How to choose NFT to invest in 2022
Non-fungible tokens (NFT) are a type of property that exists exclusively in digital form. They are related to cryptocurrencies whose records are kept and based on Blockchain technology. Unlike cryptocurrencies in which each coin can be exchanged for another, which is also applicable for real-world currencies, NFTs are unique.
NFT can be anything digital, drawing, music, painting, and game assets. But usually, people talk about NFT as art and use technology to sell art.
NFT can be attached to an MP3 or JPEG image, tweet, or video clip. They have been in various formats for almost a decade, but the turning point came in 2017 when the market was created for one of the first games in the Blockchain system, CryptoKitties, virtual pets are cats and some of their images cost thousands of dollars.
NFTs have emerged as a way to collect digital art, but also as a means of investing. American artist Mike Winkelmann, known by the nickname Beeple, sold his digital painting “First 5000 Days” in March 2021 for $69 million. This sale achieved a record price for one digital work and was one of the largest sales in the history of Christie’s auction house.
Also see: Best NFT marketplaces
What is the value of NFTs?
Non-fungible means that the file is unique and can’t be replaced with anything else, you can’t exchange it for another NFT. If you buy an NFT image for 1 ETH, and if the art or author becomes popular, you could sell it for 10 ETH.
Because NFT is unique, its value can’t be exchanged, but makes it interesting for collectors. If something is unique and unrepeatable it makes it collectible. NFT is designed to protect the copyright, but it still can be copied. For example, anybody can enjoy the full quality of an NFT image, but only one person owns the NFT. Imagine you have a Mona Lisa painting on your wall, it is identical to the original, but it doesn’t make it yours.
Basically, NFTs are used to protect ownership over any type of digital art. No matter what happens, if you have the code from the blockchain, you are the ultimate owner of digital art.
How to select the best NFT?
Today, NFTs spread to a wide range of digital assets. There are NFTs in form of digital visual and audio art, gaming characters and other features (backgrounds, weapons, skins, etc.), tweets, as well as digital land in metaverse platforms. Anything digital can become part of a blockchain.
Before you buy your first NFT in 4 steps, like any other purchase, need to follow research. If you want to make a business out of it you will do a SWOT analysis and make a business plan. There are a few things you need to consider:
What is interesting to you?
First of all, you have to invest in NFT that you like. It is much easier to research and work on something that interests you than something that doesn’t interest you at all. And trust us, if you want to earn you need to be involved.
What is interesting to others?
If there isn’t any interest in an NFT, then it doesn’t have value and you won.t be able to sell it. You need to be very careful here, because this market is quite unstable, driven by current trends. What can be a total hit today, can completely lose its audience tomorrow and become worthless.
Social networks are a place where people interested in a certain NFT project gather. There are also messaging apps, which allow you to share your interest, and also check there whether an NFT project that you are interested in as an investor brings together a large community.
Check which NFT projects have the largest trading volume. For example, OpenSea, the place that is perhaps best known for NFT trading, gives you an insight into which NFT projects are the best-selling and at what price. If the project you are interested in isn’t traded much, then it is a sign to be very careful and think about the investment. On the other hand, the fact that something is currently popular doesn’t mean that it is risk-free.
Although you may be lucky enough to find a unique NFT that exists on its own and is in high demand, it is usually a project or a collection.
An NFT project usually has a theme on which the whole collection is based and can have tens of thousands of elements. For example, the aforementioned Cryptopunk has 10,000 collectible thumbnails. It is similar to Mutant ape yacht club, then Doodles, and Cool Cats. Check how many copies are there in the collection, how many of them already have an owner, whether they are traded, and to what extent, whether the project is new or has been around for some time. You can find many of these listed on sites like nftgames.net.
By investing in some NFT you are actually investing in some person or team behind a particular project. It’s not the same to buy a tweet from an anonymous person or a tweet from Elon Musk.
It’s the same with teams because collections usually need a team of people. Check if the team has had any previous success or is completely new on the scene, and what is their status in the company.
The value of an NFT depends to a large extent on how rare it is. So, one should take into account the way the authors or the team try to make some NFT rare and worth owning.
When you enter this world, you will see that there are many tools for the NFT trade. Rarity tools are one of them that will also reveal this information to you.
It is now clear what is NFT and what influences its price. NFT trading is a highly volatile market. It can be worth a fortune today, and nothing tomorrow. Many factors influence the price, but you should know that there are formal and informal aspects of influence. Formal influences would be real-world stock and price trends, rarity, and the quality of the NFT. Informal would be your interests and how interested are others, the price can drop significantly if Elon Musk tweets that he doesn’t like certain NFT.
When investing in NFT you need to take into account all of the criteria we mentioned, but in the end, the decision is all yours.