Guide To Buying NFTs – Forbes Advisor Australia – Forbes
A piece of art called “The Merge” by the artist Pak sold in December 2021 for $US91.8 million. To date, it’s the most expensive piece of art ever sold by a living artist, but “The Merge” isn’t a painting or sculpture. It’s a non-fungible token (NFT).
An NFT is a digital asset that can represent real-world objects, such as artwork or even real estate. These cryptographic assets are bought and sold online, frequently with cryptocurrency, and the ownership information is secured and stored on a blockchain, a type of distributed ledger.
With values of art and sports NFTs soaring into millions of dollars, many investors wonder if NFTs are a good investment. Let’s take a closer look at the market and how you can buy an NFT, should you choose to.
What Is an NFT?
An NFT is something that can’t be duplicated—it’s the complete opposite of fungible.
The first known NFT, “Quantum,” was a video clip dubbed a monetised graphic. When it was created in May 2014, it eventually sold for $US4. Since then, NFTs have grown into a $US1.8 billion market, according to data from CoinMarketCap. But what exactly is an NFT? Perhaps the first thing to understand is how an NFT differs from a fungible token.
If you think about two separate five-dollar notes, they’re the same. If I take your five-dollar note and give you my five-dollar note, we both still have the same thing. This means a five-dollar note is a fungible asset.
On the other hand, if you have a portrait painted by Pablo Picasso, exchanging that artist’s work for a picture drawn by a three-year-old isn’t the same. That’s the basic premise behind NFTs.
“The concept of fungible versus non-fungible has been in our lives for centuries,” says Merav Ozair, blockchain expert and fintech professor at Rutgers Business School in the US.
Ozair defines a fungible object as something interchangeable or indistinguishable from something else.
A bitcoin is a fungible token on a blockchain, and it doesn’t matter which particular one you own.
An NFT, on the other hand, is a unique blockchain token that is not interchangeable with any other token found on that or any other blockchain.
Related: Guide to NFT Marketplaces
Where to Buy NFTs
The first purchase of an NFT is called minting.
Minting is not the creation of the NFT; rather, minting activates an already created smart contract and places the NFT in a specific spot on the blockchain network.
In this way, an NFT is a kind of non-fungible cryptocurrency. NFTs have all the same features as other blockchain technologies. A given NFT is immutable on the blockchain, and everybody can see its transactions, Ozair says.
Although you could conceivably build your own blockchain for creating and minting NFTs, most users choose an NFT marketplace to mint their NFTs.
There are two kinds of marketplaces for NFTs: centralized and decentralized.
Centralized NFT Marketplaces
The key distinction between a centralized and decentralized marketplace is that a centralized one will set certain constraints on what you can do.
When a marketplace is centralized, Anthony Georgiades, co-founder of layer one blockchain Pastel Network says, “You’re not necessarily beholden as the user to ensure you aren’t infringing on a copyright.” Instead, the marketplace will take care of that for you.
Decentralized NFT Marketplaces
On the other hand, anyone can hypothetically list anything on a decentralized marketplace. This can lead to copyright infringement or even fraudulent NFTs. Either of these factors could hurt your investment.
In addition to the proposed price of the NFT itself, when users first mint an NFT, they pay for both the NFT and the gas fee.
A gas fee is an additional fee that a blockchain network charges for the use of its computational resources.
Ethereum (ETH) is currently the largest network for NFTs, but there are other networks, such as Flow (FLOW), Cardano (ADA) and Solana (SOL), to name a few.
Each blockchain that supports NFT projects has its unique advantages and disadvantages, though.
Some networks also charge a gas fee for minting an NFT. Among cryptocurrencies that support NFTs, Solana’s gas fees are relatively low compared with most others.
When minting NFTs, users might also want to look at gas fees for the network.
How to Buy NFTs
Once an NFT is minted, the user typically has free reign.