A buyer's guide to everything NFT!

Introduction

The non-fungible token is an exclusive digital identifier based on blockchain that can be created by anyone on the internet, even by you and me; only a few skills are needed to create it. Based on Blockchain, the immutable nature of it is what makes it unique. People use NFTs to trade artwork, pictures, videos, music, and more. Do not confuse them with cryptocurrencies, as they are fungible. International icons have invested and are interested in NFTs, and they have released their collections. Names like Eminem, Snoop Dog, and Logan Paul have shared this space.

Merely owning an NFT does not grant the buyer any intellectual property rights over the digital asset it claims to represent; rather, it serves only as a corroboration of ownership on a blockchain ledger. Some of the key points to consider are given below.

1) Community and the creator

When you go buy art for your home or office, you will always look for who created it, it is original or a fake, and whether the seller is genuine too. The same concept applies to a digital piece of art. The value of an NFT is often closely tied to the apparent value of the creator's work and their standing in the art community.

As an investor, one should conduct research to assess the artist's reputation and influence within their industry, reviewing their past work, examining their social media following and engagement, and examining any awards they have received to validate their work.

Another thing one can look at is the community, which can help drive up demand for the NFT and increase its value over time. If there is a dedicated fan base or active online community discussing the artist and their work, it is most probably trustworthy.

🤯 Fact - In 2021, the NFT market grew to nearly $41 billion, coming closer to the $50 billion sales of conventional art and antiques in 2020. This can be credited to the rising popularity of NFTs and the impact of COVID-19 on auction houses.

2) Market Volume & Liquidity

NFTs, in their promising stage, primarily functioned as collectibles. These types of NFTs are usually procured by the buyer with the thought and anticipation that the asset's worth will appreciate in due course. Nevertheless, it must be acknowledged that, unlike cryptocurrencies such as Bitcoin, which possess massive liquidity owing to their significant market volume on crypto exchanges, reselling NFTs can prove to be strenuous, especially if the underlying asset lacks popularity. The lack of liquidity and weak market conditions may compel buyers to endure an extended commitment to the asset while hoping for its value to appreciate; hence this is another major factor that one needs to consider before apeing in an NFT project.

In some platforms, users can transition effortlessly between both domains, resulting in increased liquidity and more comfortable trading within the NFT market.

3) Provenance, Transaction fees, and Rarity

Unlike traditional art, NFTs can deliver a transparent, immutable record of ownership and transaction history, known as authenticity; it is also called provenance by sophisticated geeks. The information is recorded on the blockchain, providing buyers with a greater level of confidence in the NFT they are purchasing.

Well, when it is about money, you have to consider it, transaction fees can vary widely depending on the platform and blockchain used, and they can impact the overall value of an NFT, hence becoming crucial. Fees range from 2.5% to 15%, so opt wisely.

Rarity is what sets apart an NFT; the more unique an NFT is, the higher its market value. This is similar to traditional art, where the rarity of an item can significantly impact its value. Even though it is on the higher end of the price range, if it’s rare, it will increase in value over time.

Risks and rewards of investing in an NFT

Investing in NFTs, or non-fungible tokens, has been a hot topic in recent years; while the rewards of investing in NFTs can be substantial, so too can the risks.

High returns are one of the main things that are interesting about NFTs; they have been known to sell for millions of dollars, making them possibly lucrative investment opportunities. Furthermore, NFTs provide a route for artists and creators to monetize their work directly, bypassing the need for traditional intermediaries such as galleries or record labels.

However, investing in NFTs also comes with significant risks. For one, the market for NFTs is still fairly new and untested, making it hard to determine the accurate value of an NFT. Added to that, the value of an NFT can be vastly volatile, with prices fluctuating rapidly based on trends and conjecture. Due to the digital nature of NFTs, another challenge comes up for investors; it can be puzzling to verify their authenticity, leaving people vulnerable to scams and counterfeit NFTs.

One needs carefully consideration of both the possible rewards and the risks is the gist of the matter. While the potential for high returns is unquestionably appealing, an individual must also be prepared to weather the volatility of the NFT market and exercise caution to avoid scams and fraudulent activity.