The people that were early investors of Bitcoin are now millionaires. Although there is still a lot of money to be made in cryptocurrency even this late in the game, it is better to be ahead of the curve for the next big thing. Being an early adopter means that you can often find some hidden gems that cost very little and then grow in no time.

The next big thing for investors may very well be NFTs. These are Non-Fungible Tokens. Though these reside on the blockchain they are not like Bitcoin or Ethereum. However, like Bitcoin and Ethereum they are digital assets. They are non fungible in the sense that they aren’t able to be used as money.

There isn’t much of a learning curve as there is with investing in cryptocurrency but your knowledge level does have to be more than just knowing how to buy Ethereum in Canada. There is always a risk of losing money if you aren’t well informed. In this article, we will go over what you need to know if you think that investing in an NFT is going to be right for you.

What is an NFT exactly?

An NFT is a digital asset that can take on many different forms. The ones making the most news right now are works of digital art that are being sold for tens of thousands of dollars, even into the millions, at auction houses.

Even memes are being turned into NFTs that can be bought or sold. There is a certification process that uses the smart contracts on a blockchain to give unique identifiers making it original.

The NFT will have its own keys and address on the blockchain so it is similar in a way to Bitcoin. However, Bitcoin is easily traded for other currencies and can even be used to pay for things if the merchant has a cryptocurrency payment processor.

Where does the value come from?

Let’s ask a different question, for now, to understand how an NFT gets its value. What makes a piece of art worth millions? There are a lot of factors that go into it such as who the artist was that made it and an interesting provenance. Beyond that, the basic idea is that a piece of art is worth what people are willing to pay for it.

It’s actually the same for cryptocurrency in a way. Bitcoin doesn’t have a central banking authority that makes it so it doesn’t derive value from that. It also isn’t tied to a commodity like gold or silver to give it value. The value comes from the fact that people are willing to pay a lot of money for a digital code.

This is what drives the value of an NFT. There are people willing to pay a lot for one and that gives it its value. There are detractors that wonder why it would have any value since anybody can see it online, such as a meme. The thing is that anybody can also buy a Picasso print and put it in their home. There is no value in the print but only the original.

The same holds true for an NFT. The markers make it original and now the owner has control over what happens to it to a certain degree. They can easily put out cease and desist orders if they choose to crack down on people trading copies of the original.

What is investing in an NFT like?

To get started on buying an NFT you have to have a wallet with some cryptocurrency like Bitcoin. Then you can go to a marketplace to buy one. It is a fairly straightforward process but the money isn’t from buying it, it’s from selling it.

There are a lot of ways to invest but the basic idea is that you buy an NFT and then hope that it gains value at which point you sell it to a willing collector or investor. Before you buy one, it takes some research. Not all NFTs are created equal. Some are on these platforms and will never get sold again because there isn’t enough interest in it.

The idea is to look for NFTs that have already sold and try to understand why they got so much attention and sold for big profits when others don’t gain in value at all and are unable to get sold.

When you think you see a pattern in some, look into the ones that hold the most interest for you. For instance, if you are an NBA fan you can buy a digital moment of a big game. Then, if you are in some online communities of other fans that share your passion you should be able to sell that NFT to one for more than what you paid for it.

It’s very similar to art dealing in which most people don’t know much about it but there are enthusiasts that appreciate certain artists or genres and will pay to acquire them.

Is it worth it to invest?

In all honesty, investing in NFTs is very risky. However, there are a lot of people making a lot of money by buying and selling them. This could be a short term trend, however. There are loads of cases of people getting hyped about a product that has everybody scrambling to buy thinking that they can get rich from it. Only after the fad dies down do they realize that they are stuck with something they can’t ever sell.

This is a very real possibility but like investing in other collectible items, the more you know about it the more successful you will be. Dive deep into the topic and learn as much as possible before investing. Then, when you feel like you have enough understanding of what makes an NFT valuable you should see some success. If you are patient, then your patience should pay off.