Non-fungible tokens (NFTs) have gained more notoriety today than ever before. However, this novel technology started in 2014 as a way to buy and sell digital work. By 2021, NFTs went mainstream when Beeple’s digital artwork was sold at Christie’s auction house for a whopping $69 million. With such high valuations, many people wonder if NFTs are stocks or not.
Non-fungible tokens or NFTs are not stocks. They are more closely related to contracts or an ownership history for a physical or digital asset. NFT trading occurs on specialized marketplaces, not on the traditional stock market. Transactions for these digital tokens occur on the Ethereum blockchain.
Let’s take a deeper look at how NFTs are different from traditional stocks. We will use stock terms to help make the subject a little more familiar.
NFTs Explained In-Stock Terms (Sort Of)
In the stock market, you buy shares of a company from investors selling them at an exchange, such as Nasdaq or NYSE.
Fungible refers to items that can be exchanged with other assets of the same type. The units you buy are fungible or not unique. Each share of a company is equal to any other stock unit in the same company.
You can also think of digital coins like Bitcoin in the same way. This well-known cryptocurrency is considered fungible. Its value remains the same when you replace one Bitcoin with another.
With non-fungible tokens or NFTs, you buy ownership of a unique and authentic piece of art that an artist has released.
One NFT and another NFT will not have the same value because each represents a different asset. Everyday items that are represented by NFTs include:
- virtual and in-game items
These non-interchangeable digital assets can be sold, traded, or leased like real-world assets.
It’s easy to think that the work of art is not that unique because anyone can view the same image or make a digital copy. A collector is a person who trades NFTs or looks for new NFT projects. As a collector, the NFT allows you to prove ownership of the original item via coded information recorded on a worldwide ledger or list that anyone can view and confirm.
The ledger is a chain of blocks where transaction details are stored after authentication and verification by network participants.
For example, if you choose to sell your ownership of a digital asset, this transaction is recorded on the ledger verifying the new owner.
With your new understanding, some readers want to know if you can buy shares in an NFT?
Can You Buy Shares In an NFT?
Generally, it is not possible to buy shares of an NFT. Most NFTs represent a single digital or physical asset. NFTs can be used to show voting membership in a Decentralized Autonomous Organization. Participants in a DAO have purchased art and other physical assets of which members are partial owners.
For example, the ConstitutionDAO was a group that raised money to try to buy one of the original copies of the United States Constitution at an auction held by auction house Sotheby’s.
ConstitutionDAO was founded by about 30 people, who subsequently allowed others worldwide to donate to it using the Ethereum blockchain. In exchange, they’d get the right to vote on what to do with this copy of the Constitution and what the organization should do in the future.
Although the bid was unsuccessful, this is a viable example of how DAOs can be used for various purposes.
There are creator DAOs like Mirror that allow people to monetize their work on a fractional basis and initiatives like PieDAO that use the structure to make business decisions.
In contrast to a DAO, artists use online marketplaces such as SuperRare, Rarible, and OpenSea to upload artwork such as music compositions, sports moments, videos, tweets, and collectibles to their profile. This way, they are assured that their work will not be plagiarized, and buyers are assured that they are the owners.
Having a non-fungible token to a piece of digital art is like having a title deed to a physical piece of land. It identifies you as the owner of the digital right to a unique asset.
That said, how do you start investing in NFTs in the first place?
How Do You Invest in NFTs?
NFTs are bought and sold through an NFT marketplace explicitly built to handle the blockchain transaction. Each marketplace has its own crypto wallet requirements. Once you find the marketplace where your NFT will be sold, you register and connect your crypto wallet.
It is a straightforward process, but there are some technical terms you first need to understand.
Common Terms Used in The NFT World and Their Meaning
- Blockchain – An open spreadsheet that records any crypto or NFT changes or transactions.
- Minting – The creation process of NFT
- Bitcoin – A cryptocurrency used to trade NFTs.
- Public Key – A cryptographic key that allows other users to access your wallet or NFTs
- Ethereum-The most popular blockchain for NFTs
- Discord – The go-to place for discussing NFTs.
- MetaMask – A wallet used as a gateway to NFT applications such as OpenSea, Rarible, and Axie Infinity.
- Burn-To burn an NFT means to destroy it
- Gas fees-The amount you pay for doing a transaction on a blockchain
- Floor price-Floor price means the lowest entry price listed for an NFT project.
