Investing in NFT Digital Art

Investing in NFT Digital Art: What Are Non-Fungible Tokens and Are They a Good Investment?

Non-fungible tokens ( popularly known as NFT’s ) have been the subject of a great deal of discussion recently. Many see it as a potential new approach that will enable them to generate money from their work for the first time. They sing the praises of this new asset class and cite glorious tales of NFTs selling for eye-popping numbers. Others believe they are just another fad, or worse, a bubble ready to explode.

Should you be suspicious of NFTs if you’re an investor (or an artist for that matter)? Are they a good investment for your portfolio? Let’s take a deeper look at NFTs for discerning art investors, and see whether they’re a good match for your financial objectives.

What Exactly is a Non-Fungible Token?

A non-fungible token, also known as an NFT, is a cryptographic asset connected to a blockchain representing a real-world item, such as a work of art. NFTs are purchased and sold online, often using cryptocurrency, and, like cryptocurrency, all NFT transactions are recorded on the blockchain connected with the trade.

Fungibility is merely the capacity to be interchangeable. Money is the archetypal fungible asset. For example, if you had a $10 note, you could trade it for two $5 bills, ten $1 bills, or any other combination of currency that would still be deemed equivalent to $10. In other words, fungible assets have the same value as other fungible assets of the same sort and are therefore considered interchangeable. Most purchases are neither entirely fungible nor non-fungible, but in the case of NFTs, it is a helpful phrase to understand how these assets function.

NFT vs. Cryptocurrency: Which is Better?

While NFTs are created using the same programming as cryptocurrencies, the similarities between the two technologies stop there.

Cryptocurrency, like conventional cash, is intended to be fungible. In other words, these currencies are designed to be equal in value and replaceable with one another. For example – one bitcoin is similar to another bitcoin, and a bitcoin may be sold for its equivalent value in US dollars.

NFTs, on the other hand, do not operate in this manner.

Every NFT is intended to be absolutely ‘one-of-a-kind’, like a Picasso or a Renoir painting, with a unique digital signature to guarantee its authenticity. This implies that one NFT does not have the same value as another, and one NFT cannot be swapped for another as if they were both of equal worth.

The Positive Aspects of Nonlinear Function Transformation

On the one hand, non-financial transactions (NFTs) have fundamentally transformed the market for digital assets. Markets cannot function without the protection of property rights. No one can purchase an item unless they have a clear understanding of who has the legal right to sell it, and if someone buys an asset, it must be apparent that they have the only legal right to hold it. They must demonstrate that they have the original object over which they claim the title rather than a duplicate.

The notion of property rights is introduced to the digital market via NFTs. Artists (and others) may show authenticity and ownership rights over digital goods for the first time.

In my opinion, NFT’s may be a suitable investment for the more ‘adventurous’ portion of your portfolio, similar to crypto currency. NFT’s are even newer than crypto currency and hence, should only represent a slice of your portfolio. And, as with all art investments, invest with your instincts and buy what you like. Since this is truly the ‘wild-west’, take your best shot, and in the not too distant future, you’ll know if you have ‘hit’ or ‘missed’.

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