With successful auctions like Jack Dorsey’s first tweet and acquisition of NFTs by celebrities like Messi, Steph Curry, Justin Bieber, etc., it is no surprise that this crypto collectible has stayed atop the conversation in the virtual and real-world every day.
Big brands like Coca-Cola and Gucci have also hopped on the train, contributing to the skyrocketing of NFTs sales from $49.9 million to $29.9 billion. We know you cannot wait to be a part of this buzzing NFT community. However, before you take a leap and buy an NFT, you should know what it is and how it works.
What Is NFT, and How Does It Work?
NFT, an abbreviation of Non-Fungible Token, is a blockchain crypto or token that is transferable but cannot be changed or replicated. It can come as a drawing, music, image, videos, even tweets, or anything in the virtual form that can be valued.
All you need to do as a creator is to upload them on any compatible blockchain platform and open them for sale. Just like other cryptos, it also has a chain of endless purchase possibilities since a buyer can still sell to another buyer through the same digital platform or another.
Risks of Buying NFTS
NFTs are quite vulnerable and there are presently many risks linked with them. These risks are both financial and regulatory in nature as can be found in several cases of fraud associated with NFT. The digital nature of NFTs makes them susceptible to counterfeiting and replication.
In light of this, experts have advised creators or owners of NFTs to take personal responsibility for securing their NFTs. Unlike the traditional fiat currency, NFTs are not protected by financial institutions.
Another risk involved in the purchase of NFT is the issue of time-lapse. NFTs live on hype, and the time will come when the hype fades, leaving many NFTs without inherent value. You need to take note of this when buying NFT.
How Do You Manage These Risks?
To manage the risks involved in buying NFT, one of the first things you need to do is to ensure that the platform you are acquiring your NFT from is tried and tested. There are many phony platforms out there waiting to prey on innocent buyers.
Also, make sure to evaluate the policies which concern the transaction. It is very important that you double-check the blueprint stating the level of involvement and concern of the market platform in case of an attack.
Further, be alert and do due diligence when buying crypto-collectibles. Be sure that you’re not buying counterfeit NFT.
Lastly, with the regular occurrence of cyber threats and attacks,you are advised to back up your wallet and apply other safety procedures developed to protect crypto assets. Hybrid wallets are great for this purpose.
Does the Volatility in Crypto Markets Affect NFTS?
Like other crypto assets, many digital platforms involved in the transactions of NFTs run through the blockchain channel. And their rates are mainly evaluated based on their availability, scarcity, demand for fundamental digital art, the popularity of the creator, and the current rates of primary cryptocurrencies.
Nevertheless, since NFTs, according to Zippinger, in his interview with Reuters, are backed by the use cases, many still hold firm even when their primary cryptos prices are down.
For more emphasis, these elite crypto investors who hold NFTs do not see the value decreasing during these downtimes because they have not sold it yet. They have great worth for these crypto-collectibles because they buy them at a high price and store them for years until they decide to sell big.
A study conducted by sciencedirect.com on the effects of cryptocurrencies price on NFTs also depicts that the volatility effects are low on NFTs because they are inherently different from the primary coins. It also states that they do not have any meaningful impacts on each other.
While buying NFTs is trending, it is necessary to know how the market works as well as the risks involved in buying NFTs. Knowing the risks involved and how to manage them, helps in making informed decisions while purchasing NFTs.
Moyofade Ipadeola: Content Strategist, UX Writer and Editor. Witty, she loves personal development and helping people grow. Mo, as she’s fondly called, is fascinated by all things tech.