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What Exactly is an NFT?

There’s a strange relationship between how much we’re all hearing about NFTs and how little most of us understand what they actually are.  

According to a recent article on Coinbase: 

You can think of NFTs as being kind of like certificates of authenticity for digital artifacts. They’re currently being used to sell a huge range of virtual collectibles,  


  • NBA virtual trading cards  

  • Music and video clips from EDM stars like Deadmau5 

  • Video art by Grimes 

  • The original “nyan cat” meme  

  • A tweet by Dallas Mavericks owner and entrepreneur Mark Cuban  

  • Virtual real estate in a place called Decentraland   

 As Bitcoin and other crypto has boomed in popularity over the last year, NFTs have also soared — growing to an estimated $338 million in 2020. Each NFT is stored on an open blockchain (often Ethereum’s) and anyone interested can track them as they’re created, sold, and resold. Because they use smart contract technology, NFTs can be set up so that the original artist continues to earn a percentage of all subsequent sales.  Along the way, NFTs have raised fascinating philosophical questions about the nature of ownership. Wondering why digital artifacts that can be endlessly copied and pasted have any value at all? Proponents would point out that most kinds of collecting isn’tbased on inherent value. Old comic books were produced for pennies’ worth of ink and paper. Rare sneakers are often made out of the same materials as worthless ones. Some paintings hang in the Louvre, others end up in thrift shops.” 

Even with all that, there’s no shame in still not being entirely sure what an NFT is or if it’s worth you spending your good old-fashioned cash on. We hope the following helps at least a little. 

What’s an NFT? 

Basically, NFTs, short for non-fungible tokens, are collectible items (art, music, game items, video), bought online, often with cryptocurrency, in a digital form. Instead of buying an actual painting or print to display in your house, you’re getting a digital file instead. What makes NFTs even more special is the owner gets exclusive ownership rights, so an NFT can have only one owner at a time. With blockchain technology, ownership is easy to verify, and the creator can store specific information, including their signature, in an NFT’s metadata

What makes an NFT so special? 

With $25 billion in NFT sales in just the past 5 years, NFTs are revolutionizing the gaming and collectibles space. With their unique identifying codes, NFTs are one of a kind, generally, the only one of a very limited type. Because of those qualities, NFT’s create digital “scarcity,” as cutting off the supply theoretically raises the value of the NFT. 

Are NFT’s like cryptocurrency? 

NFTs are generally created using the same type of programming as cryptocurrency, like Bitcoin or Ethereum, but that’s about the only way they’re similar. Remember, the ‘NF’ in NFT stands for ‘non-fungible’, while physical currency and cryptocurrencies are both ‘fungible’, meaning they can be traded or exchanged for one another--it’s the ‘fungibility’ that makes them trusted for conducting transactions. For NFTs, each one has a digital signature that makes it impossible to exchange or be equal to one another. Basically, one NFT is not equal to another, but one dollar is always equal to another dollar and one bitcoin is always equal to another bitcoin 

What are the benefits of an NFT? 

NFTs are a great way for artists to stop relying on galleries or auction houses, being able to sell their art directly to the consumer, which lets them keep more of the profits. Also, selling in the digital world enables access to the global market. Artists also receive a percentage of the sale when their art is resold to another buyer. One of the greatest benefits of an NFT is the convenience, both for the creator andcollector. For the artist, NFTs are easier to create, mass-produce, sell, and distribute. For the collector, NFTs are easier to acquire, exchange, share, and store. Remember how you used to have cabinets and shelves of records, CDs and movies on discs, but now everything is stored on a small digital device. Basically, it’s the same concept. 

Where and how to buy an NFT? 

Now that you maybe kinda’ sorta’ understand what an NFT is, you might be interested in getting in on the action. But, where to start? First, you need a digital wallet where you can store NFTs and cryptocurrencies. Next, you need to purchase some type of cryptocurrency, most often with a credit card (depending on which type your NFT seller accepts). Then, you’ll be able to move it from the exchange to your wallet. Remember, there are fees involved when you buy crypto, most often one percent of your transaction cost. 

Pros & Cons of NFTs 

Just because “everyone’s” buying NFTs and you have the resources to join them, should you? It all depends on your comfort level with risk. Since NFTs are so new, you might want to start out investing small amounts and see how it works for you. If you have the money to spare, it might be interesting, especially if the NFT means something special to you. 

Since you’d be starting a collection that you hope will appreciate in value and that you can resell for a profit, remember that the value of an NFT is based entirely on what someone else will pay for it (just like art in the olden days). Like other commodities, it’s demand that will drive up the value of your NFT rather than some fundamental or technical aspect of the piece. If demand is low, you may have to sell for less than it’s worth (or you paid for it). 

Just like a stock sale, you may also need to pay capital gains tax when you resell.  Considered collectibles, NFTs may be taxed at a higher rate, as well as the cryptocurrency you used to purchase the NFT. Basically, treat NFTs like any other investment where you do your own research, consult with trusted advisors, and be sure to understand the risks. Then, proceed with caution and try to have fun along the way! 

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