is, NFT without understanding it.
But What is NFT? What does it stand for? What makes them worth investing? Let us try to understand the nuances of the new emerging segment of the crypto cartel. NFTs have been in the picture since 2014, but are becoming mainstream nowadays.
Non-fungible tokens (NFTs) are exotic new digital assets, which are considered to be fast movers. After Bitcoin, Ethereum and Dogecoin, it is considered that NFTs will now get investors rich. That is why they have been making headlines recently in the crypto spectrum.
What makes NFT Special?
If you have a special art or skill, and you wish to sell it, then you may auction or bid for it. But it requires your effort for it. But is there a better way to sell it that, for instance, every time it exchanges hands, you earn some royalty?
Here you can make the best use of NFT. Once your artwork or skill is digitized, it becomes a certificate of the original copy. It certifies the originality via virtual means. An NFT is a digital program using which you could earn a royalty every time this token (your digitized artwork) exchanges hands.
For Instance, Axie Infinity, an Ethereum based gaming NFT, has gained over 30,000% since its inception in November 2020. It is a collectible NFT, which is collected as coins or stamps, but the collection is entirely digital and game-based.
This token facilitates the creation and use of the titular ‘Axies’ in the game. Since the game is built on top of a blockchain network, many people have used the game as a means of income generation as well as used it to trade digital goods. Essentially, it is like an online Pokemon game, but you can earn real-world money from it if you know what you are doing.
Axie Infinity is, as its whitepaper puts it, a growing universe of games and systems that use Pokemon-like characters called ‘Axies’. Like Pokemon, Axies can be classified into many types, precisely nine kinds in the world of Axie Infinity.
Any unique digital good whose trade history can be tracked via the blockchain network with proof of purchase. At the end of each match, the player earns SLP (Small Love Potion), which serves as the game’s experience points.
This cryptocurrency is among the exceptions, which have survived the scars of May, and scaled a new all-time high. The crypto mart witnessed aggressive selling in the larger and more popular tokens after China launched a major crackdown on the crypto industry in May.
Like any platform built on top of a blockchain, Axie Infinity’s success relies upon the number of people are using its resources. The developers claim that the game has generated over 13,000 Ethereum ($16 million) in revenue until now.
Not only this, even tweets are sold by NFT. Twitter’s co-founder Jack Dorsey sold its first-ever tweet as an NFT for about $3 million. These digital assets are bought and sold online from the exchanges.
What can be converted?
An NFT is created from digital objects that represent both tangible and intangible items. Some of them are:
– Art
– GIFs
– Videos and sports highlights
– Collectibles
– Virtual avatars and video game skins
– Designer sneakers
– Music
– IMG NFT-1
Pricing
The price of NFT is derived by two means. Either it is auctioned, or the creator fixes the price. Multiple exchanges allow the creator to pick and choose the pricing method. In India, the NFT pricing facility is only available on one exchange thus far.
NFT in INR?
No, one can not buy NFTs directly with Indian Currency. The transactions are completed in the cryptocurrencies only, which are available on that exchange. But of course, one can buy those cryptocurrencies (having purchasing power) from the particular exchange in INR and then buy NFTs.
However, such transactions are expensive as the prices of purchasing cryptocurrencies have their own cost, which is decided by the exchanges. Also, the levy is more than the usual commission on such transactions.
Popular NFT Marketplaces
There is no shortage of NFT sites to shop. Here are some of the top NFT marketplaces:
OpenSea.io
It is a peer-to-peer platform, brags itself as is a purveyor of ‘rare digital items and collectibles.’ Just create your account and browse through the NFT collections. You can also sort pieces on various bases to discover new artists.
Rarible
It is similar to OpenSea, but Rarible is a more democratic and open marketplace that allows artists and creators to issue and sell NFTs. One can use RARI tokens issued on the platform to enable holders.
Foundation
Complex in design and operation, artists must receive ‘upvotes’ or an invitation from fellow creators to post their art on Foundation. The community’s exclusivity and cost of entry- artists must also purchase ‘gas’ to mint NFTs-means it may boast higher-caliber artwork.
WazirX
Easy to operate, you can invest in NFT only through WRX crypto. The buyer has to convert the INR currency into WRX crypto in the digital wallet before investing in a particular NFT.
Challenges
NFT has several unique properties, making them difficult to be exchanged. The original copy of the artwork can only be one, which is one of its kind. But you can not copy it into multiple tokens to sell it across the globe.
NFTs can be bought and sold, but being digital tokens, they are intangible assets. Also, every NFT requires a creator and a buyer on the particular exchange. However, buyers and sellers can be multiple in the count.
In this decentralized network, the buyer has ownership rights but only for a limited period or as per the timeline of the agreement. At one point, one NFT can have only a single owner. Each NFT has a unique code to be recorded separately on the blockchain and recognizes the owner of NFT.
NFTs listed on the given exchanges have contracts and give the creator (artist) a royalty for a lifetime or limited period as per terms of any future sale of the token.
Regulations
In the global markets, NFTs are seen as the derivatives of cryptocurrencies. In a country, if cryptocurrencies are banned, then NFTs also get banned automatically. There is a legal framework for investing in these cryptocurrencies, which is ruled by the law of the land.
NFT: A bubble in making?
Cryptocurrencies and bubble buzz go hand-in-hand. Several veterans say; it is a bubble, and NFT can not be an exception among such accusations. But yeah, the fact can not be denied that there is much hype around it.
Even genuine NFTs are hyped up on the exchanges with multi-million-dollar sales of a popular or budding artist. Many experts argue that buyers are merely speculating over it for fun as there is no underlying value.
Many experts doubt that investors, particularly the novice ones who follow the prey, may become prey to this trend. It is another way of speculating a particular asset to astronomical values and gambling for quick bucks.
Investors might be vocal about the hidden and artistic value in the token, but experts argue that without any real intrinsic value, it is simply a means of ‘pump and dump’ that may trap many.
Disclaimer: Angel One Limited does not endorse investment and trade in cryptocurrencies. This article is only for education and information purposes.
