Do you want to buy an NFT? Here is what you need to know

The major risk with buying any cryptocurrency, including NFTs, is that the value is largely based on speculation. Buyers hope their NFTs will be the future of unsecured collection.

If you are considering purchasing an NFT, here are a few key things to know.

What is an NFT?

An NFT can be music, art, trading cards, and even tweets.

The Kings of Leon released their latest album as an NFT collector’s item earlier this month. The token is the certificate that guarantees that the album is both authentic and original.

Mike Winkelmann, a graphic designer known as Beeple, took to the Nifty Gateway online marketplace to sell millions of dollars of his digital art to wealthy collectors. On Thursday, he sold a digital collage at Christie’s for $ 69.3 million.

Artist and musician Claire Boucher, known as Grimes, sold $ 6 million worth of NFT, also on Nifty Gateway.

But not all NFTs are collectibles. They can also be items for in-game purchases, event tickets, and domain names. For example, some of Kings of Leon’s NFTs also serve as future concert tickets.

What do I get when I buy an NFT?

When buyers buy an NFT, they own the original rights to their digital asset, whether it is music or images. This is proven in two ways: the buyer gets the only token bequeathing ownership, and each NFT is uploaded to a digital ledger (like cryptocurrencies) to track when it was created and sold as well as ownership.

Much of the value comes from people’s pride and ability to say they own an original work, said Dan Kelly, president of Nonfungible.com. “The real key is the property itself,” Kelly said. “That’s the status that comes with owning this thing. It is totally different to own the original compared to the replica. “

One of the biggest hurdles for people considering buying NFTs is that “for a lot of people it is assumed that the physical version of a collectible is somehow more valuable than the digital,” said Andrei Brasoveanu, an Accel partner who recently invested in Sorare, an NFT platform for football fans. He points out that NFTs are often more secure because of their authentication process. For NFTs on Sorare, it’s on the Ethereum network. Unlike the bitcoin blockchain, ethereum is the platform on which many NFTs are created due to its flexibility allowing developers to store code for blockchain projects.

Are there other versions? What Makes an NFT Original?

Only the purchaser of the NFT owns the rights to the original asset, although other copies can still float free on the Internet.

Mr. Kelly compares this to owning the original Mona Lisa and the number of reprints going around. Only one person has the original, he said.

Each blockchain-based token is unique. NFTs have metadata that certifies when they were made, who created them and other descriptors. This information is combined with a cryptographic hash function – a technique that turns the data into a unique sequence of 40 digits of letters and numbers – that creates a unique identification. So even though there are thousands of NFTs sold with digital images that look the same, the underlying information will all be different.

Ownership rights to NFTs are a detail that is still being resolved in the United States. Currently, when a person acquires an NFT, the underlying asset is owned, but not the copyright.

If the buyer wanted all rights to a collector’s item, the copyright owner would have to separately transfer the copyright by contract, said Ali Dhanani, intellectual property lawyer at Baker Botts. Otherwise, “the creator of the copyright could still separately use, display, distribute or create reprints of the work, including generating new NFTs for those reprints,” he said.

How much do they cost?

While some have sold for as little as a few dollars, other high-end digital art has sold for millions at auction.

A meme called Nyan Cat, which features a cat with the body of a Pop-Tart, was bought for almost $ 600,000. Kings of Leon NFT albums were sold for $ 50.

NBA Top Shot allows sports fans to buy, sell and collect officially licensed video clips of basketball players. A man spent over $ 175,000 on digital trading cards; they are now worth $ 20 million.

Where are the legitimate places to buy NFTs?

Online marketplaces allow buyers to participate in auctions, make purchases and sell NFTs. Some of the most popular include OpenSea, Nifty Gateway, Yellowheart, and NBA Top Shot.

NFTs can be resold in the same online marketplaces.

Mr. Kelly recommends that newcomers stick to their purchases at primary market sites directly from the supplier. It becomes more difficult to verify authenticity on secondary sites if you are less familiar with the process of buying and selling NFT.

Are there any scams and risks to be aware of?

Even on the most reputable market sites there are scams. The best way to combat this is to buy from verified sellers, Kelly said. He also recommends treating it like a stock trader would.

“If you’re not experienced, make sure you’re not spending more than you’re willing to lose, and stick with the common type of top-notch items,” he said.

—Caitlin Ostroff contributed to this article.

Write to Amber Burton at [email protected]