NFTs are becoming increasingly popular. In response, there are more and more NFT marketplaces as people explore how to invest in NFTs and NFT stocks (companies central to the NFT ecosystem). NFT marketplaces offer an easy-to-use forum for trading.
NFTs (non-fungible tokens) are units of value whose worth is not stable or set. A fungible token, like a 10$ bill, is made up of units that can be exchanged – $10 can readily be swapped for 10 $1 bills, or two $5 bills, without losing any value in the transaction. In contrast, NFTs are unique assets that must be traded as single units. They are usually image or audio files that can be mined and traded on NFT marketplaces.
Unlike easily accessible digital images, NFTs have a unique ownership certificate that is registered in the blockchain. The record of ownership is part of a public and decentralized ledger. Because this blockchain ledger is stored on many computers separately and simultaneously, it cannot be forged. This secures the ownership of NFTs so that, even if the image is reproduced, the ownership of the digital image cannot be contested.
There are different sorts of NFT marketplaces. Some are general marketplaces that allow users to purchase a wide range of NFTs, while others specialize in a particular sort of NFTs.
The biggest NFT marketplace is OpenSea, which accepts over 150 tokens (cryptocurrencies) as payment for NFTs, and enables the trading of visual and audio files as well as domain names. Raible, a smaller platform than OpenSea, is a widely trusted and easy-to-use NFT marketplace.
Other NFT marketplaces have different specializations. Axie Infinity is an NFT marketplace dedicated to the gaming space, allowing gamers to mint and trade game-related NFTs. The Axie Infinity platform allows NFT creators to make “Axis”, end game products for use in a game.
Other specialized NFT marketplaces include NBA Top Shot, which provides a platform for trading basketball-related NFTs, but does not allow for NFT minting. Draftkings Marketplace is also a sports-themed NFT marketplace that builds on Draftkings existing sports betting franchise. These recent developments may indicate a future proliferation of specialized NFT marketplaces.
New, nonspecialized NFT marketplaces are springing up to meet the increasing demand for minting and trading NFTs, including a new marketplace run by Burnt Finance. Other NFT marketplaces foster exclusivity such as SuperRare, which seeks the feel of a high-end art gallery.
NFTs can be displayed as artworks in both physical and digital spaces.
The metaverse has created many new possibilities for using NFTs in the meeting, working, and socializing spaces. In the metaverse –virtual immersive interactive spaces for work and social gatherings-, people interact through avatars and can display and use their NFTs to decorate their virtual spaces like people decorate their homes.
How to access the Growth in NFTs
There are two main ways to invest in NFTs. First, you can directly buy and sell NFTs. To do this, you open a digital crypto wallet and purchase cryptocurrency. There are many different crypto wallets, some of the biggest are Electrum, Coinbase, and MetaMask. The three cryptocurrencies that have the largest market cap at the moment are Bitcoin, Ethereum, and Tether, but volatility in cryptocurrency markets and global uncertainty means that this is subject to change.
You might want to consider both the value and volatility of the cryptocurrency you want to use, as well as the technology that enables transactions through that currency. While Bitcoin uses a Proof of Work approach, Ethereum uses a Proof of Stake approach, which may result in more efficiencies and less environmental cost per transaction.
Second, you can invest in companies involved in different stages of NFT minting and trading, including the companies making crypto wallets and trading platforms, or an ETF that holds those stocks. This would give an indirect exposure to the NFT marketplace without having to purchase or trade individual NFTs directly and may result in less volatility or exposure to particular artistic trends.
NFTs: Volatility and Climate
Though some people think the current craze for NFT investing is a bubble waiting to burst, this assumes that NFTs have no fundamental value. However, the use of NFTs in virtual spaces may indicate otherwise.
A further substantial concern about NFT trading is the environmental impact. Each transaction on the blockchain requires a substantial amount of energy, which means that trading NFTs can be detrimental to sustainability targets, though the full extent of this is not yet known.
The increasing number of NFT marketplaces, companies doing research into NFTs and blockchain, and the expansion of the market indicate that NFT stocks may not be going anywhere. Nevertheless, investing in NFTs and the aforementioned NFT exposed company stocks does involve financial risk and exposure.
Fund holdings and sector allocations are subject to change at any time and should not be considered recommendations to buy or sell any security.
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