- Cold Wallet- A physical device that keeps your crypto asset
Non-fungible tokens employ blockchain technology, the same technology used by cryptocurrencies like Bitcoin. And though the Ethereum network is the most favored here, Polkadot and Solana are fast becoming alternatives chains as the technology quickly evolves. If you are new to cryptocurrency, do not let that deter you, as we will explain how to invest in NFTs.
Cryptocurrency Wallets Explained
The first thing you will need is a crypto wallet. A crypto wallet is an application that enables you to store and retrieve your digital assets, just like a physical wallet that allows you to store and retrieve money.
Beyond storage, a digital wallet allows you to send and receive digital currency tokens or coins.
Finding an NFT Marketplace
Oce you open a crypto wallet, you can fund it and buy NFTs from an online marketplace.
The most popular crypto wallets are eToro and Coinbase, which are popular with beginners as they have a user-friendly interface.
However, the type of digital asset and the marketplace you’re using will inform your decision on which wallet to use. It’s always best to read the documentation on the marketplace you’re using.
Here are the guides to the previously mentioned marketplaces:
With the wallet, you can purchase Ethereum tokens. This is because most NFTs are Ethereum based. And with ETH, you can buy NFTs over the digital marketplaces.
Ethereum For Your Wallet
Here are some basic steps to buy Ethereum with the Coinbase application.
1. Create a Coinbase account
You will need an ID. Verification may take a few minutes.
2. Add a payment method
The app allows you to use a bank account, debit card, or initiate a wire.
3. Start a trade
Tap on “Buy” from the list of options available.
4. Select Ethereum
5. Enter the amount you want to buy
6. Finalize the purchase
Tap on “Preview buy” when done. A display of all the details of your purchase will pop up. Then confirm your purchase.
Now find a marketplace where your preferred NFT will be sold and connect your Ethereum wallet. Most popular NFT marketplaces either sell digital items for a flat rate or hold auctions.
The NFT market is volatile. Prices keep fluctuating much the same way as the stock market. This is due to demand and the fact that they are entwined with cryptocurrencies. So, when the crypto value goes up or down, NFTs move in tandem.
Nonetheless, you should be more worried about scammers. They pose as buyers or sellers with the intent of stealing your funds from your crypto wallet.
In 2021, Chainalysis reported that US$14 billion was lost to scams in that year alone.
Scammers create hype by buying their own collection. This way, they entice investors into believing that these are legitimate sales. And if that is not enough, they draw out investors from social media with the promise that they would make a killing trading NFTs. You will only realize you have been scammed when you notice funds are kissing from your wallet.
To safeguard your wallet security, transfer your ETH and tokens to MetaMask. The software wallet is not only encrypted but secured with a password. It allows you to connect to applications such as Ethereum when buying tokens. Instead of trading directly from Ethereum, you do so from the safety of MetaMask.
Is There a Stock That Invests in NFTs?
There are not any stocks that invest in NFTs. Some publicly traded companies have begun using NFTs within their products or alongside their current business strategies. At the moment, there aren’t many firms that base their entire business system on NFTs. Although this may change in the future.
The NFTs field has majorly been dominated by startups. The most notable of these is OpenSea, Rariable, and Agora. Of interest, however, is the fact that NYSE is seeking permission to enter this crowded field. It minted its first six NFTs to celebrate its memorable listings, including Snowflake, Roblox and Coupang, and Spotify.
Other financial technology or fintech companies have NFTs marketplaces, including Axie, Foundation, Nifty Gateway, NBA Top Shot Marketplace, Larva Labs, and Axie MarketPlace. Of interest are the public-listed companies that have developed NFTs.
These companies range from food to sports and even fashion brands.
1. Coca-cola auctioned four NFTs on International Friendship Day. The proceeds went to Special Olympic International.
2. Taco Bell auctioned 25 NFT GIFs on Rariable through bidding. The proceeds went to support the Live Mas Scholarship.
3. Asics’ collection included nine silhouettes of its limited-edition sneakers in celebration of sports.
4. Clinique MetaOptimist limited edition NFTs gave three NFTs to members who shared stories of hope on social media.
However, at the time of writing, you cannot buy shares of NFT marketplace companies like OpenSea.
With the entrance of NYSE informed by the popularity of non-fungible tokens, you might soon be able to buy stock from such companies. We’ll keep you updated.
Do you already own some NFT artwork? Here are 9 ways to display your digital art pieces at home.