By Leslie Quander Wooldridge
NFTs. This term is thrown around often, along with some high valuations and enthusiastic commentary. But where is the hype coming from? And what are NFTs, really?
If you’re new to the space, just know that NFT stands for “nonfungible token,” which, in plain language, means that it’s a unique digital token that can’t be exchanged for anything else.
These tokens can only have one official owner and can be secured on a blockchain, often using Ethereum. They are created through a process called “minting,” and once that’s done they cannot be altered (though they can be “burned” or destroyed). This creates a unique digital item that can be collectible, used as part of a game, or even designed to reflect a physical asset.
And these items, purchased by everyone from investors to celebrities, can have floor prices just to get in. With collections carrying names like “Bored Ape Yacht Club” and “Pudgy Penguins,” these tokens also can draw real financial attention and benefits. One Canadian crypto developer, in fact, who goes by the name @richerd on Twitter recently made headlines when he tweeted about turning down an offer valued at about $9.5 million to sell his CryptoPunk NFT.
Plus, while you may have heard of “starving artists,” these tokens are giving opportunities for exposure to artists and creators, providing them with the chance to earn wealth. That’s due, in part, because creators can choose to receive royalties on resales, adding to revenue from original sales.
Welcome to the NFT Marketplace
It must be noted, however, that there is risk in the NFT market, like with other investments. For instance, you may have heard people wondering why some market participants are willing to give substantial investments for so-called digital “clip art.” Oof.
Like physical creations, some NFTs can be obscure or…simple in appearance. But while some people are puzzled about how digital tokens can be sold for thousands of dollars, and even millions, the market is surging.
If you’ve ever bought something on eBay, or in a gallery, that may be a good reference point for the marketplaces that sell these items. Many of these digital pieces are sold on sites like Open Sea, which offers peer-to-peer sales of “crypto collectibles” and NFTs.
But professional entities also are in the game. Remember the summer 2021 craze for NBA Top Shot collectibles? These officially licensed products include virtual packs of trading cards that showcase league moments, with sales reportedly over $700 million by May 2021. (At that time, packs were selling out and the platform had been open less than a year.)
Plus, this October, cryptocurrency exchange platform Coinbase announced it will be opening a marketplace, offering a peer-to-peer marketplace for “minting, purchasing, showcasing, and discovering NFTs.” In just one day, the waitlist for people in the United States had climbed to more than 1 million. And it kept growing.
Combine the power of art—which already has centuries-long respect and attention—with the ability to have digital representation and well, profit, and you can see why this sector has taken off.
New Study Reveals Popular and Profitable NFTs
So what are some of the most coveted NFTs? An October 2021 report by BrokerChooser—a site offering comparison of brokers, digital banks and other providers—offers some intel.
- The report reveals CryptoPunks, one of the original NFTs consisting of thousands of unique, collectible characters—is the most traded with about 516,000 trades since inception.
- Second is Art Blocks Curated, which includes pieces by artists that are approved by a curation board, with more than 202,000 trades.
- And third is Bored Ape Yacht Club—“a limited NFT collection where the token itself doubles as your membership to a swamp club for apes,” the club confirms—with about 171,000 trades.
This activity demonstrates interest in these collections from investors. And, speaking of investors, BrokerChooser’s study also examined profitability. To calculate this, it “looked at the mint price of over 100 NFTs and the price of ETH in USD on the date of mint, alongside the floor price of collection and the price of ETH on [September 29, 2021].”
Right now, the excitement continues for NFTs. But, as with any market, if you’re getting into this growing space as an investor, hold tight to your emotions and never invest more than you can afford to lose.
