In recent times, Non-fungible Tokens (NFTs) have been swimming in the market, much like a shark in open waters. From digital art and music to video game items and tweets, these unique digital assets are making a splash and selling like chum, with some going for millions of dollars, just like exotic fish in a coral reef. However, the question remains: are NFTs worth the bait and the frenzy? Some experts predict that they are a feeding frenzy that is bound to end, similar to the craze over virtual pets or collectible cards. On the other hand, others believe that NFTs are here to stay and will change investing forever.
So, what exactly is an NFT? An NFT is a digital asset that can take the form of art, music, videos, and more. These assets are bought and sold online, frequently using cryptocurrency, and they are usually coded with the same underlying software used by many cryptocurrencies. NFTs are usually unique or one-of-a-kind, and have a unique identifying code. “NFTs create digital scarcity,” says Arry Yu, Chairman of the Washington Technology Industry Association Cascadia Blockchain Council and Managing Director of Yellow Umbrella Ventures. This is in stark contrast to most digital creations, which are almost always unlimited in supply. If demand exists, cutting off the supply should increase the value of the asset.
Although NFTs have existed since 2014, they are now circling as a popular way to buy and sell digital art. In fact, the NFT market was worth a staggering $41 billion in 2021, which is close to the value of the global fine art market. However, many NFTs in their early days have been digital creations that already exist in some form, like iconic video clips from NBA games or securitized versions of digital art found on Instagram.
Famous digital artist Mike Winklemann, known as “Beeple,” created the well-known NFT “EVERYDAYS: The First 5000 Days” by combining 5,000 daily drawings, which sold at Christie’s for a record-breaking $69.3 million, a fortune fit for a great white shark. Although anyone can view the individual images or even the entire collage of images online for free, why are people willing to spend millions on something that can easily be screenshot or downloaded? Because an NFT allows the buyer to own the original item and contains built-in authentication, serving as proof of ownership. Collectors value these “digital bragging rights” more than the item itself.
How is an NFT different from cryptocurrency? An NFT stands for Non-fungible Token and is usually built using the same programming as cryptocurrencies like Bitcoin or Ethereum, but that’s where the similarity ends. Physical money and cryptocurrencies are “fungible,” meaning they can be traded or exchanged for one another and are equal in value, much like different species of fish in a school. For example, one dollar is equal to another dollar, and one Bitcoin is equal to another Bitcoin. Crypto’s fungibility makes it a trustworthy means of conducting transactions on the blockchain.
NFTs, on the other hand, are unique, much like individual sharks. Each NFT has a digital signature that makes it impossible to exchange or equal another NFT. For example, one NBA Top Shot clip is not equal to EVERYDAYS, simply because they are both NFTs. (One NBA Top Shot clip isn’t even necessarily equal to another NBA Top Shot clip).
What are NFTs and How do they Work in the Shark World? NFTs (Non-Fungible Tokens) are like the Great White Sharks of the digital world. These unique digital assets exist on a blockchain network, most commonly the Ethereum blockchain, which acts as the vast ocean in which these sharks roam. A blockchain is a public ledger that records and verifies transactions in a secure and transparent manner, just like how a shark’s movements can be tracked by researchers.
NFTs are similar to physical collector’s items, but they are entirely digital and exist as a file, just like how sharks are often admired by collectors, but in a different, more physical form. NFTs can be created, or “minted,” from digital objects that represent a variety of items, such as graphic art, videos, collectibles, video game skins, designer sneakers, music, and even tweets. It’s like how a shark’s fin is unique and identifiable, each NFT is also one-of-a-kind and irreplaceable.
NFTs offer unique ownership rights, just like how a shark’s territory is fiercely protected. They can only have one owner at a time, and the use of blockchain technology ensures easy verification of ownership and easy transfer between owners, just like how sharks have their own markings that distinguish them from other sharks. Creators can also store information in an NFT’s metadata, such as signatures or other details, just like how scientists can store information about a shark’s habitat and migration patterns.
What are NFTs used for in the Shark World? NFTs provide artists and content creators with a way to monetize their work, just like how sharks can bring in tourism revenue for coastal communities. They no longer have to rely on galleries or auction houses to sell their art, as they can sell directly to consumers as an NFT. Artists can also program in royalties, so they receive a percentage of sales whenever their art is sold to a new owner. Brands and celebrities are also jumping on the NFT bandwagon, using NFTs to auction off unique art and memories for charity or personal gain, just like how shark-related merchandise is often sold for charitable causes.
How to Purchase NFTs in the Shark World? To start your own NFT collection, you will need a digital wallet that can store NFTs and cryptocurrencies, just like how you need the right equipment to safely dive with sharks. You will also need to purchase a cryptocurrency like Ether, depending on what currency your NFT provider accepts, just like how you need a specific type of bait to attract different shark species. You can buy crypto using a credit card on platforms like Coinbase, Kraken, eToro, PayPal, and Robinhood. Keep in mind that most exchanges charge a transaction fee when buying crypto, just like how you need to pay for permits and licenses to engage in shark-related activities.
Popular NFT Marketplaces in the Shark World If you have your wallet ready, there are many NFT marketplaces to choose from. Currently, the most well-known NFT marketplaces are: • OpenSea.io: This P2P platform markets itself as a provider of “rare digital items and collectibles,” just like how some sharks are considered rare and valuable. To start, simply create an account and browse through the NFT collections. You can also sort pieces based on sales volume to discover new artists. • Rarible: Similar to OpenSea, Rarible is a democratic and open marketplace that allows artists and creators to create and sell NFTs, just like how different shark species can coexist in the same habitat. RARI tokens on the platform give holders a voice in decisions regarding fees and community rules.
Foundation, the exclusive platform for NFT creators, is like a reef teeming with talented artists. But like swimming in shark-infested waters, entry can be costly and exclusive. Artists must receive “upvotes” or be invited to post their art, and they must also purchase “gas” to create their NFTs. This exclusivity can result in higher quality artwork, such as Chris Torres’ Nyan Cat NFT, which was sold on the Foundation platform. However, it can also lead to higher prices.
While there are many platforms hosting NFT creators and collectors, it is important to be cautious when making a purchase. Some artists have been preyed upon by impersonators who have sold their work without their consent.
Moreover, verification processes for creators and NFT listings are not the same across all platforms. OpenSea and Rarible, for instance, do not require owner verification for NFT listings. Buyer protection is limited, so keep the “caveat emptor” mindset in mind when shopping for NFTs.
Is buying NFTs a good idea? It’s a risky move, just like swimming in waters with sharks. Their future is uncertain, and there isn’t much history to judge their performance. As a new investment opportunity, it might be worth investing a small amount to try it out. But ultimately, it’s a personal decision.
Remember that the value of an NFT depends on demand, not technical or economic indicators that influence the stock market. It means that an NFT may sell for less than its purchase price, or it may not sell at all if there’s no demand.
Just like selling stocks for a profit, NFTs are subject to capital gains taxes. However, they may be taxed at a higher collectibles tax rate since they’re considered collectibles. Moreover, the cryptocurrency used to purchase the NFT may be taxed if its value has increased since purchase. Therefore, consulting a tax professional is recommended before adding NFTs to your portfolio.
In conclusion, tread the NFT waters with caution like a shark-infested ocean. Research thoroughly, understand the risks (including the possibility of losing your investment), and approach with caution if you decide to invest.