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What Are NFT’s And How Do They Work?

[vc_row][vc_column][vc_column_text]Cryptocurrencies are taking the world by storm. Over 6000 different cryptocurrencies exist in the market today, with more coming out every day. Cryptocurrencies allow for anonymous transactions between two parties without an intermediary or third-party organization to validate the transaction. One industry that emerged around cryptocurrencies is the non-fungible token, or NFT.

What are Non-Fungible Tokens?

Non-fungible tokens (NFTs) are a specific class of cryptographic tokens, and a fungible token is one that another identical item can easily replace. For example, casino chips are fungible because each casino chip represents the same monetary value. NFTs, however, are unique tokens that another identical item cannot replace. This means that each NFT is distinguishable from other NFTs in the marketplaces. Most NFTs on the market today come in the form of art. Whether it is pixelated art, ASCII art, or even digital artwork, the NFT market for digital art is booming. Even music can be an NFT. The most recent example of this is Canadian rapper Tory Lanez, who recently released an album on the blockchain. NFTs have many unique features that have given birth to a new type of investment market, which we will explain in detail below.

How Do Non-Fungible Tokens Work?

Each NFT is a cryptographic token containing a piece of data, known as metadata. This metadata can represent anything from information about the token to digital art or even a virtual object. For example, an artist could create digital artwork and then mint several tokens representing the same non-fungible token. If that seems complicated, picture this. Let’s say an artist creates a digital painting, which they then tokenize into 100 different tokens. Each token could be pre-sold for $1 per piece to sell all 100 tokens in 30 days. Since each token is minted from one original, they are non-fungible. One artwork cannot replace the other, which means that each token is distinguishable from any other token in circulation. Moreover, no organization can shut down the ecosystem. Each user keeps a copy of all NFTs ever created, which means that it would be almost impossible for anyone to shut down the marketplace. The non-fungible token has become such a hot commodity in the cryptocurrency market because of this decentralized ownership and barrier to entry.

How are Non-Fungible Tokens Disrupting the Investment Game?

NFTs have revolutionized the way people invest in assets because of their tokenization of assets, which has opened up several opportunities for investors. First, NFTs allow for fractional ownership of assets. This means that an investor can own a percentage of an asset instead of purchasing the entire thing. For example, one token can represent 10% of a piece of digital art. Investors can diversify their portfolios with NFTs because they can buy tokens that represent partial ownership of various pieces of artwork or virtual objects. Second, thanks to the decentralized marketplace, investors can buy and sell NFTs in a peer-to-peer market. This eliminates the need for third-party organizations to facilitate exchanges. It also means that trading occurs outside of centralized exchanges, which has become problematic after several high-profile hacks on some of the largest cryptocurrency exchanges. Third, it’s much easier and cheaper to access the NFT market. Because of the decentralized nature of this market, there are no barriers to entry when it comes to investing in NFTs. Investors have to either open up a brokerage account or work with a financial advisor with traditional markets. With NFTs, anyone can invest in their favorite artwork by simply buying tokens from the artist, which can be done on any NFT marketplace.

Where To Buy NFTs?

There are several places to buy NFTs. Some popular marketplaces include OpenSea, RareBits, and Subastral. These sites allow investors to trade NFTs with other people in a peer-to-peer fashion. The process on these marketplaces is pretty straightforward. Artists list their tokens on the site, then buy them from investors who can see how much each token is worth. Once an investor purchases a token, it’s sent to their wallet immediately. Most marketplaces accept Ethereum as a form of payment for tokens, but there are several marketplaces that accept fiat as well.

What Should You Look For When Buying NFTs?

Depending on your goals, there are a few things you should consider when purchasing NFTs. First, is this a suitable asset class for me? Because of their volatility, it’s important that investors fully understand the risks in trading in this market. If your goal is long-term growth in your portfolio, then investing in NFTs might not be the best choice for you. If you’re not looking for growth and just want to follow your favorite artist, go ahead and purchase without thinking! But if you’re looking to trade and turn a profit, you’ll need to do more research. Verify the liquidity of the market. Make sure that there are several buyers and sellers so your trades can be executed quickly. You should also pay attention to which exchanges the NFT is listed on. The best way to ensure that you’re making a sound investment is by doing research and understanding how the asset functions before purchasing it.

NFTs for Artists

NFTs are also changing the way artists approach their work. This technology enables them to sell their work in a way that wasn’t possible before. Most traditional art markets are closed off to all but the elite or, in some cases, require you to have an “in” to get your work seen. But since NFTs are available on decentralized marketplaces, artists don’t need connections or money to list their tokens. This empowers new artists who might not have access to more traditional venues. This new method of selling artwork is also beneficial for investors. They’re able to access a whole new market of digital art pieces that are not available on traditional markets. Investors can also make money simply because they own an NFT, as the tokens will increase in value over time if the artist is successful! Perhaps most importantly, though, NFTs allow artists to interact with their investors, which is a way to establish an emotional connection and create long-term customers for artists.

Conclusion

Non-Fungible Tokens, or NFTs, are an exciting new technology that has revolutionized the way people invest in assets. Because of their tokenization of assets and decentralized nature, there are several opportunities for investors. These include fractional ownership, peer-to-peer trading, and an easy way to access the market. Before you purchase any NFTs, make sure that you do your research! There are many exciting opportunities in this emerging market, but also a lot of bad actors and scammers who might take advantage of new investors. With that in mind, happy investing! [/vc_column_text][/vc_column][/vc_row]

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