NFTinformer
While the collectibles market has always been popular, digital collectibles exploded at the beginning of a new decade and throughout the global pandemic. There are no signs of stopping because collectors can make investment decisions virtually.
Since cryptocurrencies and blockchain technology also moved into the mainstream, many companies jumped into digitized works without caring too much about things like wash trading or transaction fees.
Now, non-fungible tokens (NFTs) are everywhere, which leads us to the following questions:
- Can you make money from NFTs?
- What needs careful consideration when dealing with NFTs?
Doing a quick Google search for moneymaking NFTs will show you many instances of people buying little-known NFTs, turning around, and selling them for millions.
Still, you’re a bit cautious about it, and you may be wondering.
Can I Make Money From NFTs?
There’s one answer that many people will tell you. Yes, you can.
To be clear, we’re not talking about the most expensive NFTs to date, like:
- A $69 million work by digital artist Beeple that sold at auction in 2021
- Twitter found Jack Dorsey’s first tweet selling for over $2.9 million.
You can market any digital work into a collectible NFT—SNL even did a skit about NFTs that got minted into a real NFT itself!
Why Digital Collectibles Are so Popular
People have valid questions about digitized works as NFTs. For instance, couldn’t you just take a screenshot of Dorsey’s first tweet and save it on your phone?
Technically, yes, but you don’t own it, and you can’t sell it for any value. The person who bought the “first tweet” NFT owns it, and because it’s non-fungible, there’s no interchanging it.
That’s the distinction with NFTs, and there are other reasons they’re popular:
- The NFT medium allows creators to showcase works as monetized NFTs that guarantee the authenticity of the work and its ownership on the blockchain.
- Many celebs have caught the NFT bug and are talking it up on social media.
Making Investment Decisions About NFTs
The right investment strategy with NFTs is to consider them a speculative asset, and you also need to determine your acceptable level of exposure.
Qualified financial experts have studied the still-growing NFT space, and many of them have come to the same conclusion.
These experts advise allocating a small portion—less than 5%—of any portfolio towards speculative digital assets, and many suggest investing in cryptocurrency over NFTs. We’ll discuss that more under “Good Alternatives to Buying NFTs” below.
Considering that, there are two main avenues to buy NFTs as speculative assets once you’ve determined your level of risk.
Direct Purchases
You can buy NFTs directly from the artist or brand who created them.
Some websites that produce digital collectibles (including NBA Top Shot or DraftKings) allow you to pay for them with a credit card, and they’ll hold the works for you digitally in what’s called a custodial wallet.
If you want to sell in this situation, you must do so through the website’s marketplace.
NFT Marketplaces
Most digital artists upload their works to NFT marketplaces for sale or trade, and these marketplaces only use cryptocurrencies.
Because many marketplaces exist on the Ethereum blockchain, most use Ether (ETR) cryptocurrency, but some marketplaces also use their own crypto.
The process isn’t complicated. First, you’ll need sufficient cryptocurrency in your digital wallet, which you connect to the marketplace via a browser extension. After that, you can start purchasing NFTs!
NFT Risks
It’s not hard to buy or sell NFTs, but there are inherent risks to purchasing anything digitally. That’s why we’re explaining some downsides to NFTs here.
Volatile NFT Values
If you’ve ever watched Antiques Roadshow, you know how the value of physical collectibles can fluctuate. Well, digital collectibles are similar, and their value is often driven by how much someone is willing to pay.
That said, some people love the risk of buying NFTs. For them, it’s like gambling.
Crypto Attacks
Unfortunately, hackers and scammers have always been present in the digital world, and their attacks have gotten sophisticated.
Always do your research on internet security for NFTs.
Gas Fees
It’s a weird name because there’s no gas involved, but whatever you call it, the extra costs required to buy NFTs are getting ridiculous.
Many buyers get charged $200 or more to have a data engineer or “miner” validate their transaction on a blockchain like the Ethereum network, and because more people are buying up space, the fees keep increasing.
Wash Trading
Unethical trading is also a concern in the digital marketplace, and one method called “wash trading” has gained notoriety.
To do wash trading with NFTs, the seller fakes a sale at an inflated value to a new crypto wallet that they also control, making the NFT seem more valuable than it is.
Are There Good Alternatives to Buying NFTs?
Because of the speculative nature of NFTs and the risks in digital investing, we’d like to bring forward some good investment alternatives:
- Instead of buying NFTs, buy specific platform cryptocurrencies like “RARI,” “NFTX,” “INJ,” “MANA,” “CAKE,” “CHR,” or “OVR.”
- Invest traditionally in “COIN” through the stock market.
- Consider creating new digital startups that use NFT technology on the blockchain—there is potential for startups like car histories, will planning or powers of attorney.
- Stick to established assets like equities, precious metals, or real estate.
It’s good to remember that the current NFT space isn’t properly regulated yet.
There is plenty of hype around NFTs and crypto, but that’s yet another reason to proceed with caution.
