If you haven’t already explored the topic, investing in digital art is one of the biggest things being talked about right now.
Artists, speculators, and collectors are flocking to this movement, particularly as digital assets, in general, are going up in price. While we, of course, don’t know for sure, it could be a new asset class with long-term staying power.
There are advantages of digital art for the artists themselves.
If you aren’t sure what an NFT is or how the concept of investing in digital art works, the following are things to know.
What Are NFTS?
One of the most important terms to understand is NFT, which stands for non-fungible token. An NFT is a way to guarantee ownership of a distinctive asset. This is typically a digital asset. Along with art, NFTs can guarantee ownership of a musical composition or something within a video game.
The tokens are managed on a blockchain, as well as being created on one, which is the same digitized ledger system that Bitcoin and other cryptocurrencies use.
Typically NFTs are based on the Ethereum network, but there are other blockchains NFTs use, too, like Polkadot and Solana.
These digital tokens are like virtual certificates. In the physical asset world, they’re like a certificate you might have to prove you own something like real estate. They’re digital proof of your own that are designed specifically for art and assets, but they can also guarantee ownership of physical assets, including collectibles and traditional, physical art.
The total value of NFTs grew from $100 million in 2020 to more than $21 billion in 2021.
The Bored Ape Yacht Club is one of the most famous collections right now. These are a series of apes with different personalities.
There are a lot of major brands that are getting into the marketplace. For example, Mercedes-Benz is working with NFT artists to create a collection, and Nike acquired a digital sneaker brand. There is talk about Walmart becoming part of the metaverse, with plans to offer a collection of NFTs and its own cryptocurrency.
Since an NFT is nonfungible, every token is unique and can’t be replicated.
These are like bits of information on a blockchain that is represented visually. If you purchase an NFT early on, the asset is limited and only available through you as the owner. The scarcity element is why these investments have a growing value over time, or at least that’s the hope.
Managing NFTs
The idea of managing NFTs is similar to how you would manage cryptocurrency. You can do it through an application. You do have to figure out a way to keep your tokens safe.
Your NFTs are held in a wallet. Within the wallet is a link that lets your content be displayed or transacted.
You can move your NFTs between marketplaces as long as they’re on the same blockchain and support the particular type of NFT.
Investing in Digital Art
NFTs, as mentioned, can represent a digital or physical asset. This can be intellectual rights or a title of ownership to an asset.
In the world of digital art, an artist creates an NFT, which can be traded on a marketplace.
There are other ways to leverage digital art as well.
The market is speculative, so people buy NFTs with the hope they’ll go up in value or be more valuable to someone else.
The common wisdom in investing of buy low and sell high applies for NFTs. You have to consider the fact that the value of your NFT could also go to zero. In some cases, you can flip an NFT almost immediately. Other times, you might hold onto it.
You have no way of knowing what the intrinsic value of your NFT investment is, unlike a bond or stock. The value of an NFT is based on what members of the community are willing to pay.
As an investor, if it’s something you’re considering, remember they are risk assets, so you want to figure out the right level of exposure for you. You should go into it with a certain amount of money you’re willing to invest.
You can also consider it similar, at least from an investment perspective, to a commodity asset like gold or silver, as well as traditional physical art. When you buy these things, they’re part of your portfolio, and they’re not liquid.
NFTs are similar to commodities in that they’re not correlated to any other market.
You can make legitimate investments into NFTs, but you need to be clear and strategic on what they’re being used for.
One of the biggest differences between an NFT and traditional art is the ability to display digital art on a marketplace where you can manage it.
Top Artists Right Now
CryptoPunks is one of the top-selling artists right now. The CryptoPunks was created by Larva Labs, and there are 10,000 pixelated and unique portraits of characters.
Larva Labs is an early NFT art success story. The CryptoPunk collection was originally given away at no cost in 2017 and has since gone viral.
Some of the portraits have been resold for millions of dollars.
Beeple is another top-seller. The artist is Mike Winkelman, who goes by Beeple, and is one of the top creators. The NFT image “Everyday: The First 5,000 Days” was auctioned by Christie’s for more than $69 million last year. That sale is what really put NFT art into the mainstream.
Every day Beeple releases a digital picture, and he’s been doing so for 13 years.
The Bored Ape Yacht Club, as mentioned, is a collection of 10,000 portraits of apes done in a comic book style. The pieces are collectible themselves but also give you digital membership to a virtual world of the ape characters.
The most expensive of these pieces have sold for millions.
Finally, another big name is Axie Infinity, which is a blockchain-based video game on the Ethereum network. Hundreds of thousands of players flock to the game daily, and the most expensive of the Axies sell for thousands of dollars in Ethereum.
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