What They Are, How They Work & Other Questions Answered
Not only have NFTs (non-fungible tokens) become exceptionally popular today, some of them are already worth millions. So, what’s the buzz all about? Are NFTs something worth acquainting yourself with, is this a good choice for passive income generation or fundraising?
Let’s try to answer these questions and some other important inquiries about NFTs in the following guide.
What Are NFTs?
Numerous celebrities have already jumped on the NFT bandwagon, making huge gains along the way. Grimes alone has been reported to make over six million dollars by selling digital art in the form of NFTs.
So, what exactly are non-fungible tokens and how do they work?
A non-fungible token is unique. It cannot be replaced with anything else. That’s the main difference between the NFT and other crypto-assets like the bitcoin. A bitcoin is replaceable by another bitcoin. They hold the same value. NFTs, however, cannot be replaced with anything (even another NFT).
NFTs are a blockchain-based tokens. Originally, they were launched on the Ethereum blockchain and backed by the Ether cryptocurrency. Since then, NFTs have expanded and the model has been used across other blockchains, as well.
Through the blockchain, NFTs can feature information relevant to the particular digital artifact tied to them. This information is stored in the form of a token that can be transferred from one person to another after the completion of a transaction.
So, to sum it up in simple terms, the NFT is a one-of-a-kind asset. It can be bought and sold in the digital world but on its own, it doesn’t have a tangible form. In essence, NFTs can be acquired as an innovative form of “certificate” for digital ownership.
How Do NFTs Work?
A reference to art has been made already in the Grimes example above.
The world of art has witnessed a big number of very expensive transactions involving unique pieces. In the digital world, however, artists face some serious problems. Their work can easily be replicated and spread around without any account for copyright.
NFTs allow artwork to be “tokenized.” In this way, a digital certificate of ownership is created and it allows for the artwork to be sold or bought. The blockchain is used to verify the transaction and hold important information about the buyer, the seller and the validity of the exchange between the two parties.
The NFT can also contain a smart contract that gives the artist some additional rights in the future (for example — the right to receive royalties from transactions that occur over a certain period of time or forever).
Since the system is simple and highly effective, it’s already been embraced by numerous artists. Famous auction house Christie’s started accepting Ethereum as payment for virtual artwork for the first time in February 2021. Actor William Shatner sold 125,000 NFTs in just nine minutes in the summer of 2020. The token cards featured digital photos of the actor’s memorabilia and they quickly became a huge hit.
NFTs offer flexibility and scalability — two characteristics that traditional art copyright protections don’t enable. These are two of the features that contributed to the rapid growth and the widespread adoption of these non-fungible tokens.
NFT Strategies Get an Upgrade: The Gary Vee Approach
When discussing NFTs, we need to mention one very important name in the field — the name of Gary Vee.
Gary Vaynerchuk is known as a digital pioneer and an early investor in ventures like Facebook, Coinbase and Uber. In May 2021, Gary Vee joined other digital artists reliant on the NFT technology. Vee announced that he’d be launching an NFT collection called VeeFriends that consisted of 10,255 character tokens.
According to the announcement, each token is backed by a smart contract that enables more effortless interaction between creator and buyers. The ownership of these NFTs will give buyers access to some exclusive rights like three years of opportunities to participate in annual business events like the VeeCon.
As a person who isn’t an artist, you may be interested in these NFTs for investment reasons. Are Gary Vee’s tokens, as well as other similar digital assets worth buying and holding on to? The short answer is yes.
Digital assets are constantly growing in prominence. Just think about the digital identities some influencers have created and just how valuable these are. In a similar sense, NFTs will ensure ownership over original and unique assets that will potentially appreciate with the passage of time. Chances are that an NFT boom will occur in the very near future. That spike in popularity will potentially create a bubble and result in some over-valuation. In time, however, the bubble will burst and NFTs will become an actual holder of long-term value. Which brings us to the final question:
Are NFTs Here to Stay?
The estimated value of digital art has grown from 2.64 billion dollars in 2014 to 4.82 billion dollars in 2019. By 2024, this value is anticipated to grow further and reach 9.32 billion dollars. These numbers paint a rather optimistic picture and suggest a lucrative niche worth entering right now.
Entering the niche right now through a token that guarantees uniqueness and ownership makes sense, especially for collectors. Needless to say, however, the quality of the token and the “art” linked to it will determine just how much value the NFT will hold in the long run.
As per Gary Vee’s prediction, NFTs should be viewed more like a long-term form of investment. If you’re looking for something that’s going to make you a couple of quick bucks right now, this isn’t the type of asset or collectible to turn to.
As already mentioned, NFTs ensure flexibility and scalability. This has already become evident through diversification of monetization possibilities. NFTs could provide additional opportunities for income collection on top of holding digital rights.
Gary Vee’s NFT collection, for example, provides chances for rolling royalty collection through ownership. That’s a form of passive income generation that can easily be entered into any kind of smart contract. Essentially, the right NFT parameters can benefit both original creator and current owner in the form of incoming royalty payments for use over time.
So, whether you’re an artist or a buyer, NFTs and already existent NFT collections are worth looking into. Not only do they provide ethical benefits for everyone involved, NFTs are anticipated to appreciate with the passage of time.
Do remember, however, that every NFT is unique. Some could provide speculative, lower-quality opportunities while others will be worth acquiring for long-term financial stability. It’s up to you to research different types of tokens and uncover the ones worth getting into. Chances like those developed by reputable investors like Gary Vee, for example, are most definitely deserving of some additional examination.