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The NFT Hype: Explained

Barry Choi
January 9th, 2022

NFTs have only been around for a few years and have already generated billions of dollars in sales. With all the hype surrounding them, it’s worth knowing how they work.

NFTs, or non-fungible tokens, seem to be all the rage in the world of investing and blockchain these days. Celebrities, artists, and even professional athletes have jumped in on the craze and started offering digital assets to anyone willing to pay. While the idea of investing in something that’s not real may seem absurd, the value of NFTs continues to rise..

The question is, should you invest? It’s possible that NFTs can give you a significant return, but you could also be buying into the current hype that has no real value. Who knows if NFTs will stick around, but there’s no denying that the current investing landscape is happy to include them.

What Are NFTs?

NFTs are digital assets that represent real-world things. For example, a video of a sports highlight or digital art could be turned into an NFT.

These assets are digitally encoded, which makes them unique. As in, there’s only one of its kind or a very limited supply. This is different from a digital file that can be duplicated. Even though anyone can view these images online for free, there’s still only one NFT available, and that’s where people see the value in investing.

You may not be the original artist or athlete, but you can purchase the digital rights in the form of an NFT. This file comes with built-in authentication, so there’s no denying who the rightful owner is.

How Do NFTs Work?

Similar to cryptocurrencies, NFTs exist on a blockchain. Think of this as a public ledger that shows all the transactions. This is how people can verify ownership of NFTs. Generally speaking, NFTs use the Ethereum blockchain, but there are other blockchains in use too.

NFTs can take on multiple different forms, but there are some more common ones you’re likely to hear about more, such as:

  • Music
  • Art
  • Videos
  • Memes
  • GIFs
  • Sports highlights
  • Video game skins
  • Tweets
  • Collectibles

As weird as it sounds, both digital and physical assets can be tokenized and sold as NFTs, making them no different from physical collector items. The difference is, they likely only exist digitally and you can only own them in digital form.

Again, NFTs are appealing due to the ownership rights. Sure, you may not have painted that art or dunked over Giannis Antetokounmpo, but you can own the digital rights to that work. For some people, it’s the bragging rights that appeal to them more than anything else. But, bragging rights aside, NFTs are still proving to be a lucrative investment option worthy of our attention. In the first half of 2021 alone, NFT sales amounted to $2.4 billion, which is a huge amount for an asset that’s only been around for a few years.

What Are the Real-life Applications of NFTs?

Let’s be real, NFTs were created to make people money. Blockchain technology and NFTs allow people to profit off their creations. Since anyone can create NFTs for their work, this is highly lucrative for a variety of reasons.

For example, an artist might traditionally rely on an auction house or gallery to sell their work. With NFTs, they can sell directly to consumers. Since there’s no middle man, the profit margins are much higher. Additionally, artists can include royalties in their NFT. That means if the NFT is sold again, they’ll get a percentage back.

As for athletes, it’s an easy way to monetize assets that people are constantly looking at online. Sports NFTs are often created with the league’s partners, so athletes aren’t selling them directly. However, all parties involved are getting additional revenue, which is undeniably appealing.

Technically speaking, anyone can create an NFT. However, it’s usually only celebrities, athletes, social media influencers, or any other people with social relevance who are able to sell their NFTs for a good return.

In the end, it’s supply and demand that drive prices. Some early adopters were able to purchase NFTs at a low price before the hype picked up. But, now that NFTs have become quite popular, there’s much more demand, which increases prices in turn.

How to Buy NFTs

Although some people believe that NFTs are just another asset bubble that will be worthless one day, others say otherwise. NFTs have sold for hundreds of thousands of dollars, and many people are ready to jump in.

To purchase NFTs, you need a digital wallet first. This will allow you to store your NFTs and cryptocurrency. Since most NFTs are usually purchased with cryptocurrency, you’ll need to purchase some of that in advance. It’s a good idea to check with the NFT provider ahead of time to see what cryptocurrencies they accept to ensure you buy the right one.

Purchasing cryptocurrency can be done through platforms such as Robinhood, Coinbase, Kraken, PayPal, eToro, and more. Once you’ve bought crypto, you can move it to your digital wallet.

With the funds in your wallet, you can now browse NFT marketplaces. Some of the most common sites to purchase NFTs include:

How to Sell NFTs

Many of the marketplaces mentioned above allow you to sell your NFTs. This is convenient as you’d be using a platform you’re already familiar with.

If you’re looking to create an NFT and then sell it, you need to look at the different marketplaces available. As long as those marketplaces support the file you’ve made, you can turn it into an NFT. That includes any image, MP3, or event TXT files. It’s as simple as uploading your file.

You’ll also need to provide additional information, such as if your art is an original or part of a collection. Once you’ve paid your fee to create the NFT, you can have it listed on the marketplace within a few seconds.

While creating an NFT is simple, getting people to discover or bid on it is tricky. That’s why celebrities, athletes, and influencers have the most luck as they’re able to promote their NFTs to a large audience quickly.

Most Popular NFTs to Pay Attention to

Things move quickly in the world of crypto and NFTs. What’s popular one week might fall or rise significantly a week later, so it’s always tough to know what’s on top at any given moment. The best way to know which NFTs are highly valued is to make a point of staying on top of NFT news so that you become more familiar with the different tokens and their value over time. Still, it helps to get an idea of what the most popular NFTs are when you’re just getting started with this asset. At the time of writing, these were some of the most popular NFTs available.

1. Axie Infinity

This battle and trading game uses a play-to-earn-model where players can collect digital creatures known as axis. This NFT gaming platform generated $2.34 billion so far in annual revenue, making it one of the most valuable NFT collections out there. Axis Infinity is also a prime example of how NFTs and gaming collide, as the game currently has over one million daily users.

2. NBA Top Shoot

NBA fans can buy and collect digital NBA collectibles that are made up of exclusive content from players, almost like digital sports trading cards. In February 2021, a shot of Lebron James was sold for $208,000, which was the highest any NBA Top Shoot NFT has sold for so far.

3. CryptoPunks

Launched in 2017, CryptoPunks is one of the earliest NFT launches. The token is an 8-bit pixelated character, and each one is unique in its distinctive features. There are a limited number of CryptoPunks in circulation, making this a highly coveted NFT. To date, the most expensive CryptoPunk sold for over $7.5 million worth of Etherium in March 2021.

Should You Buy NFTs?

That’s a question only you can answer. NFTs are no different from some other investment products available. If you want to diversify your portfolio and don’t mind taking on the risks, then go ahead.

But, of course, you shouldn’t just buy NFTs blindly. First, look into your portfolio and see if they fit into your investor profile. A good way to do this is to open an account with Vyzer where you can get a detailed overview of all your different investments and see how they’re performing. Next, do your research on all the varieties of NFTs and find one that fits your existing investment profile.