What is an NFT?
A Non Fungible Token is more commonly referred to as NFT. Non-fungible assets are ones that a certain value can not be placed upon or be exchanged for something similar or equivalent. Whereas fungible assets can be exchanged between one another for the same value. For example, if you were to give someone $20 and they give you two 10 dollar bills it is still the same. Or if they give you $20 worth of gold which can be sold at the moment for $20. This is not the case with non-fungible assets; everything is unique and each person values it differently. For example, you exchange an NFT with your friend which you both bought for $10, even though you both have an NFT which was purchased for the same price at one moment in time this does not mean it still has that value or has risen in price. It is much similar to physical art as you are never guaranteed any return as each individual will value it differently.
How are NFT’s valued?
NFT’s can be valued similarly to physical art. Its value may be created from scarcity, unique factors, the creator of the NFT, and much more. Similar to historical art pieces such as the Mona Lisa, you can get a copy of the Monalisa or print it at home but you won't have people running after you offering you millions. This is because of the story behind the Mona Lisa, the creator of it, and much more. For that reason, you can take a screenshot of an NFT which sold for millions, and try to sell it but you will get no offers in that price range due to its originality. For example, an NFT of your favourite singer or artist will probably be worth more to you than someone who has never heard of them before.
Should you invest in NFT’s?
NFT’s are a heavily volatile asset associated with volatile cryptocurrency in which you make the purchase or receive funds for selling an NFT. In addition, as hard as it is to put a price tag on pieces of traditional art and value them, the same can be said for NFT’s. Thousands of individuals are dumping their cash into NFT’s because they believe it can be the next “big thing” but do not understand the market and what they are purchasing themselves. On the other hand, according to Artprice, blue-chip art has outperformed the S&P 500 by 180% from 2000–2018 therefore having a small portion of your investments in NFT’s may not be so bad after all, although it is important to remember to never invest in anything you do not understand. As most likely you will end up overpaying out of fear of missing out and sell too early under the fear of losing all your money.
Written by Tejpal Gill