Cryptocurrency

5 Things You Should Know Before Investing In NFT

NFTs are the new way of investing in art and other creative works. NFT is a digital asset that can be used to represent anything from physical works of art to intellectual property. They’re becoming increasingly popular, with thousands of creators now selling their original artwork on the blockchain. The market is growing fast, with new artists entering the space every day.

This could be a great time to start investing as the NFT marketplace is becoming increasingly popular.


NFT 101

NFT stands for non-fungible token, and it refers to a digital asset that can be owned by one person. This token is unique and can’t be replicated or counterfeited.

Artwork, videos, memes, images, and other digital assets can be tokenized and sold as NFT. Tokenization is the conversation of tangible and non-tangible assets into blockchain tokens. After which, NFTs will be allocated their own blockchain.

Once an NFT is put on the market, you can trade it based on its worth. Since blockchain retains all transaction records in the digital register, it’s easy to prove and confirm ownership of an NFT. 

NFTs work differently from traditional assets like stocks and bonds. They’re not stored in central storage like a bank account or Ethereum wallet. Instead, they exist on the blockchain itself where anyone can access them at any time. In which case, you can easily sell or buy NFT online.

What You Should Know About NFTs

If you’re new to the world of crypto or just want some advice on investing your money in this space, here are five things you should know before investing in NFTs:

1. Seller Verification

If you want to purchase NFTs, make sure the seller’s account has a verified account. Official traders on the NFT marketplace such as OpenSea should have a blue verification tick next to their account name. Be sure to look for this verification tick just so you are sure you’re dealing with a legit account and not scammer accounts. OpenSea platform also allows you to sell NFT for free.

However, just like some legit social media accounts that aren’t verified, some legitimate NFT sellers may not have a verification tick on some platforms. As a result, you can’t always rely on the verification tick for an account’s legitimacy. To be on the safe side, always use the NFT properties as a backup.

Check if the account was set up recently. See if it has an established account that’s selling your preferred NFT by checking their sales. Also, a legitimate account should have a decent follower base.

2. NFT Properties

NFTs are usually in the form of a collection that consists of particular avatar NFT artwork with different properties. Sometimes, the more the properties, the higher the value; but that’s not necessarily true. And sometimes, avatars that are considered simpler can be the most valuable.

Before buying an NFT, make sure to first check its rarity score. Rare NFTs are speculated to yield a greater return on investment eventually. If you want to know the legitimacy of an NFT, check its properties. No matter how many copies are uploaded, NFT properties can never be replicated.

3. Risky Industry

NFTs, just like any other investment, have risks. You should know that they’re not regulated by any state laws. Plus, the craze surrounding them may lead to volatility. You can buy an expensive NFT only to find out later that it’s not worth as much. Liquidity may also be an issue since they’re not easily exchangeable for cash.

4. NFTs Are Taxable

You’d be surprised to learn that you’ll owe tax if you sell an NFT for profit. Since NFTs are regarded as collectibles, they’re taxed at a capital gain. Also, if you’re trading NFTs with crypto or selling an NFT for another NFT, expect to be taxed. You’ll also be taxed when converting cryptocurrency into US dollars.

5. Signs Of An Underperforming NFT

If you’re not getting any utility or benefit from a project, that’s a sign your investment may be doomed. Therefore, if you’re not getting any substantial benefits from your NFTs, it indicates that all isn’t well. There’s no doubt that an NFT project can fail if it lacks liquidity, and that’s because you’ll need buyers in the future. You’ll also need a large community of users because, without it, there’ll be little to no trading of NFTs. As a result, such a project may fail to take off. 

Conclusion

NFTs may become valuable commodities in the future. Still, you should buy NFTs depending on your personal taste. It doesn’t have to be about money—most people buy and own NFTs because of passion and attachment. Experts recommend that you enjoy owning an NFT because the market is still unpredictable. However, its inherent value won’t decline.

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