September 26, 2022

NFTs - The Future of Digital Collectibles

NFTs - The Future of Digital Collectibles

Non-fungible tokens (NFTs) sound complicated, but they are more like Beanie Babies. They are collectibles that are unique and only belong to one owner. Let's take a look at what they are and how they work.

NFTs have been taking over our screens and most likely yours the last couple of years. Funko has launched digital versions of their popular vinyl collectable figures, Tom Brady is the co-founder at Autograph, where he shills his own NFT collection, and McDonald's launched an NFT version of the McRib. You may be asking yourself, wtf is going on here? Wait, it gets better.

McDonald's McRib NFT

It’s no secret to my family and friends that I am obsessed with NFTs. My collection is growing at a bountiful rate. But few people around me understand what an NFT is and even fewer can appreciate their potential future applications. NFTs have sold for millions of dollars, and it’s definitely time to start paying attention.

So let’s answer the question simply, what is an NFT?

The easiest answer to that question is that an NFT is a digital file. Like the photos you have stored on your phone. An NFT is just a file format, like a jpg, gif, or mpg file for transferring data and information on a blockchain network (think of a blockchain network as its own internet - I’ll break down what a blockchain is in another story).

A friend of mine recently asked me, what does an NFT look like? Great question btw. As I took a long sip of my fruity beer, I began to tell him that at the end of the day an NFT is just a file standard. We laughed at this point, as we both knew that wasn’t the answer he was looking for. So I went on to explain that an NFT could be anything from a piece of artwork to a trading card, a video or a song, or a complex financial product, or an event ticket. There are thousands of other use cases for NFTs.

The most popular forms of NFTs right now are trading cards, and digital artworks with real life utility. NFT communities are sprouting up daily with thousands of community members, each contributing and earning rewards, claiming loot and building. To some extent, one could say NFTs are changing the way workers are organized and how work gets done.

What you should know before buying your first nft

Some of the most widely used NFT marketplaces are OpenSea, MagicEden, NBA Top Shot, SuperRare, Foundation, and many more. One word of caution though, don’t rush in and dump a pile of cash on any NFT. Please do your own research (DYOR). It’s very important you learn to navigate the scammy nature of NFTs. Unfortunately, the anonymous and decentralized nature of crypto and the NFT industry attracts a ton of scam artists. In an upcoming post, I’ll teach you how to avoid these scams altogether. When in doubt, ask a friend or reach out to me. I’ll be happy to help you if you have any questions.

The NFT market is in a hype cycle, and it is currently in a correction phase or bear market. I'm not entirely sure what its magnitude will be, but I'm confident the market will bounce back. Our current downturn could cause some reevaluation of existing NFTs being traded on the marketplace. Even with the current market corrections, I would say that we are still early in NFTs, in terms of the use cases that they will enable and the value they create.

What we are seeing currently in this market correction is the move beyond some of the more speculative NFT assets into more utility-based NFT assets. If you look at something like art, it’s personalized and the value is whatever someone assigns to it. But if you look at something that either enables you to earn or represents an NFT, or has a value in a game, it’s much easier to assign a specific value to that. NFTs are similar to any emerging technology where everyone values the initial cycle a little more, and then it settles down, but then the real value is later created.

NFTs are hyped for the same reason other collectables are - buying and collecting can be fun, and it can be a sign of wealth or support of a cause or someone. And just like art, NFTs can increase or decrease in value over time, which means you could make or lose money trading them. My best advice for someone looking to invest in NFTs is, only put in what you can afford to lose.

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