NFTs explained – What are they and are they worth the investment?

Published: 5 September 2022
Published: 5 September 2022

Move aside, Bitcoin! NFTs are the latest digital investment trend to generate wide-spread hype on the internet, but is it worth jumping on the bandwagon or are you better off taking a spectator’s seat?

Here’s what you need to know about NFTs, explained by our IT experts.

If you have ventured onto social media at any point in the past year or so, you will have most likely come across the term ‘NFT’. The first NFT was created in 2014, but this digital asset didn’t become popular until early 2021. Since then, NFTs have made it into the mainstream with the likes of Justin Bieber, Floyd Mayweather and Reese Witherspoon promoting them, and the most valuable assets racking up millions of pounds in sales.

NFTs explained simply

Although you may have heard NFTs mentioned alongside Bitcoin and cryptocurrencies, they aren’t the same. NFTs and cryptocurrencies are both digital assets that are powered by the same blockchain technology, but NFTs aren’t a type of currency.

NFT stands for ‘non-fungible token’. The ‘non-fungible’ part is the key to understanding how NFTs differ from cryptocurrencies – unlike Bitcoin, an NFT can’t be exchanged for a like-for-like replacement. While a single bitcoin is equal to any other single bitcoin, no two NFTs are alike.

NFTs can be used to tokenise both tangible and digital assets. Anything from real estate and physical artwork to in-game avatars and digital tickets can be purchased and therefore owned via NFT.

How do NFTs work?

Every NFT has a unique identifying code, which acts as a digital receipt of ownership and proves that you own that object. This has made NFTs especially popular for selling valuable, collectible items that could easily be duplicated or reproduced, like digital artwork.

Think back to your childhood and the days of swapping trading cards with friends – an NFT is like a rare Pokémon card, where only 1,000 copies were printed. Even though 1,000 versions of the same card were passing hands in playgrounds across the world, each card had its own distinct serial number to prove its authenticity.

The blockchain technology behind every NFT provides a digital record of its transaction history that can’t be hacked, deleted or altered. These digital transactions can be duplicated and shared when an NFT is bought or sold. This transaction history also offers an effective way to track the different stages within a supply chain.

How and where to buy NFTs

NFTs and cryptocurrency may be different but the latter is essential if you want to invest in the former. At the moment, the only way to buy NFTs is through an online cryptocurrency wallet.

You will need to set up an exchange account and choose an NFT marketplace (there are lots to choose from, so do your research before picking one!) Once you’ve done some virtual window shopping on the marketplace and found an NFT you would like to buy, you simply bid for it. If you’re the successful bidder, the transaction will be considered complete and you will be the new owner of that NFT. Your transaction will be logged securely in the blockchain and your digital private key will prove your NFT ownership. Easy enough, right?

Are NFTs worth the investment?

We’ll let you be the judge of that. Unless it’s encouraging you to take your business to the next level with our expert IT support and specialist services (a truly worthwhile investment!), we aren’t going to tell you how or where to invest your money. But if you’re still unsure whether investing in NFTs is right for you, have a read of our ‘pros’ and ‘cons’ list below.

Pros

  1. Proof of asset ownership
  2. Extremely secure blockchain technology limits the risk of loss, fraud and theft
  3. Diversifies an investment portfolio

Cons

  1. Currently very few buyers and sellers are using NFTs
  2. NFTs can’t generate revenue, while other investment types can
  3. Opportunities for scammers to exploit unsuspecting buyers and sellers
  4. Long-term environmental impact

The truth is NFTs are no different to most other types of investment – our boring but sensible advice is to look at your personal financial circumstances and do your research before investing.

If your plan is to purchase heaps of NFTs at random in the hopes of becoming an overnight millionaire, we’re not going to be the ones to crush your dreams but also you might want to prepare yourself for future disappointment.

However, if you’ve got your heart set on a particular asset that so happens to have been tokenised into NFT and you’re happy with taking a little financial risk, maybe investing in NFT is a good call for you. That’s for you to decide!

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