NFTs, or Non Fungible Tokens in English, are a new form of cryptocurrency that has experienced significant success in 2021. According to CoinMarketCap, the NFT market would represent more than $ 12 billion by mid-2022 and just over 2 million NFT ‘is believed to have been sold at the time of writing. The Crypto NFT market, which represents less than 1% of the entire cryptocurrency market, remains a volatile market with significant opportunities for gain or loss.
Although NFTs are mainly centered around the art market, their use goes far beyond the artistic field. Now more and more institutions, individuals and companies are using NFTs as part of their business.
Decryption of how NFT Crypto works and the best techniques for investing in cryptocurrency.
NFT Crypto: how does it work?
An NFT can be considered as a single cryptocurrency that cannot be split, unlike classic cryptocurrencies like Bitcoin, Ethereum, etc. In this way, NFTs are irreplaceable as they are not interchangeable.
NFTs are often associated with a song, video, artwork or even books … We can therefore describe an NFT as a digital file associated with an authentication document guaranteed by Blockchain. An NFT can therefore be seen as a digital real estate contract.
Technically, the first recorded NFT was created … in 2014! Although the term NFT was not used at the time, the technology was utilized by artist Kevin McCoy in collaboration with entrepreneur Anil Dash in his work “Quantum”, which represents an animated colored octagon. NFT was sold in 2021 for nearly $ 1.5 million at Sotheby’s.
An NFT is created through “minting”. It is said to be minted in French. Implementation makes it possible to create a cryptographic token, which is linked to the link to a digital file on Blockchain. The cryptographic token may contain more information related to the author of the NFT, etc.
Crypto NFTs are thus created from already existing Blockchains. The most popular is Ethereum Blockchain, but others can also be used, such as Solana or Binance for example. Once NFT has been created or embossed, it can be bought or sold on exchanges.
Where to buy NFT Crypto?
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 like SuperRare in the digital art market, others are more general like OpenSea and Rarible.
Thus, it is possible to obtain NFTs on these trading platforms through their applications or their websites. To do this, you must first connect your crypto wallet with financial intermediaries such as Coinhouse to the platform and then be able to redeem or settle your NFT Crypto transactions.
However, there are transaction fees that vary depending on the Blockchain on which the NFT is created, the cryptocurrency that you pay for your NFT Crypto, or the exchange platform you use. In some cases, the creator of a Crypto NFT may also decide to charge fees on each resale that is shared between the creator and the platform.
It is also possible to create your own NFTs directly on some popular NFT Crypto marketplaces.
Buy Crypto NFTs: with which cryptocurrency?
To date, the most popular Blockchain to create and exchange NFTs remains Ethereum Blockchain. Most NFT Crypto payments are made in Ethereum (ETH).
However, transactions can also be made in Binance USD (stablecoin of Binance), in BNB (Binance Coin, Binance’s cryptocurrency) or in SOL (Solana) for example.
Thus, the purchase of an NFT on an exchange platform most often requires possession of these cryptocurrencies on its digital wallet.
Also, the fact that most NFT Crypto purchases are made in cryptocurrencies like 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 writing this article (June 2022): a 60% loss in 6 months!
It is therefore imperative for the NFT enthusiast to consider the variation 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 even have seen its investment expressed in euros melt by 15% (- € 300) despite the increase in the price of NFT.
This exchange rate phenomenon is therefore important to consider when buying NFT Crypto. In fact, an upward or downward movement of the cryptocurrency used to buy NFTs can significantly amplify the losses or gains expressed in fiat currency.
To significantly reduce currency risk, you can use stack coins in your NFT Crypto purchases. With the Binance NFT platform, for example, you can buy NFTs with USD stablecoins.
What are the differences between NFT and cryptocurrencies?
As we have explained, NFTs can be considered as special tokens. In a simplified way, we can consider that each NFT is a unique token, which is not fungible, and which guarantees the authenticity and moral integrity of the work to which it is attached. Conversely, cryptocurrencies, such as Ethereum or Bitcoin, can be divided into an infinite number of decimals.
In other words, traditional cryptocurrencies are fungible, whereas 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, the uniqueness does not allow a large number of people to own the same token, which explains the basic feature of NFTs: “scarcity”.
Finally, NFTs and cryptocurrencies are different 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 areas (artistic, literary or even sometimes scientific with NFTs of images taken from microscopes, etc.).
Finally, the two categories are differentiated by their democratization. NFTs represent only 1% of the total cryptocurrency market and require prior use of cryptocurrencies to be created and traded.
Why invest in crypto-NFTs?
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 seems to enable a restructuring of the market and to some extent limit the often exaggerated speculation.
To date, the two most famous NFT collections are the CryptoPunks and the Bored Ape Yacht Club collections.
The Bored Ape Yacht Club collection includes 10,000 NFTs depicting monkeys. The average historical 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 consists of 10,000 units representing character profiles, had an average price of 45 ETH by mid-2022.
Despite this considerable speculation, many investors may be interested in NFTs for purely artistic reasons by acting as collectors.
In addition, a few rare projects have recently been developed that aim to connect NFTs and works of art via a museum. This is the case with the Private Museum project, which offers a range of works of art by various artists in the form of NFT and available in Metaverset. NFTs may also have a more disinterested dimension and a purpose close to the traditional art market.
It is not safe to invest in crypto-NFTs
Nevertheless, NFTs are not without risks!
The biggest risk is that your investments will be completely or partially lost. In fact, the NFT market is a very volatile market with the risk of large sudden variations in the price of NFTs and the price of the cryptocurrencies used to exchange them. In addition, the NFT market has experienced a significant slowdown since the beginning of 2022.
Another significant risk is the presence of counterfeits or counterfeits. The risk of copyright theft remains high with the creation of NFTs, and many “creators” can pretend to be famous artists. For NFTs supported by real works, there may be a correlation between the price of the real work and the price of the NFT that represents it.
Finally, Crypto NFTs may be associated with fraud and price manipulation. Some cases of “laundering” on NFT Crypto have actually been identified. In this situation, the creator of NFT artificially inflates the price of NFT by successively reselling his NFT between his own accounts, causing other agents to buy NFT at a price that is not his market price.
Image source: Freepik
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