While there are certainly a number of prime investment opportunities in NFTs, their quick rise in popularity is enticing people to invest in items they clearly don’t have a full understanding of.
Here’s a simplified explanation of what an NFT is and why it’s getting so much buzz.
What is an NFT?
To date, the most common ones are digital artwork. But they aren’t relegated to just this medium. NFTs can be just about any type of digital property you can think of, whether it be a video, audio, or image file. Social media messages can even be NFTs.
NFTs are becoming increasingly popular for several reasons. For one, they are purely digital assets that create unique value. In a world in which digital copies of almost everything can be found everywhere, NFTs are the original version of a particular digital file.
Take a piece of digital art, for example. If you do a Google image search on “Mona Lisa,” you’ll find thousands of different images of Leonardo da Vinci’s famous painting. They are obviously all copies of the original piece of artwork and, as a result, not valuable.
An NFT of artwork, though, is the exact opposite. It’s the original piece of artwork in digital form.
Another main reason why NFTs are so popular is that they have authenticity built into them. These assets are verified on what’s called the blockchain. This technology uses a network of computers that record various transactions and provide buyers official proof of both ownership and authenticity.
In other words, when you purchase an NFT, you’re getting with it an official stamp of approval that the digital file you possess is indeed the real thing. It would be like holding the actual Mona Lisa in your hand along with a certificate of authenticity that proves it was the one painted by da Vinci himself.
Why Are NFTs Popular?
The ease of creating NFTs is one of the main reasons why they are becoming so popular. Today, everyone from owners of sports franchises to athletes, musicians, and artists are creating NFTs to monetize their digital assets. Many of these assets were either free or cheap for people to obtain in the past.
Now, these people can make money on their work in a way that was nearly impossible before the advent of NFTs.
When you purchase an NFT, you aren’t technically purchasing the sole copyrights to that work in all cases. Instead, buyers are paying for the right to claim ownership over the verified and authentic asset.
This verification is what allows the digital asset to be traded with a value. Anyone can download a digital copy of the Mona Lisa on Google, for example, but they wouldn’t be able to sell it for anything valuable unless they owned the NFT, which proves the asset’s authenticity.
While NFTs and cryptocurrency are naturally connected because they are digital formats of familiar things, they aren’t directly tied to each other. So, investing in one is not the same as investing in the other.
As Adam Ferrari explains, it’s always smart to understand what you’re investing in before purchasing. Doing so will ensure that you make a wise investment for yourself and your future.