I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.
See all posts Frank GogolWhat are NFT Stocks?
Updated on October 13, 2023
Written by
Written by
Reviewed by
Rohit Mittal
Reviewed by
Rohit Mittal
Rohit Mittal is the co-founder and CEO of Stilt. Rohit has extensive experience in credit risk analytics and data science. He spent years building credit risk and fraud models for top U.S. banks. In his current role, he defines the overall business strategy, leads debt and capital fundraising efforts, leads product development, and leads other customer-related aspects for the company. Stilt is backed by Y Combinator and has raised a total of $275M in debt and equity funding to date.
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At a Glance: NFTs, or non-fungible tokens, are digital assets that represent real-world objects such as art, music, and videos. They are bought and sold online using blockchain technology. NFTs are unique and have a one-of-a-kind value, creating digital scarcity. They allow buyers to own the original item and come with built-in authentication. NFTs function as collector’s items and can be held, verified, and transferred easily. Investing in NFTs carries risk, as their value is based on demand rather than traditional economic indicators. However, they offer opportunities for diversification and unique store-of-value assets in a portfolio. NFTs have implications for taxation and can revolutionize the art industry by providing artists with ownership and royalty opportunities.
Non-fungible tokens have received a lot of publicity in the last couple of years. We saw digital artist Beeple who ended up selling a piece of artwork for $69 million and Jack Dorsey’s tweet which sold for $2.9 million.
This is particularly important when the real-world item is digital. Everyone knows what Jack Dorsey said in the first tweet, and it’s easy to find a reproduction of the tweet. But only one person, the person with the NFT, owns the original Jack Dorsey tweet.
NFTs also provide artists more freedom. Artists can sell directly to the consumer and can program in royalties so they’ll receive a percentage of sales whenever their art is sold to a new owner.
This means that NFTs might be the future for modern art and other collector’s items.
What Are NFTs?
But what are NFT stocks? An NFT is a digital asset that represents a real-world object. Currently, most NFTs are representations of real-world art, music, in-game items, and videos.
NFTs are bought and sold online. They are encoded using the same blockchain software used by many cryptocurrencies.
While cryptocurrencies, like Bitcoin, are fungible, NFTs are non-fungible tokens. Bitcoin is a fungible asset because one Bitcoin is always equal in worth to another Bitcoin. You can exchange any two Bitcoins without losing anything.
A non-fungible asset is something that cannot be exchanged for anything else. It has a one-of-a-kind value.
NFTs are generally one of a kind and have unique identifying codes. Each token has a digital signature that makes it impossible for NFTs to be exchanged for or equal to one another.
This non-fungibility creates digital scarcity – a digital asset that cannot be reproduced or copied. An NFT allows the buyer to own the original item. It contains built-in authentication, which serves as proof of ownership.
In many ways, an NFT fulfills a similar purpose to physical paintings and statues. Sure, you can view images of Edvard Munch’s “The Scream” online. But that’s not the same as owning the original, is it?
In an investment portfolio, original artwork by a famous artist acts as a store of value. Owning “The Scream” not only gives you bragging rights, but it is also a way of easily storing $150 million.
How Do NFTs Work?
To understand what are NFT stocks you have to understand how NFTs work. NFTs exist on a blockchain. But this blockchain is not used to create a cryptocurrency. Instead, the blockchain network is used as a public ledger that records transactions.
Typically, NFTs are held on the Ethereum blockchain. An NFT is created from digital objects that represent both physical and intangible items. If someone wants to own it, you can create an NFT to address the demand. For example, Twitter co-founder Jack Dorsey sold his first tweet, the first tweet ever made on Twitter, as an NFT for more than $2.9 million.
Other common NFTs include:
- Art
- GIFs
- Videos and sports highlights
- Collectables
- Virtual avatars and video game skins
- Designer sneakers
- Music.
NFTs are collector’s items. But instead of getting an actual oil painting to hang on the wall – or the designer sneakers to display in the closet, or the music to play on the sound system – the buyer gets a digital blockchain token instead. An NFT is not about enjoying, appreciating, or using the asset. It is about having exclusive ownership rights.
NFTs can have only one owner at a time. NFTs’ unique data makes it easy to verify their ownership and transfer tokens between owners. The owner or creator can also store specific information inside them. For instance, artists can sign their artwork by including their signature in an NFT’s metadata.
Opportunities With NFTs
Just like with any collector’s item, the NFT’s investment opportunity comes from its resale value. Having possession of the NFT and holding it won’t bring you any returns like holding Bitcoin in your cash wallet could. But selling the asset to the highest bidder is what earns you big money.
NFTs have a unique advantage over physical collector’s items. The blockchain technology used to make an NFT means that there is no fraud or theft possible. Codes and authentication can prove and verify that the asset you have is legitimate. There is only one original.
Are NFT Stocks Right for Your Portfolio?
NFTs are a risky investment because their future is uncertain and we don’t yet have a long history of transactions that we can judge their performance on.
If you are looking for a store-of-value asset to include in your portfolio, NFTs might fit the bill. Especially if the piece holds meaning for you. However, make sure you compare the different cryptocurrency and blockchain investments properly before investing.
It is important to keep in mind that an NFT’s value is based entirely on what someone else is willing to pay for it. Like with a piece of art, demand will drive the price, rather than any economic indicators that typically influence stock prices.
Although this sounds risky because maybe you never find the right buyer, it is also an effective way of diversifying your portfolio. You get an asset that is not linked to the stock market’s ups and downs and can act as a counterbalance.
Investing in NFTs has specific tax consequences. Like any asset, they are subject to capital gains tax. But unlike traditional stocks, NFTs are classified as collectibles. This means you may not receive the preferential long-term capital gains rates that apply to stocks, or you may even be taxed at a higher collectibles tax rate.
Will NFTs Be The Future Of Modern Art?
Traditionally, any digital art that is posted online can easily be shared, saved, and downloaded. Anyone can use digital art freely. This creates a sense of community around the art, but no strong sense of ownership.
The easily shared nature of digital art makes it a hard field to make money in as an artist. Blockchain technology and NFTs afford artists and content creators a unique opportunity to monetize their wares. NFTs provide the opportunity to give digital art a sense of uniqueness. Its ability to ensure non-fungibility means true ownership of digital assets becomes possible.
NFTs also provide artists more freedom. Galleries and auction houses become obsolete when you can sell directly to the consumer. In addition, artists can program in royalties so they’ll receive a percentage of sales whenever their art is sold to a new owner.
NFTs in the modern art industry can only realize their full potential by creating regulators for the market. Currently, there is no rule deciding who can create NFTs and who cannot, which leaves the market vulnerable to fraudsters.
Read More
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- How to Read Crypto Charts
Conclusion
What are NFT stocks? An NFT is a digital asset, created in the blockchain, that represents a real-world collectible item. An NFT cannot be reproduced or copied. Owning an NFT means you can prove that you own the original real-world collectible item.
Frank Gogol
I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.