Owning NFTs: What Do You Get When You Buy An NFT?
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Many wonder why NFTs generate such a buzz. They ask how an intangible asset attracts so much attention and value. NFTs are still considered good investments, and with the future of crypto still young and promising, there is no telling what the industry might offer in the future.
We cannot answer this question without first understanding what NFTs are. NFTs (or Non-Fungible Tokens) are unique digital assets stored on a blockchain. NFTs represent the ownership of an asset, such as artwork, music, real estate, or other forms of digital content. Unlike cryptocurrencies, NFTs, as their name implies, are non-fungible. This means they are not interchangeable. They are unique and cannot be replicated or replaced.
Of what use are NFTs?
Through NFTs, creators can monetize their digital content by selling ownership rights to a myriad of users including collectors and enthusiasts. The blockchain which records NFT ownerships is also decentralized meaning that creators can sell their work directly without needing intermediaries such as a gallery or auction house. However, this fact should not be confused with the online marketplaces and auction sites where users purchase NFTs from. NFT marketplaces and auction sites are only decentralized platforms that enable the exchange of NFTs.
Because NFTs are growing in popularity and represent the ownership of something valuable, their prices range from a few dollars (for common assets) to millions of dollars (for rare or in-demand assets).
|The Merge||$91 800 000|
|Everydays: The First Five Thousand Days||$69 346 250|
|Clock||$52 740 000|
|Human One||$28 985 000|
|CryptoPunk #5822||$23 700 000|
|CryptoPunk #7523||$11 800 000|
|CryptoPunk #4156||$10 350 000|
|CryptoPunk # 7804||$7 560 00|
What an NFT is Not?
First, an NFT is not a physical object or asset. It is only a digital representation of ownership or authenticity of a unique digital asset.
Second, NFTs are not a guaranteed investment. The value of an NFT is speculative. It is determined by the demand for the specific asset it represents, which can fluctuate over time. So even though some NFTs have sold for millions of dollars, it does not mean that their value would continue to appreciate. A case in point is “Jack Dorsey’s First Tweet” NFT. Former Twitter CEO, Jack Dorsey sold his first tweet as an NFT for $2.9 million. But when the buyer listed the NFT for sale at $48 million, the highest bid placed for the NFT was $277.
Third, owning an NFT does not necessarily give the owner any exclusive rights (e.g. copyright or reproduction rights) to the underlying digital asset, unless specifically stated in the NFT purchase agreement.
What does it mean to own an NFT?
To own an NFT means that you have a unique digital asset that represents ownership of a specific piece of content or item. This ownership is recorded on a blockchain, which proves the authenticity and uniqueness of your NFT.
To own an NFT means you possess a certificate of ownership that certifies you as the rightful owner of that digital asset. To own an NFT means you have the bragging rights to showcase or display your ownership. To own an NFT means you have the right to transfer ownership or sell your NFT to someone else, just like you would do any physical property you own.
But as stated earlier, to own an NFT does not necessarily mean that you own the copyright or intellectual property rights to the underlying content or item. The creator or original owner of the content may decide to retain those rights.
What happens when you buy an NFT
Buying an NFT means you are purchasing a digital asset that is unique and stored on a blockchain. The process of purchasing an NFT varies based on the platform or marketplace from where you are purchasing. Although the steps may differ across platforms, there are key steps common to all platforms. These steps are:
- Choose the NFT you want to buy: Browse the available NFTs on the marketplace and choose the one you want to buy. NFTs usually have unique identifiers and associated metadata.
- Place your bid or buy immediately: You may be able to buy the NFT outright on a marketplace or place a bid on an auction site. Placing a bid on an auction site means you may need to wait until the auction ends to see if your bid is accepted.
- Complete the transaction: Once you have purchased the NFT, the transaction is recorded on the blockchain. You will receive a digital certificate of ownership that verifies your ownership of the NFT.
- Store, manage, and or sell your NFT: You will need to store your NFT in a digital wallet that is compatible with the blockchain on which it was created. For example Metamask is compatible with Ethereum blockchain, SafePal S1 is compatible with Polygon. You can choose to sell your NFT on the same marketplace or another marketplace, provided that the marketplace is built on an interoperable blockchain.
Rewards of Owning an NFT
Owning an NFT comes with several rewards or merits.
- Ownership and authenticity: NFTs can establish clear ownership and authenticity of a digital asset. They provide a way to prove the originality of a piece of art, music, video, or other digital content.
- Investment potential: NFTs can appreciate in value and provide a return on investment for the owner. However, it's important to note that NFTs are highly speculative assets and are subject to market fluctuations.
- Access to exclusive content: Owning certain NFTs gives one access to exclusive contents and events of the creators. These include concert tickets, meet-and-greets, or other experiences that are not available to the general public.
- Support for creative expression: Purchasing an NFT can be a way to express support for an artist or creator. It is also a way to belong to the creator’s community and associate with their works.
Demerits of Owning an NFT
While owning an NFT can have its rewards, there are also some demerits to consider:
- High cost: Some NFTs can be very expensive. This can make it difficult for the average person to participate in the market. Also, purchasing an expensive NFT doesn’t guarantee a huge return on investment because NFTs are volatile assets.
- Volatility: NFTs are highly speculative and volatile and are subject to market fluctuations. Therefore, it is difficult to predict the value of an NFT over time.
- Lack of regulation: Just like the overall blockchain space, the NFT market is relatively young and largely unregulated. This makes it vulnerable to bad actors that can perpertate fraud and scams. Also, being exposed to bad actors makes it difficult for investors to know whether they are buying a legitimate NFT.
- Environmental impact: NFTs are created and stored on blockchain networks that require a significant amount of energy to operate. This can have a negative impact on the environment and raise concerns about the environmental sustainability of the technology.
- Ownership of underlying assets: As mentioned earlier, owning an NFT provides proof of ownership of a digital asset, however, it does not necessarily provide ownership of the underlying intellectual property rights associated with that asset. This can lead to confusion and disputes over who has the right to use or profit from the content.
Buying an NFT can provide a variety of benefits. It establishes clear ownership and provenance of a digital asset, provides investment potential, and fosters a sense of community and support for creators. The NFT market is still a relatively new and rapidly evolving space, and based on its current performance, one can assert that it has an interesting future to look forward to.
Frequently Asked Questions
What do I get when I buy an NFT?
When you buy an NFT, you get proof of ownership of a specific digital asset.
Are NFTs expensive?
Some NFTs can be very expensive. However, there are also more affordable NFTs available on the market.
Is it risky to invest in NFTs?
Investing in NFTs can be risky due to their high volatility, high speculativity, and lack of regulation.