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NFTs: The crypto-fueled craze that pervades the internet, explained
The market for NFTs, or non-fungible tokens, is exploding. Why pay $ 200,000 for an NBA Top Shot climax from LeBron dunking? Here is the NFT mania, explained.
Just the FAQ, USA TODAY
The latest phenomenon in the investment world is the idea of non-fungible tokens, or NFTs, which represent a digital work of art or other online collectible. “Fungible” means that something can be easily exchanged for something else of the exact same value. For example, a dollar bill is fungible because you can exchange it for another dollar bill that is worth the same amount.
A non-fungible item is a single item that cannot be replaced by anything else. NFTs allow someone to buy or sell a unique digital art piece, and the buyer is the only one in the world who owns that original piece.
NFTs are a new type of investment, but some have already sold for tens of millions of dollars, proving that they can be lucrative. But are they the right investment for you?
How do NFTs work?
NFTs are recorded on a blockchain and each token contains information about a unique digital work of art.
The types of art available in the form of NFT are virtually limitless. Twitter CEO Jack Dorsey recently made headlines for selling the very first tweet as NFT for $ 2.9 million. An animated GIF of Nyan Cat, a 10-year-old meme, sold for over $ 500,000. And digital artist Beeple sold a digital painting for $ 69 million.
NFTs become an investment opportunity when you consider the resale value of the art. Similar to buying physical artwork, owning the art itself isn’t necessarily the money maker – it’s selling that art to the highest bidder, which brings in a lot of money. If you are able to buy a high priced NFT and sell it for more than what you paid for, you could make a huge profit.
In addition, the blockchain element of NFTs aims to prevent fraud and theft. While others may make copies of an original digital artwork, there is still only one original – and only the person who owns the NFT for that artwork owns the original.
Similar to physical art, you can buy a copy of the Mona Lisa, but there will only ever be one original Mona Lisa.
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Are NFTs the Right Investment for You?
As NFTs are a relatively new investment, there is still a lot to learn about them. Plus, it can be difficult to put a price on digital art, which can make NFTs an incredibly risky investment.
When you invest in stocks, the stock price is the value of the investment. If you buy a stock for a certain price and sell it for a higher price, you can make a profit.
With digital art, however, its value depends on what someone is willing to pay for it. There are no guidelines on the value of a meme, GIF, or tweet, so anyone can guess how much you’ll be able to get – or whether you’ll be able to sell it.
If you are determined to invest in NFTs, set a spending limit and only buy what you can afford to lose. NFTs are highly speculative, so don’t get into the hope of getting rich.
In addition, it makes sense to keep the majority of your money in safer investments, such as index funds or ETFs. When the bulk of your portfolio is invested in relatively safe places, you are in a better position to take risky investments.
NFTs are an exciting new type of investment, but not everyone is suitable. If you’re curious about NFTs and have some cash to spend, it won’t hurt to get your feet wet. Otherwise, it is best to watch this phenomenon unfold in the seclusion where your money is more secure.
The Motley Fool is a USA TODAY content partner providing financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.
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