There’s a new trend in the cryptocurrency space, and if you haven’t already heard of it, it’s only a matter of time before you do! Non-fungible tokens (NFTs) are cryptographic tokens that are linked to digital or physical assets, and they’re the latest big thing for cryptocurrency traders.
According to a recent report by NonFungible.com, NFT trading was worth over $250 million in 2020. That’s an increase of nearly 300% from 2019.
NFTs are seen as an investment, in much the same way as traditional stocks and bonds are part of so many investment portfolios. The difference is that NFTs don’t have to be linked to a tangible asset, they can be something like a piece of digital art or even a gif. NFTs are also frequently used to provide part ownership in something. There are NFTs for part ownership of Banksy artworks and you can even pick up a tiny piece of a physical asset like a pair of Michael Jordan running shoes.
NFTs can be bought and traded like any other asset, or they can be kept, and the asset used as a source of passive income for the owner.
The main features of NFTs
NFTs can be hugely varied but they all share a few common characteristics. Because they are all unique, NFTs are not directly interchangeable. This is especially true of NFTs that are linked to video games and trading cards. You’re also limited to using them in their intended game or platform.
Another feature of NFTs is that they can’t be broken down into smaller pieces like cryptocurrencies. They exist as a whole and because ownership data is stored on the blockchain, it’s easy to verify where they came from and who the original creator is. This is particularly important in the case of digital art, where like physical art, provenance is important.
Investment with a sense of connection
One of the biggest appeals of investing in NFTs is the element of personal connection that goes along with owning a piece of popular culture. Because of this, NFTs are meaningful in a way that shares aren’t, and there is often a certain status attached to them.
The NFTs that are around today are mostly built using Ethereum token standards. This makes them compatible with the wider cryptocurrency exchanges and wallets, so they are easy to trade. There are newer NFT token standards being released by other cryptocurrency platforms so it’s likely we’re going to see a wider range of NFT options on multiple blockchain networks.
Photo by Boitumelo Phetla on Unsplash
