As the popularity of non-fungible tokens (NFTs) explodes, many regulators are looking to frame this trendy new asset. Recently, the deputy Pierre Person tabled an amendment to the finance bill for 2022 in order to clarify the taxation applied to NFTs.
But what exactly is an NFT anyway? How to take advantage of it? What are the risks associated with investing in NFTs? We tell you everything in this article!
WHAT IS AN NFT - Non-Fungible Token?
A Non-Fungible Token, or NFT, is a unique 100% virtual token (or a digital version of something that exists in the real world) that is issued on the blockchain, mostly Ethereum, and directly transferable between two people.
An NFT is different from traditional cryptocurrencies like Bitcoin or Ether. Cryptocurrencies are indeed fungible, that is to say interchangeable: 1 Bitcoin is worth 1 other Bitcoin, while an NFT is not fungible.
It is therefore a unique asset that cannot be replaced by something else: 1 NFT is not worth 1 other NFT. A non-fungible token indeed has unique properties and shows certain proofs of authenticity and signatures such as a unique identifier, a unique creator or even unique content.
HOW ARE NFTs (Non-Fungible Token) USED?
NFT art
The world of art and digital collectibles seem to be one of the most popular uses for NFTs like with NFT NBA Top Shot Trading Cards or selling fine art like Beeple or Art Blocks Curated at Christie's.
NFT gaming
Another sector at the heart of the recent NFT revolution, gaming brings together many ways to take advantage of these non-fungible tokens. You can buy items in games or manage real estate NFTs in metaversees, for example. Decentraland, The Sandbox, and Enjin are the most popular blockchain games. AxieInfinity is also one of the best-known NFT video games.
NFT sport
With the NFT collections in the sports world and some NFT games like Sorare, the sports community is increasingly integrating NFTs which are used to create new products / services and offer unique experiences to fans.
Other uses of NFTs
Since NFTs can represent the proof of properties of many underlying assets and have many uses, they can also be found in logistics, avatars, music, domain names, ticketing, luxury brands or even l real estate among other sectors.
WHY INVEST IN NFT?
NFTs are seen by some as a way to take advantage of the blockchain to support a creator and have a special relationship with him. Others think that NFTs are the future of how culture is going to be stored. For some people, NFTs are a tool for speculation and investment.
Since NFTs are unique, the associated feeling of scarcity can increase interest in some NFTs, thereby driving up their prices. It is indeed possible to make large profits if you invest in the right NFT. The use cases of NFTs are also increasing, making this market increasingly popular, thus opening the way for significant growth and development potential.
HOW TO INVEST IN NFT?
To invest in NFTs, you need to choose and configure a wallet to which you will send your recently purchased NFTs. You must then choose the platform you are going to use depending on the type of non-fungible tokens you want to acquire and the type of currency you want to use as a means of payment (fiat currencies vs crypto currencies).
Among the most popular are the following platforms:
- Binance NFT
- io
- Rare
- Axie Marketplace
- Cryptokitties
- Cryptopunks
- Superrare
To optimize your investment in NFTs, it is advisable to focus on what you can do. So use your area of expertise to choose the best NFTs for your goals.
INVESTING IN NFT: WHAT ARE THE RISKS?
A volatile market value based on nothing concrete
For those interested in NFTs, especially when it comes to art or collectibles, know that their value can quickly soar or drop. It is based on scarcity, but mostly on market sentiment and the reputation of an NFT at a given time. These assets are very volatile. So you can easily and quickly lose your investment.
Lack of liquidity
The NFT market is not particularly liquid, which makes it more difficult to determine the value of an NFT, but also its resale. This is problematic for those who wish to speculate in the NFT market.
Hacks
NFT platforms can be victims of hacking. This is why it is not recommended to leave your tokens on the wallet of the platform you are using and always transfer them to your private wallet.
Copyright issues and scams
Be careful with scams, as some people may sell items in the form of NFTs that do not belong to them or that are related to an NFT that is not at all what was originally described. It should also be remembered that almost anyone can create an NFT and sell it. So not all NFTs are created equal.
Risks associated with the inaccessibility of the NFT
An NFT is essentially just a code or a link to what the NFT stands for. Thus, this connection can be broken if there is a problem with the server or in the code leading to your NFT or if the company that hosts it goes bankrupt. While this may sound silly to some, it's also possible that you lose access to your NFT just because you forgot your wallet password.