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NFTs, or non-fungible tokens in English, are a new type of crypto asset that has seen significant success in 2021. According to CoinMarketCap, the NFT market will represent the equivalent of over $12 billion in mid-2022 and just over 2 million NFTs. they are believed to have been sold at the time of writing. The Crypto NFT market, which accounts for less than 1% of the total crypto market, remains a volatile market with significant opportunities for profit or loss.

While NFTs are primarily focused on the art market, their application extends far beyond the artistic realm. Now more and more institutions, individuals and companies are using NFTs as part of their business.

Deciphering how NFT Crypto works and the best practices for investing in cryptocurrencies.

NFT Crypto: how does it work?

NFTs can be seen as a single cryptocurrency that cannot be separated, unlike classical cryptocurrencies like Bitcoin, Ethereum, etc. Thus, NFTs are indispensable as they are not fungible.

NFTs are often associated with songs, videos, works of art, or even books… Therefore, we can describe an NFT as a digital file associated with a document whose authenticity is guaranteed by the blockchain. Thus, the NFT can be seen as a digital property contract.

Technically, the first recorded NFT was created… in 2014! Although the term NFT was not in use at the time, the technology was used by artist Kevin McCoy in collaboration with entrepreneur Anil Dash in his work “Quantum” featuring an animated colored octagon. NFT was sold in 2021 for almost $1.5 million at Sotheby’s.

NFT is created through “minting”. It is said to be minted in French. Minting allows you to create a cryptographic token associated with a link to a digital file on the blockchain. The cryptographic token may contain some information related to the author of the NFT, etc.

Thus, Crypto NFTs are created from already existing blockchains. The most popular is the Ethereum blockchain, but others can be used, such as Solana or Binance. Once an NFT is created or minted, it can be bought or sold on exchanges.

See also our NFT article: investment in the future?

Where to buy NFT cryptocurrency?

The most popular marketplaces for buying NFTs are OpenSea, Rarible, SuperRare, Nifty Gateway, and Binance NFT.

While some specialize in certain types of Crypto NFTs such as SuperRare in the digital art market, others are more general such as OpenSea and Rarible.

Thus, NFTs can be obtained from these trading platforms through their apps or websites. To do this, you first need to connect your crypto wallet held by financial intermediaries such as Coinhouse to the platform in order to then be able to cash out or settle your crypto NFT transactions.

However, there are transaction fees that vary depending on the blockchain on which the NFT is created, the cryptocurrency you pay for the NFT Crypto, or the exchange platform you use. In some cases, the Crypto NFT creator may also decide to charge a commission for each resale, which will be split between the creator and the platform.

It is also possible to create your own NFTs directly on some of the popular NFT Crypto marketplaces.

Buy Crypto NFT: for which cryptocurrency?

To date, the Ethereum blockchain remains the most popular blockchain for creating and exchanging NFTs. Most NFT Crypto payments are made in Ethereum (ETH).

However, transactions can also be made in, for example, Binance USD (Binance’s stablecoin), BNB (Binance Coin, Binance’s cryptocurrency), or SOL (Solana).

Thus, buying NFTs on an exchange platform most often requires storing these cryptocurrencies in your digital wallet.

In addition, the fact that most NFT Crypto purchases are made in cryptocurrencies such as Ethereum increases the price volatility in this market.

Ethereum, which was worth just over €4,000 in December 2021, is worth €1,700 at the time of this writing (June 2022): a 60% loss in 6 months!

Therefore, NFT enthusiasts need to take into account the price fluctuations of the cryptocurrencies in which Crypto NFTs are traded.

For example, buying an NFT in December 2021 worth 0.5 ETH (approximately 2,000 euros), which would double in value to 1 ETH in June 2022 (1,700 euros), would even cause his investment denominated in euros to decrease would be 15%. (-300 euros), despite the increase in the price of NFT.

Therefore, this exchange rate phenomenon is important to consider when buying NFT Crypto. Indeed, the upward or downward movement of the cryptocurrency used to buy NFTs can significantly increase losses or profits denominated in fiat currency.

To greatly limit the exchange risk, you can use stablecoins in your NFT Crypto purchases. For example, on the Binance NFT platform, you can buy NFTs with USD stablecoins.

Read also our article Stablecoin: why and how to invest?

What is the difference between NFTs and cryptocurrencies?

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As we have explained, NFTs can be thought of as special tokens. In a simplistic way, we can think of each NFT as a unique token that is not fungible and that guarantees the authenticity and moral integrity of the work it is associated with. Conversely, cryptocurrencies like Ethereum or Bitcoin are divisible by an infinite number of decimal places.

In other words, traditional cryptocurrencies are fungible (divisible), while NFTs are not.

The divisible nature of traditional cryptocurrencies theoretically allows an infinite number of users to hold these cryptocurrencies. In the case of NFTs, uniqueness prevents a large number of people from owning the same token, which explains the fundamental property of NFTs: scarcity.

Finally, NFTs and cryptocurrencies differ in their usage.

NFT is a means of guaranteeing the authenticity of a document, photograph, work, etc. Therefore, STDs are associated with a more or less specific work or object and have a visual and unique identity in many fields (artistic, literary or even sometimes scientific with STD images, taken under a microscope, 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 is likely to allow for market restructuring 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 Bored Ape Yacht Club collection includes 10,000 NFTs featuring apes. The average historical value of NFT Bored Ape is estimated at 22.5 ETH with an estimated capitalization of over $900 million. On the other hand, the CryptoPunks collection of 10,000 items representing character profiles had an average price of 45 ETH in mid-2022.

Despite this serious assumption, many investors may be interested in NFTs for purely artistic reasons, acting as collectors.

In addition, several rare projects have recently been developed to link NFTs and works of art through the museum. This is the case for the Private Museum project, which offers art from various artists in the form of NFTs and is available in the Metaverse. NFTs may also have a more selfless dimension and purpose closer to the traditional art market.

Also read our Metaverse article: How to invest in a fictional universe related to NFTs and cryptocurrencies?

Investing in Crypto NFT is not safe

However, NFTs are not without risks!

The main risk is the partial or complete loss of your investment. Indeed, the NFT market is a very volatile market with risks of large sudden fluctuations in the price of NFTs and the prices of the cryptocurrencies used to exchange them. In addition, the NFT market has seen 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 when creating NFTs, and many “creators” may pose as well-known artists. For NFTs backed by real jobs, there may be a decorrelation between the price of the real job and the price of the NFT representing it.

Finally, Crypto NFTs can be associated with fraud and price manipulation. Some cases of “fictitious trading” on NFT Crypto have indeed been identified. In this situation, the NFT creator artificially inflates the price of the NFT by successively reselling their NFT between their own accounts, which induces other agents to buy the NFT at a price different from its market price.

Read also our guide to bitcoin and virtual currencies: how to invest in cryptocurrencies in 2022?

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