NFTs are, without a doubt, the hot topic of the year. The market report of 2021 from DappRadar shows that as the crypto market exploded, NFTs also saw a rapid rise of $25 billion. From digital arts to memes and videos, anything can be an NFT and be sold or traded in the marketplaces. As we reach the last months of 2022, let’s find out some important things to know about NFTs before investing in them.
What are NFTs?
Non-fungible tokens, aka NFTs, are unique tokens recorded in the blockchain which cannot be exchanged like cryptocurrencies. These digitized items can be bought, sold, and traded on the NFT platforms. NFTs can represent anything, and it is quite interesting to see how digital arts are not the only items accessing the NFTs. Anything from arts to music to travel tickets and even fashion can be made into NFTs. Now that we have a slight gist about what an NFT is, the next will be to know how an NFT trading works.
How does NFT work?
As mentioned before, NFTs are unique digital assets that cannot be exchanged with another digital asset. For instance, say you and your friend have two different kinds of Bored Ape arts. Both the arts have their own significant characteristics. One of the two might be a bit more valuable than the other. Hence, making it hard for you to exchange it with your friend.
NFTs can only be bought, sold, or traded on the platforms. The CEO and co-founder of Unocoin Technologies Ltd., Mr. Sathvik Vishwanath, mentioned that a creator has to launch their digitized creativity, recorded on the blockchain, on the platform for sale. The next buyer also can sell the asset to secondary buyers. All NFT marketplaces have their core cryptocurrencies. The most popular one is Ethereum.
A few of the top NFT marketplaces are:
One of the few leading NFT marketplaces, OpenSea supports a generic platform where all kinds of NFTs are sold and bought. OpenSea’s core cryptocurrencies are Solana, Ethereum, and USDC. In case you are new to this NFT investing, you can choose Opensea for an experience with free browsing.
Here, you can access video game assets, collectibles, arts, and NFTs. You can buy and sell on Rarible with Ethereum, Flow, and Tezos. Rarible even has its native token as well called RARI. The owners of RARI can take part in the company’s decisions.
NBA Top Shot
Are you a major sports fan? Then this is your one-stop for all basketball-related NFTs. NBA top shots let you buy your favorite moments of basketball history. The NBA itself manages this marketplace. Thus, you know you’re grading with the best.
One of the largest exchanges in cryptocurrency, Binance added NFT trading in 2021. The most attention-grabbing thing about Binance is that it charges 1% of trading fees. It also provides a user-friendly platform. Now, you can compare the platforms and decide which one you’d like to trade from. You can even choose multiple platforms, ensuring that the crypto used is compatible with the marketplace.
Level of risk involved in NFT trading
Amit Jaju, Senior Managing Director of Ankura India, stated that the crypto-collectibles are not managed by one organization. Therefore, owners have to take care of their NFTs. Say you lost your private key for the wallet; the NFTs will be non-accessible by anyone, and you will lose your chance to trade them for profit.
Another risk accompanied by NFT investment is the fragmentation of data. For instance, you bought ERC-20 tokens. These tokens are a compilation of several NFTs. When you wish to trade this token, all the NFTs in the token have to be read and processed separately. Thus, increasing data fragmentation.
What can buyers do to keep their NFTs safe?
There are several steps to ensure that the NFTs can be safe and the transactions will bring profit.
- The buyers need to ensure that the marketplace they choose is legit. Even before investing, giving the terms and conditions a proper review is advisable.
- Secondly, the authenticity of the creator. Buyers must make sure they have a ceremonial check to validate the creator’s genuineness.
- The custody of NFTs also falls under a potential risk factor. The buyers have to be cautious about the hacks and fraudsters taking care of them as if the NFT is real-time cash.
- Backing up the private key can help safeguard the NFTs from potential cyber breaches. Additionally, holding a hybrid wallet can be much beneficial.
Are NFTs getting affected by the loss in cryptocurrencies?
Several factors determine the value of NFTs, and the prices of underlying cryptocurrencies are also taken into account. Other factors are the demand for the artwork, the artist, and their scarcity. As stated by Jaju, if you wish to trade on a platform, you’ll be required to collect the native currency.
There is no direct correlation between NFTs and cryptocurrencies. However, Vishwanathan observed that buyers are more likely to avoid purchasing NFTs when the crypto market is down. Although the crypto market is lying low, the NFT market is not likely to go down. The market showed a growth of $2.3 billion in trade. It is further predicted that NFT demand will determine the state of cryptocurrency.
NFTs marketing is on the rise. Even for times like such when the demand is less, the NFT marketplace saw $2.3 billion, stretching to break the usual monthly record. NFTs are unique, and as it expands their use cases in other industries like music, gaming, art, travel, and real estate, their value and popularity are being recognized.