Unless you’ve been living under a rock, everyone you know has been talking about investing in NFTs. What are they? And what does that mean? It can be confusing, especially when so many companies jump on the bandwagon with their own token platforms. So, let’s get it all straightened out.
You should think of an NFT as a piece of artwork
If you were to buy a painting, you would know its value. You should think of an NFT as a piece of artwork. It’s unique and distinct, which means its value is not determined by the work itself but by how many others want to own it. If no one wants to own your artwork, then it doesn’t have any intrinsic value, so you’d better hang it on the wall and enjoy the sun streaming through its window.
If everyone wants to own your artwork, that increases demand and price with it. The concept of supply and demand is the central idea that forms the foundation of all modern economics.
And so, if demand is high and supply is low, the price goes up.
Just like a painting, an NFT represents a tangible asset that cannot be reproduced or duplicated. There are only so many paintings of a specific type and size by a particular artist out there in the world, which makes them desirable to collectors who want something unique in their collection.
When you buy an NFT, it’s the same thing. You are getting your hands on something unique and can’t be reproduced or duplicated.
If you wanted to reproduce one of those paintings, you would need the original painting (or a copy of its careless enough to let anyone make copies). But with an NFT, it’s even harder because the original isn’t being reproduced. The whole idea is that there are no copies involved.
Think of it like a cryptocurrency but instead of sending money to someone; you’re sending digital assets that only exist on the blockchain.
Just as gold bars have value because they can be traded for goods and services, NFTs have value because you can trade them for other NFTs or fiat currency. Just like a painting that sells at an auction, the price of an NFT goes up based on how much demand there is and how few are being given out.
Smart investors hold onto their NFTs to allow them to grow in value
Like a famous artist’s work, if you hold onto an NFT for an extended period, it will likely be worth more in the future. Seeing as there are limited quantities, they will appreciate over time if everyone holds onto their tokens.
However, unlike a painting held onto by someone who lives in a mansion, you can still trade your NFT for other NFTs or fiat currency. This is why so many investors see value in them – they can be traded and appreciated.
In the same way that paintings have been used as investments for years, NFTs are the new and improved digital way for investors to make money.
So why are NFTs such a hot commodity? Because there is demand from everyone looking to collect something unique.