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3 Important Things You Should Know About Non-Fungible Tokens

NFTs are possibly one of the hottest collectables right now. You can compare NFTs to a baseball card, precious metal coin, comic book, or other collectables.


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Tom

4 months ago | 3 min read
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These tokens are some of the hottest collectibles on the market.

You may have heard of Non-Fungible Tokens lately. Another name they go by is NFTs.

NFTs are possibly one of the hottest collectibles right now. You can compare NFTs to a baseball card, precious metal coin, comic book, or other collectibles.

NFTs have become another collectible that investors are adding to their portfolios.

So what exactly is an NFT?

NFTs are collectibles and they can be unique just like the Mona Lisa is a one of kind artwork.

NFTs are tokens that we can use to represent ownership of unique items. They let us tokenize things like art, collectibles, even real estate. They can only have one official owner at a time and they’re secured by the Ethereum blockchain — no one can modify the record of ownership or copy/paste a new NFT into existence.

Some examples of NFTs include:

Digital Art:

  • Collectibles
  • GIFs
  • Music
  • Videos

Real-World items:

  • Deeds to a car
  • Legal paperwork
  • Signatures
  • Tickets to an event
  • Tokenized invoices

An NFT is very similar to cryptocurrencies. However, there are some things you should know about these collectibles.

3 Things you should know about NFTs

1. NFTs are new

Kevin McCoy, a digital artist, minted the first NFT, called Quantum, on May 3, 2014. On November 28, 2021, Quantum was sold at a Sotheby’s auction for over $1.4 million.

The price and scarcity of this NFT helped give the value for this collectible.

Early NFTs were built on the Bitcoin blockchain. Due to the limitations, NFTs were soon created on the Ethereum blockchain starting in 2017.

One of the first NFTs created on Ethereum was CryptoPunks. This project was created on the ERC-20 blockchain.

Ethereum hosts several projects from the Metaverse ecosystem including Axie InfinityDecentralandEnjin, and Terra Virtua. NFTs from the Bored Ape Yacht Club and CryptoPunks are found on the Ethereum blockchain.

Several NFTs are also created on other blockchains than Ethereum. Some of the blockchains include CardanoSolanaVeChainTezosAlgorand, and Ergo.

2. The NFT price could drop after you buy one

As soon as you decide to buy an NFT, be careful because the price may drop as soon as you purchase one.

Last year after NFTs were becoming popular, the market suffered a big drop in price. Some NFTs dropped as much as 70% from their peak.

NFTs reminds me of sports cards. The price fluctuates based on supply and demand. Additionally, the price could also fluctuate based on news about the industry.

An NFT may be hot one day and cold the next. Make sure you analyze the price of the NFT market before buying. You don’t want to suffer an enormous loss after a purchase.

Since this market is still relatively new, it is hard to get a good idea of the value of NFTs.

Some NFTs may be worth a lot while others may not.

3. NFTs are minted on a smart contract, and they could come at a cost

Since the majority of NFTs are minted on Ethereum, they could come at a higher cost than you expected.

Ethereum has gas fees which is an additional fee that gets added to the final cost during transactions. The Ethereum network uses gas similar to how a car uses gas.

Gas fees on Ethereum helps keep the network secure.

The amount of Ethereum gas is determined by the demand for resources.

During peak periods, the price for Ethereum could be very high. This occurs when the price of Ethereum is in high demand.

Vitalik Buterin, one of the co-founders for Ethereum, is working on Ethereum 2.0. This is expected to lower the gas fees and other issues on the Ethereum network.

NFTs are a hot collectible today. Before you buy one, make sure you do your research and due diligence.

Have a game plan on what you plan to do with the NFT.

Always ask yourself what is your objective with your investment? Sometimes the answer may help you make a better decision.

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