Cryptocurrency has been taking the world by storm and grabbing the attention of the masses this past year or two. While hot new crypto coins and tokens seem to be emerging every other day, the latest obsession in the crypto space is currently related to  NFTs (aka Non-Fungible Tokens).

For example, in March 2021, a group of NFTs produced by the digital artist Beeple were sold for over $69 million, marking the most expensive sale of digital art thus far.

NFTs might seem like an otherworldly concept right now, but after reading this guide, you should have a solid understanding of non-fungible tokens, while also learning how NFTs can prove to be a profitable investment opportunity. Are you ready to learn more about NFTs? If so, read on for the complete guide on NFTs.

Jump to a section:

• What is an NFT?

• How are NFTs Different from Cryptocurrency?

• How do NFTs Work?

• What Are NFTs Used For?

  • NFTs for Artists

  • NFTs for Investors

• Why Are NFTs So Popular

• Why Invest in NFTs

• The Pros and Cons of Investing in NFTs

• How to Invest in NFTs

• Popular NFT Marketplaces to Buy NFTs

• Final Thoughts

• FAQs

What is an NFT?

Understanding the NFT (Non-Fungible Token) meaning can be a bit challenging if you're new to crypto. However, we're here to help make it a little bit easier to navigate. The first step to understanding the NFT meaning is to know that an NFT or is a one-of-a-kind token that can’t be replaced or duplicated by something else.

NFTs are digital assets or tokens that certify an individual's ownership of unique items. Traded online, NFTs can be seen as modern-day collectibles that are exchanged with the help of blockchain technology.

Essentially, NFTs can be anything digital, from art, drawings, music, photos, videos, sports cards, and more. NFTs are a digital representation of a unique asset attached to cryptocurrency or, simply, a unique digital asset available for sale. Right now, most NFTs are built on the Ethereum blockchain technology.

NFT’s tend to be offered (bought and sold) on NFT marketplaces - of which there are a growing number. For example, OpenSea, Axie Marketplace. Axie Marketplace, Larva Labs/CryptoPunks, NBA Top Shot Marketplace, Rarible, SuperRare, Foundation, etc.

Ultimately, NFTs are digital assets that can be represented by both tangible and intangible items, including:

• Digital Art

• GIFS

• Videos

• Sports Highlights Videos

• Collectibles

• Virtual Avatars

• Video Game Skins

• Music

• Photos

• Tweets

• Songs

• Essays

• Domain Names

• JPEGs

In March 2021, Jack Dorsey, the CEO of Twitter and Square, sold a digital file of his first tweet for over $2.9 million. This digital asset or NFT is simply a digital file of Dorsey’s first tweet from March 2006, which reads, “just setting up my twttr.”

How Are NFTs Different from Cryptocurrency?

While there are a lot of differences between NFTs and other cryptocurrencies, the biggest differences you need to understand are the fungible and non-fungible parts. Both cryptocurrency and NFTs exist on blockchains. However, on these blockchains, cryptocurrency is fungible, and NFTs are non-fungible.

Fungible means that you are able to replace or be replaced by another identical item; therefore the items/assets are mutually interchangeable.

Regarding fungible cryptocurrency, for example one Bitcoin is always equal to one Bitcoin. Therefore, cryptocurrency can be traded or exchanged one for another, just like with traditional fiat currencies like the U.S. dollar or the Mexican peso. In comparison, NFTs are non-fungible, which means every NFT is unique, and cannot be the same or be exchanged for another duplicate.

How Do NFTs Work?

All NFTs exist on a blockchain. A blockchain is a digitally distributed, decentralized, public ledger that records transactions. Currently, most NFTs work or exist on the Ethereum blockchain.

In the cryptocurrency and NFT space, the term “minted” is important to understand to know how NFTs work. The term minted simply just refers to an NFT being created on a blockchain. So when someone talks about “minting” an NFT, they are simply just saying they or someone created an NFT by adding it to the blockchain.

What Are NFTs Used For?

The main purpose of NFTs is to buy and sell digital artwork in all of its forms. Of course, artists and investors have different perceptions of what NFTs are or should be used for.

NFTs for Artists

For artists, NFTs are a way to sell and make money from their art creations. For example, there are a few ways for artists to make money from NFTs, for example, by selling a unique, single digital art asset, or by making limited editions so that every time one of their NFTs is sold or changes hands after it is minted, they receive a percentage of each sale.

NFTs for Investors

For investors, NFTs serve multiple uses. For some investors, NFTs are used as collector items where owners plan to keep or hold an NFT for a significant amount of time. For other investors, NFTs are used to make a quick profit by purchasing at a low price and then turning around and selling it at a much higher price in a short amount of time.

Why Are NFTs so Popular?

A strong and renewed interest in cryptocurrencies combined with a recent boom in digital art, and the effects of the global pandemic forcing people even more into the digital sphere have come together to make NFTs a very hot topic.

NFTs offer a unique way for people to independently own digital content that are meaningful to them. They can be shared and exchanged on multiple platforms and belong exclusively to the owner until the person decides to sell.  An NFT is always unique and collectors can always prove ownership through built-in blockchain authentication.

The appeal is the ability to own THE "original" of the digital asset in much the same way one might own an original copy of a physical asset. But collectors have different motivations and not all are after the status or bragging rights of owning an "original." Some may just love a piece of art and want to have it for themselves. Others see ownership as a status symbol, and others as an investment opportunity.

Why Invest in NFTs?

While many skeptics in the NFT space don’t see any lasting value in these digital assets, the NFT space is just getting started and simply exudes untapped potential. Just as with physical art pieces, scarcity and collectibility are what drive NFT prices. Investors have already shown throughout 2021 that there is great potential in the NFT space, with many investors flipping NFTs and collecting massive profits within a very short amount of time. Just like with any investment, with proper research and risk management, NFTs can be a great investment opportunity.

Some notable NFT projects that sold for sizable gains throughout 2021 include:

• CryptoPunks #7804 - $7.5 million

• Jack Dorsey’s First Tweet - $2.9 million

• Rick and Morty NFT - $1.6 million

• The Viral YouTube Video “Charlie Bit My Finger” - $693,000

• A Video Clip of Bansky’s Artwork Being Burned - $380,000