Understand what NFT is and how to invest

“What is NFT?” has been one of the most asked questions on the internet lately. They are non-fungible tokens (NFTs) and have become all the rage in the last year. From high art and music to toilet paper, these digital assets have become a hugely valuable, if little-understood market: one of the big discussions so far is whether they're really worth what they cost—or if they're just a fad. While some analysts say that this is a passing bubble, others say that the future will be made of investments of this same order.

But what is NFT?

Briefly, it is a digital asset that represents a real-world object, such as a piece of art, music, a game item, or a video. They are bought and sold only on the Internet through cryptocurrencies and are usually encrypted. They've been around since 2014, but became famous last year when they started to expand a digital arts exchange market.

Neymar Jr, star of the Brazilian team and PSG, from France, bought a set of NFTs for R$ 6 million, for example.

NFTs are unique, or have very limited editions. Likewise, they carry unique codes. That's why, according to experts, they inevitably generate digital scarcity, as they end the flows of this team of digital assets. It is a significant contrast to the world of digital creations as we know it until now, which is practically infinite.

Many NFT assets exist based on old creations, such as iconic clips or exclusive versions of productions that have already been seen on Instagram. But if anyone can view the images — or even the collages of images — for free, why do people spend millions of dollars to get them? The answer is that NFTs allow its owner to have the original item. More than that, they carry a build authentication, which serves as proof of your ownership. Collectors in this market tend to value these “digital rights” more than the item itself.

Furthermore, NFT assets have a language similar to cryptocurrencies such as Bitcoin and Ethereum, although the similarities end there, because coins are fungible — that is, they can be used to exchange other types of items or coins. They are of equal value, just as a dollar will always be worth the same as another dollar.

NFTs, on the other hand, as they have private digital signatures, cannot be exchanged for others of equal value. An NFT cannot be exchanged for an equal one and therefore it is non-fungible.

How to buy NFT?

If an investor wants to start investing in the NFT asset market, he or she should acquire some essentials first. The first of them is to enter a digital wallet that allows not only the archiving of NFTs, but also cryptocurrencies. Before that, therefore, the person must already have a reserve of bitcoins to make the transactions – which proves that it is a restricted market. It is possible to use systems such as Paypal, Coinbase and Robinhood to do this.

Each of these platforms charges fees to perform various types of services, but there are cheaper options — such as linking a bank account to the system, for example. Hence, transaction fees are waived.

Then you have to enter an open market for NFTs on the Internet. There are several of them, such as OpeaSea.io, which sells rare digital items, or Rarible, which has the same profile, or Foundation — a market that attracts new digital artists to its system.

Experts warn that the market for NFTs is uncertain and therefore it is important to exercise caution. They are very new and therefore rely on short, low-risk investments to get started, they warn. Even if the person has money available for the transaction, the ideal is to go little by little, according to specialized consultancies. That's because the value of NFTs is basically determined by how much someone else is willing to pay for them. In this sense, it is demand that drives price — and not other economic indicators, as in the financial market, for example.

Finally, NFTs are also subject to capital gains taxes: this means that when a person sells an NFT, it is the same as if he had sold a stock at a profit. Since they are considered collectibles, however, they have specific tax tables. In fact, many countries have not even managed to regulate this market, which makes it very flexible.

See also other features

Twitter allows the use of NFTs as a profile picture

Tutorial: how to create and sell art in NFT?